The Journal The Authority on Global Business in Japan

As a new year begins, it’s time to start preparing for your Japanese individual income tax filing. Here’s what you need to know—including some key changes and potential risks—to avoid a bumpy road come March.

SELF-FILING

You are required to file your own income tax return if:

  • Your employment income for the year 2017 exceeds ¥20,000,000.
  • Year-end tax adjustment has been completed on your employment income, but you have other income that exceeds ¥200,000.
  • You receive employment income overseas.
  • You have income from interest, dividends, real estate, or other sources overseas.
  • You receive share-based compensation such as stock options, restricted stocks, or restricted stock units.
  • You want to deduct medical expenses, donations, or home mortgage credit.
  • You earn income from real estate or business in Japan.

CHANGES

  1. Earned Income Deduction for Employment Income
    This deduction is being reduced from ¥2,300,000 on employment income over ¥12,000,000 in 2018 to ¥2,200,000 on employment income over ¥10,000,000 in 2019.
  2. Self-Medication Tax Deduction
    You may qualify for the self-medication deduction if you or your family spend more than ¥12,000 per year on over-the-counter (OTC) drugs. To qualify, you are also required to maintain or improve your health by participating in regular medical examinations, vaccinations, screening for metabolic syndrome, etc. This deduction is capped at ¥88,000 per year. The self-medication logo is printed on OTC drug packages, and may be printed next to OTC drug items on receipts.

CAUTIONS

  1. Declaring Deductions for Dependents Living Overseas
    You must provide documents issued by a competent authority that verify your relationship with the overseas family member who you wish to claim as your tax dependent, as well as remittance documents that verify the financial support you provide.
  2. Overseas Asset Reporting and Assets & Liabilities Reporting
    If you are a foreign national who has been in Japan for more than five years, you are classified as a permanent resident for tax purposes. You are required to submit an Overseas Asset Report if you are a permanent resident and have foreign assets with a value of more than ¥50 million. You are required to submit an Assets & Liabilities Report if you are: 1) Required to file your own tax return (includes non-permanent residents); 2) Have total annual income of more than ¥20,000,000; and 3) Have assets valued at more than ¥300,000,000 or securities of more than ¥100,000,000 as of December 31, 2017. An additional five-percent tax will be imposed if you fail to file these reports and this is discovered during a tax audit.

INCREASE IN TAX AUDITS

Beginning in 2017, the National Tax Agency is stepping up investigations of high net-worth individuals and taxpayers with international transactions—especially of undisclosed financial assets held overseas. Due to complex tax requirements, those with overseas financial assets are advised to seek advice from a tax professional. If undeclared assets or income are discovered during a tax audit, interest, penalties, and additional taxes will be imposed.

Yukiteru Abe is a director at Grant Thornton Japan’s Global Mobility Services, providing tax solutions to globally mobile employees, global businesses, and high-net-worth individuals with overseas assets. Abe was an auditor, investigator, and tax consultant at the Tokyo Regional Taxation Bureau for 38 years before joining Grant Thornton.

For more information, please contact your Grant Thornton representative at +81 (0)3 5770 8829 or email us at tax-info@jp.gt.com

www.grantthornton.jp/en

Yukiteru Abe is a director at Grant Thornton Japan’s Global Mobility Services, providing tax solutions to globally mobile employees, global businesses, and high-net-worth individuals with overseas assets. Abe was an auditor, investigator, and tax consultant at the Tokyo Regional Taxation Bureau for 38 years before joining Grant Thornton. www.grantthornton.jp/en