The Journal The Authority on Global Business in Japan

Advocacy is a key part of the mission of the American Chamber of Commerce in Japan (ACCJ). Through our network of committees, we work proactively to improve the environment for US companies in Japan, from industry-specific concerns to broader issues that affect all members.

A good example of the latter is taxation of US citizens, perma­nent residents, and US-owned businesses in Japan, which affects individuals as well as companies large and small. Led by the Taxation Committee, the ACCJ has been advocating on Japanese tax rules in partnership with other associa­tions and has seen positive results in areas such as inheri­tance tax. While Japanese tax issues remain a focus, we are also sharpening our focus on the consequences of recent US tax reform that pose potential challenges for ACCJ members­—smaller companies in particular.

TRANSITION TAX AND GILTI
Introduced as part of the Tax Cuts and Jobs Act of 2017, the transition tax and GILTI, which stands for global intangible low-taxed income, may result in double-taxation of US citizens who own small businesses in Japan. These businesses are not the intended target of these rules. The transition tax is a one-time tax on pre-2018 unremitted accumulated earnings generated by certain foreign corporations. On June 4, 2018, the US Internal Revenue Service announced that the first payment of the US transition tax will be delayed by one year for US business owners overseas who have a total transition tax liability of less than $1 million. Election to pay in eight annual installments, however, still must be filed together with your 2017 US tax return, and interest will still accrue from the due date of the first installment.

GILTI is an anti-tax deferral rule that requires US share­holders of certain foreign corporations to annually include in their taxable income the excess earnings over a stipulated rate of return from the tangible assets of a foreign corporation.

Both the transition tax and GILTI may impact you, but, as always, please consult with US tax professionals for further advice and whether this will apply to your situation.

RESIDENCY-BASED TAXATION
Unlike most countries, the United States continues to tax individuals based on citizenship rather than residence. Not only does this impose significant burdens on US citizens and permanent residents living and working in Japan, it makes them less competitive compared with their non-US citizen and permanent resident counterparts.

NET INVESTMENT INCOME TAX
Current foreign tax credit rules do not allow foreign taxes to be credited against the Net Investment Income Tax. This leads to double taxation of individuals earning investment income abroad.

FATCA and FBAR
US citizens and small businesses in Japan face costly and complicated procedures in efforts to comply with the Foreign Account Tax Compliance Act (FATCA) and Foreign Bank Account Report (FBAR).

The ACCJ Taxation Committee is submitting technical input to the US government outlining the effects of the 2017 US tax legislation on US citizens and businesses in Japan.

They are also working to write and revise their viewpoints on the issues. In collaboration with the Asia–Pacific Council of American Chambers of Commerce (APCAC), the ACCJ’s goal is to effect positive change and alleviate the burdensome and, in some cases, unfair and unintended consequences of US tax legislation. With ACCJ Vice President Marie Kissel now serving as APCAC chair, the opportunity to shape tax advocacy at the regional level is greater than ever.

To supplement its efforts, the Taxation Committee is encouraging ACCJ members to submit personal stories. While we address the issues listed here as an organization, the advocacy process is most effective when policymakers receive the same messages through multiple channels. Please contact your home state senator or representative to share how current tax legislation is affecting you and/or your business.

If you have any questions, please contact the Taxation Committee through the ACCJ staff at external@accj.or.jp

If you are a smaller-company member concerned about the potential impact of these rules, please contact the ACCJ Small Company CEO Council to ensure your voice is represented: membership@accj.or.jp

Sachin N. Shah is ACCJ President.
We are also sharpening our focus on the consequences of recent US tax reform that pose potential challenges for ACCJ members­—smaller companies in particular.