The meeting takes place in an undisclosed, luxurious, but bustling hotel lobby in Tokyo.
Head Tax Native (“TN”):
Secret Private Client Adviser in Japan, your mission, should you choose to accept it, is to educate us on the practical tax considerations in Japan.
This task requires a delicate balance of expertise and discretion.
Be warned, should your real identity be revealed during this covert operation, you will be disavowed by Tax Natives and shunned by your fellow private client advisers.
Do you accept?
Secret Private Client Adviser in Japan (Secret Adviser):
I accept.
TN:
[Sitting comfortably in a plush leather lobby chair] So, let’s dive into the intriguing world of tax law. Can you tell us how an individual becomes taxable in Japan?
Secret Adviser
[Leans forward, eager to explain] Absolutely. In Japan, it all hinges on two things: residence and source of income.
The Income Tax Act is the main player here. If you’re domiciled in Japan or have been living there for over a year, you’re considered a resident for tax purposes.
TN:
[Nods, taking a sip of water] And what about non-residents?
Secret Adviser
Well, if you’re not a resident, you’re a non-resident. Simple, right?
They’re only taxed on income sourced in Japan.
TN:
[Chuckles] That does sound straightforward. What about permanent and non-permanent residents?
Secret Adviser
[Counts on fingers] Permanent residents, including non-Japanese who’ve been there for five out of ten years, are taxed on their worldwide income.
Non-permanent residents, who’ve been there less than five years, are taxed only on income from Japan or remitted to Japan.
[A waiter suddenly appears, offering a tray of pastries.]
Waiter:
[Cheerfully] Complimentary pastries for our esteemed guests!
TN:
[Surprised but delighted] Oh, how lovely! Thank you.
[A tourist approaches, map in hand, looking confused.]
Tourist:
Excuse me, could you direct me to the Imperial Palace?
Secret Adviser
[Pointing] Sure, it’s straight down the road, then left at the big intersection.
Tourist: [Gratefully] Thank you so much!
Secret Adviser:
[Laughs] All part of the service!
TN:
[Also laughing] Is your tax advice as efficient as your directions?
Now, back to tax. What about inheritance tax?
Secret Adviser
[Nods] Inheritance tax is imposed on heirs and donees under the Inheritance Tax Act. It’s based on residence, nationality, and where the assets are.
TN:
[Intrigued] And income tax?
Secret Adviser
Apart from income tax, there’s also a special reconstruction tax and local inhabitant taxes. The total tax rate can hit up to 55.945%.
TN:
[Raises an eyebrow] That’s quite a number. Capital gains?
Secret Adviser:
Capital gains get the same treatment, with a tax rate of 20.315% until 2037.
But, selling real estate held for less than five years? That’s taxed at 39.63%.
TN:
[Curious] And what about gifting?
Secret Adviser:
[Nods] Gifts to individuals attract gift tax, but gifts to legal entities mean corporate income tax for the recipient and deemed capital gains tax for the donor.
TN:
[Glancing at a luxurious watch] This is fascinating. Real property taxes?
Secret Adviser:
On acquiring real property, you’re looking at acquisition, registration, and license taxes. And if you hold it, there’s a fixed assets tax.
TN:
[Impressed] Wow, comprehensive indeed. What about non-cash assets?
Secret Adviser:
No taxes on exports, but imports attract customs, duties, and a 10% consumption tax.
TN:
[Smiling] Thank you for this insightful chat. Japan’s tax system seems as intricate as it is interesting!
Secret Adviser:
[Grinning] Happy to share. Japanese tax law is never dull!
[They both stand up, shaking hands, as the lobby bustles with guests and staff.]
Tapping out
If you have any queries about this top secret interview on private client tax in Japan, or Japanese tax matters in general, then please get in touch