2012 statement defines items that must be reported to authorities
• Penalty of up to 35% can be levied
• Reporting threshold set at ¥50mn
• First deadline in March 2014
“Statement of Property Located outside Japan” is a new reporting system introduced in the 2012 set of tax reforms. It became effective in 2013 and the first reporting deadline is 17 March 2014.
The number of overseas properties owned by Japanese has been on the rise recently.
For example, investment in overseas securities and the balance of foreign currency deposits increased from ¥10.1trn in 2000 to ¥14.4trn in 2010.
Previously, measures were taken to collect information on overseas properties by having the owners file a statement of assets and liabilities.
Persons who earned more than ¥20mn would file this statement as an attachment to their individual income tax return. Banks were also required to file a payment report for overseas remittances exceeding ¥1mn.
However, collecting information on overseas properties was difficult and insufficient, due to jurisdiction challenges and other constraints.
There are a growing number of cases in which income gained from overseas properties has not been properly reported in income tax returns. And, increasingly, overseas properties are being omitted in inheritance tax returns.
Under such circumstances, appropriate taxation support for overseas properties was a critical item in the 2012 tax reforms; hence the “Statement of Property Located outside Japan” (hereinafter the Statement) was introduced to target those individuals who own a certain amount of property abroad.
Residents (excluding non-permanent residents) who possess overseas properties valued at more than ¥50mn as of 31 December must submit a Statement to a tax office to report the type and amount of overseas property they own, as well as other pertinent information, by 15 March of the following year.
In the case of 2014, because the date falls on a weekend, the deadline will be Monday, 17 March.
Who is required to file?
The obligation to file applies to residents (excluding non-permanent residents) of Japan.
“Resident” is a legal term used in the individual income tax code to define an individual who has a domicile in Japan or has been living in Japan for a year or more until the present.
“Non-permanent resident” is also a legal term. It defines a resident without Japanese nationality who has not lived in Japan more than five of the previous 10 years.
Therefore, people without Japanese nationality become subject to the filing obligation once they have resided in Japan longer than five years.
Evaluation of property
As already mentioned, a filing obligation applies when a qualifying resident owns overseas properties worth, as of 31 December, more than ¥50mn.
This figure refers to the property’s market price, based on the actual value of the property, not the acquisition price.
When it is difficult to obtain a market price for overseas real estate, reasonable estimates of prices are permitted.
Determination of whether property qualifies as being in or outside Japan depends on the type of property in question.
Real estate is assessed by its physical location, or the financial deposits made by the location of the office in charge.
Shares, bonds and other securities are judged, in principle, according to the location of the head office of the corporation that issued them.
However, those instruments issued under the custody of a securities firm are assessed by the location of the branch office that actually issued them.
For example, shares issued under a foreign office of a securities firm are considered overseas properties regardless of their components.
Hence, if such shares are issued by a branch office located in Japan, they are viewed as domestic properties.
Stock options given by a foreign corporation are overseas securities, but they only need to be reported in the Statement when they are enforceable as of 31 December. Values are calculated by subtracting the exercise price from the market price as of 31 December.
For those individuals who are required to file, the Statement should be submitted by 15 March of the following year to the same tax office that a person uses to file their individual tax returns, or a tax office that administers a person’s domicile if the person has no tax-filing obligation.
The format for filing is specified on the National Tax Agency’s website, and it can be downloaded directly from www.nta.go.jp.
Penalties and relief
Penalties will be imposed on persons who submit late or incorrect returns or fail to file altogether.
Such persons may incur a basic penalty tax of up to 15% on deficient returns, and an additional tax of up to 20% for either no return or returns received after the due date—for a total penalty of up to 35%. However, taxpayers may be eligible for a 5% deduction from the total penalty if a proper Statement is submitted prior to their return.