Japan to Institute “Exit Tax” Along US, Canadian Lines

by Bruce Givner on June 18, 2015

Starting July 1 of this year, Japan will impose an “Exit Tax” on both Japanese nationals and non-nationals who expatriate. The tax is based on those instituted by both the US and Canada.

The US system, which is itself modelled on the Canadian tax, imposes a tax on the difference between the fair market value and the basis of assets at the date of expatriation. Special rules exist for retirement plans and other ordinary income assets.

In Japan, by contrast, the tax will apply to both expatriating Japanese nationals resident in Japan as well as certain long-term foreign residents. The goal of the tax is to prevent wealthy individuals holding securities with unrealized gain from avoiding Japan’s individual income tax by moving to countries like Hong Kong or Singapore which impose little or no tax on capital gains. Furthermore, the new rule will not only apply to exits, but also to gifts and inheritances of property.

To be eligible for the tax, individuals must be residents of Japan whose “financial assets” at the time of the departure have an assessed value of JPY 100 million (roughly $850,000) or more, and who meet certain residency requirements. The Exit Tax will apply only to taxpayers who have been Japanese residents for 5 or more of the 10 years at their date of departure.

Leave a Comment

Previous post:

Next post: