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Japan to impose tax on wealthy expatriates

Japan to impose tax on wealthy expatriates

TOKYO: Japan has decided to impose taxes on wealthy individuals who leave the country and settle abroad, so that they can have advantages of lower rates.

The government and ruling party lawmakers are considering an “exit tax,” under which people with over ¥100 million ($857,000) in financial assets would have to pay a tax on any unrealized capital gains on those assets if they moved out of Japan.

Such a rule would prevent wealthy individuals moving to a location where taxes are low–such as Singapore or Hong Kong–where they could sell those assets and pocket the gains without paying millions or even billions of yen in taxes.

The new tax is being considered for inclusion in the government’s year-end tax proposals to be announced on Dec. 30.

While the tax would seek to deter wealthy individuals moving to another country simply to avoid taxes, some expats in Tokyo are concerned the rule could make companies think twice about sending senior professionals to Japan or make Japanese entrepreneurs more reluctant to go abroad.

Some foreigners working in Japan could now have more than ¥100 million in financial assets given the sharp decline in the yen or if a wide range of assets were covered by the law.

“We are aware and engaged with the authorities on this,” the International Bankers Association of Japan, which represents foreign banks and securities firms in Japan, said Thursday in response to a request for comment.

We would like an outcome that targets tax evaders, but does not inadvertently capture other groups who may contribute to the growth of Tokyo as a financial center and the vitalization of the Japanese economy.”

People with knowledge of the discussions over the exit tax say that government officials are considering limiting which foreigners would be covered, and say the finance ministry expects the law would likely only affect several hundred individuals.

The idea was floated by the finance ministry in response to the Organization for Economic Cooperation and Development’s push to stamp out global tax evasion. A spokesman for the ministry said the idea was still under consideration currently but no specifics had been decided.

Other Group of Seven countries, including Germany, France and the U.S, have similar regulations. In the U.S., people who give up citizenship have to pay an “exit tax.” People who emigrate from France have to pay a capital gains tax if they have over €800,000 in shareholdings, unless they hold on to those shares for 15 years after moving.

Taxation of Japanese individuals living overseas has been a topic of debate in Japan since a wealthy taxpayer won a historic case in 2011. Japan’s Supreme Court granted a ¥200 billion tax refund to Toshiki Takei, the son of the founder of a consumer finance company. The court ruled that the Japanese government did not have the right to tax a gift of shares from his father in 1999 because Mr. Takei was a resident of Hong Kong at the time.