We would like to see when foreigners will be taxed in Japan when they transfer their shares and earn income. Simple question, but the answer would be unexpectedly complicated.
Foreigners, non-permanent residents are discussed here.
Non-permanent residents are individuals who do not have Japanese nationality and have had an address or residence in Japan within the past ten years for a total of 5 years or less.
The scope of taxation for non-permanent residents is as follows;
(1) Income other than foreign source income (non-foreign source income)
(2) Foreign source income paid in Japan or remitted from abroad
Transfers of shares classified as ‘foreign-source income’ are enumerated in the Income Tax Act on a limited basis. If it falls under this category, it is exempt from taxation if no remittance is made. If it is a non-foreign source income, it is taxable regardless of whether or not remittances are made.
The transfer of shares listed as foreign source income is one of the following:
1) Certain transfer of shares in the foreign financial instruments market
2) Certain transfer of shares issued by a foreign corporation that will be subject to tax in that country where the foreign corporation’s head office is located
3) Transfer of shares of foreign real estate-related corporations (Item 5)
4) Transfer of shares of corporations that own or operate golf courses outside Japan (Item 6)
5) Transfer of the Right to use golf courses and other facilities outside of Japan (Item 7)
In this article, we will look at the detail regarding 1) certain transfers of shares in the foreign financial instruments market.
The stocks here include both issued by Japanese companies and foreign companies (Article 17, Paragraph 1 of the Ordinance for Enforcement of the Income Tax Law).
The transfer of shares in the foreign financial instruments market means the following;
A: Transfer in the foreign financial instruments market
B: Transfers made on commission to a foreign financial instruments firm
C: Transfers recorded on accounts provided by foreign financial instruments and taken into custody
“Foreign financial instruments”
include foreign securities companies and foreign branches of Japanese securities companies.
It does not include a transfer by a Japanese branch of a foreign securities company or a domestic office of a Japanese securities company (Commentary on Ministry of Finance 2017 Tax Revision).
And whether foreign-source income or not depends on the resident status and the time the shares were acquired.
Note: “foreign source income” will be taxable if it is paid domestically or remitted from abroad.
|Purchase during a non-permanent resident period
|Purchase during other than a non-permanent resident period
|Purchase within 10 years
|(d) Purchase after April 1, 2017
→ Non-foreign source income (taxable)
(a) Foreign source income (Not subject to tax)
|(c) Acquired before March 31, 2017
→ Foreign source income (Not subject to tax)
|Purchase more than 10 years ago
|(b) Foreign source income (Not subject to tax)
This table shows the provisions of Article 17 (1) of the Income Tax Act Enforcement Ordinance, Article 3 of the Supplementary Provisions (March 31, 2017), and Basic Circular 7-1.
How to read the above table
(a) If you acquired the shares during a period other than a non-permanent resident. Regardless of how many years ago you purchased it, the income from the transfer is regarded as a foreign source income, which is not taxable.
(b) Acquisition of shares during the period of non-permanent residents and the purchase was more than 10 years before the transfer. The income from the transfer is regarded as a foreign source income, which is not subject to tax.
(c) Acquisition of shares during non-permanent residency and acquisition within 10 years before transfer and purchase before March 31, 2017. The income from the transfer is regarded as a foreign source income and is not subject to tax.
(d) Acquisition of shares during non-permanent residency and acquisition within 10 years before transfer and purchase after
March 31, 2017.
Roughly, transfers of shares acquired after coming to Japan that were acquired relatively recently are taxed in Japan.