Tax on Japan-source income remitted to another country

[cnr]

Searched the sub, wiki, and various sources, but haven't been able to find a clear answer, so hoping someone here can help.

If a non permanent tax resident of Japan were to remit Japan-source income (net income from regular company employee salary, after tax) to country X and subsequently spend that money within country X 1 year later (e.g. buy a car in country X), where the currency has appreciated against the yen at that point in time, would they be liable to pay taxes to Japanese tax authorities on the gain, despite the money (and purchase) never reentering Japan?

Additional details

• Non permanent tax resident
• In Japan less than 5 years
• Not a US citizen, nor taxpayer

Edit: this person would continue to be a tax resident of Japan throughout the whole hypothetical situation (and beyond). No physical moving between countries at all, just an online purchase.

 

[kristhuy]

@cnr Foreign currency, like cryptocurrency, is deemed to exist wherever the owner is a tax resident (for the purposes of exchange gains/losses), regardless of where it is stored or sent. So if the JPY value of the foreign currency in your example has increased by the time it is spent, and the person is still a Japanese tax resident, the gains will be taxable in Japan.

 

[cnr]

@kristhuy Thank you for clarifying!

This was my concern actually, since I have transferred a fair amount to my home country from Japan net income, which joins some other cash I already held there that was being used to regularly send small payments to family members (outside of the deduction for dependents). Since cash is considered fungible by Japan (if I understand it correctly), this might turn out to be a nightmare in terms of tracking the source of funds for said transactions alongside currency fluctuations, even though I guess it would likely fall within the realm of gift tax.

Was also considering buying a car for my parents, hence the question.

Perhaps it would be easiest (from a tax perspective) to gift cash to each of my parents, to help with the car purchase?

Any ideas on an efficient strategy here? Is there anything else I've missed, or misunderstood?

 

[kristhuy]

@cnr The critical fact for your situation is that gifts of foreign currency are not taxable events for the donor. (The rule for cryptocurrency was changed from 2019, fwiw, but they never changed the rule for foreign currency.)

So your suspicion is right that gifting cash to your parents may be the easiest, since you aren't realizing a foreign currency gain when you gift cash, whereas you would be realizing a gain if you bought the car yourself.

One potential problem in that case may be gift tax, even if you're here on a work visa (i.e., limited taxpayer), because it's possible that the "gift" could be deemed to consist of the JPY in your Japanese bank account (i.e., the transfer overseas could be seen as merely a method of gifting rather than a separate transaction).

But I think as long as you're regularly transferring money overseas for purposes other than gifting to your family, the initial transfer and the gift can probably be treated as separate transactions, which would exempt the recipient from Japanese gift tax (unless you're on a spouse/child/LTR/PR visa).

 

[cnr]

@kristhuy I see! Thank you for the in-depth reply!

So, based on this, I could potentially gift up to ¥1.1MM JPY to each parent this year, to avoid any issues with realising currency and also gift tax, then ask them to cover the rest while expecting another gift of the same amount (or the balance of the car cost, whichever is less) the following year.

 

[kristhuy]

@cnr Yeah in practice that would probably be ok, but theoretically there's a problem with promising someone a gift in future years. Specifically, it becomes taxable when you make the promise, not when you transfer the funds. So ideally you wouldn't promise the entire amount in advance.

 

[cnr]

@kristhuy Ah ok, I see, thanks for the additional info! I’ll be sure not to promise anything then.

 

[rogueebear]

@cnr 1 year later, Would the individual still be a tax resident of Japan?

 

[cnr]

@rogueebear Yep, they'd still be living in Japan, in the same situation as the 'additional details' section.