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Japan Individual - Significant developments

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Japan non-permanent residents to be taxed on sale of personal property outside of Japan

Effective 1 January 2017, there will be an increase in scope of taxation of non-permanent resident taxpayers of Japan. Income from sale of personal property located outside of Japan will be taxable in Japan even if the proceeds are not remitted to Japan.

The 2017 Japan Tax Reform Proposals, which were released on 8 December 2016, provide a potential exemption on the issue of capital gains taxation on foreign-transacted securities sales for non-permanent residents, but the new rule on income from sale of other personal property will still apply.

Lower cap on employment income deduction

Employment income deduction is calculated as a certain percentage of annual employment earnings, and is currently capped at 2.45 million Japanese yen (JPY). This cap will be further lowered from the 2016 national income tax calculation as summarised below:

Employment income deduction cap Current cap (JPY) Cap for 2016* (JPY) Cap for 2017 and following years** (JPY)
Employment earnings that reach the cap 15 million 12 million 10 million
Maximum employment income deduction 2.45 million 2.3 million 2.2 Million

* This cap of JPY 2.3 million will apply to the 2017 local inhabitants tax, which is calculated based on 2016 income.

** This cap of JPY 2.2 million will apply from the 2018 local inhabitants tax calculation based on 2017 income.

Taxation of stock options upon sale to issuer

Grant of certain stock options is taxed when the options are exercised. Under the 2014 Tax Reform, proceeds from a sale of stock options to the issuing company are taxed as business income, employment income, retirement income, occasional income, or miscellaneous income (i.e. not subject to capital gains tax).

Loss from the sale of golf club membership

Loss from the sale of an asset that is normally not used for daily life is not allowed to offset ordinary income. Before the 2014 Tax Reform, a golf club membership was not categorised as an 'asset that is normally not used for daily life', and a loss from its sale could offset other income. Under the 2014 Tax Reform, a golf club membership is categorised as an 'asset that is normally not used for daily life'. This change applies to the sale of a golf club membership on or after 1 April 2014.

New reporting requirement on transfer of securities to/from an offshore account

A financial institution in Japan is subject to a new reporting requirement when securities are transferred between domestic and offshore accounts. This change will be effective for the transfer of securities on or after 1 January 2015.

Expansion of tax exemption rule for listed shares managed in an exempt account (i.e. the Japanese tax-free individual savings account [NISA])

In addition, under the 2013 Tax Reforms, the tax exemption rule for dividend income and capital gains arising from listed shares held in an exempt account was expanded as follows:

  • The period for opening an exempt account will be from 1 January 2014 to 31 December 2023.
  • Where the acquisition cost is JPY 1 million or less per year in total, the tax-exempt period will be five years (i.e. total acquisition cost is capped at JPY 5 million).

Last Reviewed - 15 August 2017

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