Frequently Asked Questions
Japan’s Exit Tax — Where the ¥100 Million Line Falls
This comes up in every conversation about leaving Japan. Because the tax falls on unrealised gains in shares you have not sold, it can create a liability with no cash behind it. The regime was introduced in the 2015 tax reform and applies to departures, gifts and inheritances on or after 1 July 2015.
Who is subject to the exit tax?
A resident who meets both of the following tests. Meeting only one does not bring you within the regime.
- The total value of covered assets held at the time of departure is ¥100 million or more;
- As a rule, the total period of having an address or place of residence in Japan within the 10 years before the date of departure exceeds five years.
“Departure” means ceasing to have both an address and a place of residence in Japan. Someone who has spent a few years in Japan on a work visa often falls outside the second test; for long-term residents, only the asset test is in play.
Source: 国税庁 タックスアンサー No.1478
What counts as a “covered asset”? Does real estate count?
Securities (shares, investment trusts and the like), interests in silent partnership (tokumei kumiai) contracts, unsettled margin and when-issued transactions, and unsettled derivatives. Real estate is not in that list.
The ¥100 million test is applied to the total of these covered assets. For unsettled margin and derivative transactions, the amount is the profit or loss computed as if the position had been settled. Note that the test is not on total net worth — only on the enumerated categories.
Source: 国税庁 タックスアンサー No.1478
What exactly is taxed?
The covered assets are deemed to have been transferred at the time of departure, and income tax is charged on the unrealised gain. Tax arises even though nothing has been sold.
If a tax agent has been notified, the filing and payment are made by the filing deadline for the year of departure. Without such a notification, a quasi-final return and payment covering 1 January to the time of departure are required by the time of departure. For each year from 2013 to 2037, the special reconstruction income tax (2.1 percent of the base income tax amount) is filed and paid together with income tax.
Source: 国税庁 タックスアンサー No.1478
Can payment be deferred?
Yes. With the required procedures, payment can be deferred for five years from the date of departure, extendable to a maximum of ten years by filing an extension notification.
All of the following are required. Missing any one of them means no deferral.
- Notify the competent tax office of a tax agent before departure;
- State in the return that the deferral is being claimed;
- Attach the prescribed documents, including the schedule of covered assets;
- Provide security equal to the deferred income tax and interest tax by the filing deadline.
During the deferral you must keep filing a “continued application notification” by 15 March each year for assets held as at 31 December. Miss it and the deferral ends four months after that deadline. When the deferred tax finally falls due, interest tax for the deferral period is payable as well.
Source: 国税庁 タックスアンサー No.1478
If I come back, is the tax cancelled?
It can be. If you return within five years of departure (ten where an extension notification was filed), the charge can be cancelled for covered assets still held at the time of return.
A request for correction or an amended return must be filed within four months of the date of return. Cancellation is not available for income based on facts that were concealed or disguised in computing the income.
Cancellation may also be available without a return — for example where covered assets are gifted to a resident within five years of departure, or where the person dies within five years and all heirs and legatees become residents.
Source: 国税庁 タックスアンサー No.1478
Can the tax arise even if I never leave?
Yes. Even without departure, where covered assets are transferred to a non-resident by gift, inheritance or bequest, they are deemed transferred at that time and the unrealised gain is taxed.
This is the “exit tax on gift or inheritance”, and together with the departure charge the two are known collectively as the exit tax regime. It catches people unexpectedly in familiar situations: gifting shares to a child living abroad, or having an heir who is resident overseas.
Source: 国税庁 タックスアンサー No.1478、国税庁 タックスアンサー No.1467（贈与時課税）
What this page does not cover
It does not cover computing the unrealised gain, preparing returns, selecting and lodging security, or the mechanics of the notifications during deferral. Those fall under Article 2 of the Certified Tax Accountant Act and are handled by our partner licensed tax accountants. What we work on is the design question upstream: how the holding entity and asset mix should be reorganised before departure.
Primary sources
Related services and questions
- Corporate Structuring
- China–Japan Cross-Border Wealth Structure
- Overseas asset reporting and CRS
- The inheritance tax “10-year rule”
Get in touch
By the time departure is imminent, there is almost nothing left to do about the exit tax. The time to talk is when relocation is still being considered. ceo@seisei.tokyo
SEISEI provides financial and management consulting. It does not constitute tax representation, preparation of tax documents, or tax consultation as defined in Article 2 of Japan’s Certified Tax Accountant Act. Filings and tax computations are handled by partner licensed tax accountants (zeirishi).