SEISEI INSIGHTS — Cross-border Compliance

The Exit Tax: Before You Leave Japan Holding ¥100 Million in Securities

2026-06-24

"I've built enough wealth in Japan — I'm thinking of going home." We repeatedly meet wealth holders who arrive with this plan and no idea that leaving itself can trigger tax. The securities are still unsold; yet taxation can arise the moment you depart Japan. This is the exit tax on departure — formally, the special rule for capital gains on leaving the country.

The Purpose: Closing the "Sell After You Leave" Gap

Securities that appreciate while you live in Japan could, if sold only after you relocate to a country with no capital gains tax, escape Japanese tax on that appreciation entirely. To prevent this, Article 60-2 of the Income Tax Act treats certain residents, at the moment of departure, as having deemed-sold their securities, and computes the resulting capital gains accordingly. Even unsold, the holdings are treated as sold for tax purposes — that is the structure.

Two Conditions for Application

The rule applies to a resident who meets both of the following (Income Tax Act, Art. 60-2):

The aggregate value of securities held at the time of departure is ¥100 million or more; and
The periods of having a domicile or residence in Japan within the 10 years before departure (as prescribed by Cabinet Order) total more than 5 years.

Where both are met, the unrealized gain becomes subject to capital gains taxation as a deemed sale. The rate is that applicable to capital gains, and the treatment of resident tax depends on the date of departure.

Two Ways Back

The exit tax includes relief calibrated to the taxpayer's situation.

Tax deferral (Income Tax Act, Art. 137-2). By providing security and following the prescribed procedure, payment may be deferred for 5 years (extendable to a maximum of 10). The deferral requires an annual continuation filing, and interest tax accrues over the deferral period.

Cancellation on return (Income Tax Act, Art. 60-2). If, within 5 years of departure (10 if the deferral was extended), you return to Japan still holding the same securities, the exit tax charged can be cancelled or reduced. This shows the exit tax is designed, in substance, as a mechanism that observes whether relocation is real.

Comparing the Options Structurally

Option	When tax arises	Character
A. Pay the exit tax and depart	At departure	Room for cancellation/reduction if you return
B. Sell before departure	At sale	Ordinary capital gains tax arises with certainty
C. Apply for deferral	Deferred (cancelled on return / paid if not)	Requires security, interest tax, annual filing

If a future return is certain, deferral (C) is often easier on cash flow; if no return is planned, whether A or B is preferable depends on the holdings, the embedded gain, and the destination's tax system. The key point: this is something to plan for within the year, not to discover at the airport.

Draw the Structural Diagram Early

Departure often moves in lockstep with the decision to relocate, and the tax analysis gets deferred. The valuation of your securities, your holding periods, the timing of departure, the likelihood of return — mapping these onto a single structural diagram is the starting point for avoiding an unexpected charge.

This article provides general information on tax systems and does not constitute individual tax consultation. Specific filings and tax computations are handled by licensed partner tax accountants whom we introduce.

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