How do people leaving Japan and foreign corporation without a Japanese office handle Japanese tax procedures? The answer isTax Agent. Although this system attracts little attention,failing to appoint one can have adverse consequences.

Statutory definition

Article 117, paragraph (1), of the Act on General Rules for National Taxes.

Where an individual taxpayer does not have, or will cease to have, both domicile and residence (excluding offices and places of business) in the territory where this Act applies, or a corporate taxpayer whose head or principal office is outside that territory does not have, or will cease to have, offices and places of business there, and it is necessary to handle tax returns or other national tax matters, the taxpayer must appoint a tax agent from among persons domiciled or resident in that territory who are suitably placed to handle those matters.

Three Points Deserve Attention.

Notification

Paragraph (2) of the same Article.

When appointing a tax agent under the preceding paragraph, the taxpayer must notify the director of the tax office with jurisdiction over the relevant national tax payment location (or, where the agent handles only consumption tax on imports from bonded areas, international tourist tax, or similar matters, theDirector of Customswith jurisdiction over the tax payment location). The same applies upon dismissal of the agent.

The Procedure Includes Notification, Not Just Appointment.Dismissal must also be notified.

What Happens If You Do Not Notify?

Paragraph (3) Onward Addresses Failure to File the Notification.

Paragraph (3) allowsthe regional taxation bureau director or tax office directorto specify matters deemed necessary for a tax agent to handleas prescribed by Ministry of Finance Order,(specified matters) andto request in writing that notification be filed by a designated date, set within 60 days with regard to the time ordinarily needed for preparation.That is the consequence.

Paragraph (4) allows the regional taxation bureau director or tax office director to request that a person domiciled or resident in Japan and suitably placed to handle specified matters (adomestic facilitator) become a tax agent,by written requestThat is the consequence.

Paragraph (5) provides that, where the specified taxpayerby the designated datehas not filed the notification,a person among the requested domestic facilitators belonging to a statutory categorymay be designated as the tax agent to handle the specified matters (aspecified tax agent). For individual taxpayers, the three listed categories are as follows.

(a) An adult spouse or other relative sharing the specified taxpayer's livelihood

(b) A person closely connected by contract with the specified taxpayer to facts underlying the calculation of the tax base or tax amount for the taxpayer's national taxes

(c) A business operator providing a platform through which the specified taxpayer continuously or repeatedly conducts transactions using electronic information processing systems or other transactions

For corporations, the categories include corporations linked by direct or indirect ownership of at least 50% of issued shares or interests,“Other special relationships prescribed by Cabinet Order”as well as officers and adult relatives sharing their livelihood.

Family Members Remaining in Japan or Transaction Platform Operators May Be Designated.Do not leave the matter unattended.

What to Check First

The obligation under Article 117, paragraph (1), ariseswhen tax returns or other national tax matters need to be handled. Departure itself is not the trigger.

Against that background,There Are Situations in Which Notification Before Departure Matters.

• Tax return deadlines and procedures around departure (Articles 126, for the preceding year, and 127, for the departure year, of the Income Tax Act)
• Deferral of Exit Tax. Article 137-2, paragraph (1), of the Income Tax Act requires (i)by the time of departure,notification of a tax agent under Article 117, paragraph (2), of the Act on General Rules for National Taxes, and (ii)and… by the final income tax return deadline for that year, security equivalent to the deferred income tax amountmust have been providedas conditions for deferral. Paragraph (3) additionally requires a statement on the final return and attachment of detailed documents.

Notification Is Only One of Several Requirements.However, the notification deadline is departure itself. Filing afterward is too late.

Points that require care in practice

• Who Can Be Appointed as a Tax Agent?The statute says only that the person must be suitably placed to handle the matters.
• Does a Tax Agent Become Liable for the Tax?The distinction between handling procedures and bearing the tax liability must be considered.
• Can a Family Member or Friend Serve?The question is whether they meet the two statutory requirements: domicile or residence in Japan, and suitability to handle the matters.
• How Do Tax Return Deadlines Change Before and After Departure?Treatment depends on whether the notification has been filed.
• What Should a Corporation Do When Closing Its Japanese Office?The system is not limited to individuals.
• How Do You Dismiss or Change a Tax Agent?Notification is required.

This Procedure Is Easily Overlooked at the End of Planning an Overseas Move or Assignment.Attention goes to calculating tax, while notification is put off. Consult us once departure is planned.

Legal basis

• Article 117 of the Act on General Rules for National Taxes (Tax Agents)
• Articles 126 (Final Returns When a Person Required to File Departs Japan) and 127 (Final Returns When Departing Midyear) of the Income Tax Act
• Article 137-2 of the Income Tax Act (Tax Deferral in Cases Where Special Provisions for Capital Gains, etc. upon Overseas Transfer Apply)

Individual procedures require verification of the facts.