For people who hold assets overseas,there are annual reporting requirements for those assets.These are the Statement of Foreign Assets and the Statement of Assets and Liabilities.

They are not tax returns.They require submission of a list of assets (and liabilities).They do not change the principal tax itself. However, additional tax can change by five percentage points if an amended return later becomes necessary, and the foreign asset reporting system even provides forcriminal penalties.Such penalties are prescribed.

Statement of Foreign Assets

Article 5(1) of the Act on Submission of Statements of Overseas Remittances for the Purpose of Securing Proper Taxation of Domestic Taxes (Overseas Remittance Reporting Act).

resident(meaning a resident under Article 2(1)(iii) of the Income Tax Act, excluding those defined in item (iv) of that paragraphNonpermanent residents: are excluded....) must, if onDecember 31of that year they hold foreign assets with a total valueexceeding JPY 50 million,submit a statement listing the type, quantity, value, and other necessary details of those foreign assets (hereinafter the “Statement of Foreign Assets”) byJune 30of the following year to the competent tax office director. However, this does not apply if, before submitting the statement by that date, the person dies ordeparts Japan within the meaning of Article 2(1)(xlii) of that Act.In those cases, the exception applies.

The “over JPY 50 million” threshold refers to the total value of foreign assets.The amount of income is not a condition.

“Departure from Japan” here is not the everyday meaning of leaving the country.For residents, Article 2(1)(xlii) of the Income Tax Act defines it by reference to Article 117(2) of the General Act of National Taxes (Tax Agent), asceasing to have either a domicile or residence in Japan without filing notification of a tax representative.That is the statutory definition.A person who moves overseas after notifying a tax representative does not fall within this definition of “departure.”The filing obligation therefore remains. Moving overseas does not itself remove the obligation.

Statement of Assets and Liabilities: Two Routes to a Filing Obligation

Article 6-2 of the same Act. This statement covers assetsboth in Japan and overseas.It lists the type, quantity, and value of assets, together withthe amount of liabilities.There aretworoutes to the filing obligation, a point that is easily overlooked.

Route 1 (paragraph (1)) — Persons required or entitled to file the final returns listed in the items of paragraph (1), subject to the limitations in each item, whose

income for the year comprisestotal income... andforestry income,the sum of whichexceeds JPY 20 million,andandand who, on December 31 of that year, holdassets worth at least JPY 300 million in total,orassets covered by the exit tax special provisions worth at least JPY 100 million in total.This is the first category.

Route 2 (paragraph (3)) — There is no income requirement whatsoever.

Residents as defined in Article 2(1)(iii) of the Income Tax Actresident(excluding those required to submit a Statement of Assets and Liabilities under paragraph (1)) who hold, on December 31 of that year,assets worth at least JPY 1 billion in totalmust, notwithstanding paragraph (1), submit a Statement of Assets and Liabilities by the prescribed date in the following year.June 30The proviso to that paragraph applies mutatis mutandis.

Under paragraph (3), low income is no defense.Even residents who have no obligation to file an income tax return must submit this statement if they hold assets worth at least JPY 1 billion on December 31. This can apply to wealthy people with little salary or pension income, or founders whose wealth consists mainly of unrealized gains.

“Assets covered by the exit tax special provisions” means securities and similar assets, and rights relating to unsettled margin transactions and derivative transactions, under Article 60-2 of the Income Tax Act.The scope is the same as for the JPY 100 million exit tax threshold.

The grounds for exemption differ from those for the Statement of Foreign Assets.The proviso for the Statement of Assets and Liabilities coversonly death.This is under the proviso to Article 6-2(1), applied mutatis mutandis by the latter part of paragraph (3).“Departure from Japan” is not a ground for exemption.

If a Statement of Foreign Assets has been submitted, the Statement of Assets and Liabilities need not repeat details of the foreign assets listed there,other than their value.This is under paragraph (5). The value must still be reported.

Filing or Failing to File Changes Additional Tax by Five Percentage Points

Article 6 of the same Act.The scope is limited.Only amended returns and similar actions concerning “income tax on income arising from foreign assets as prescribed by Cabinet Order” and “inheritance tax on foreign assets” are covered. An amendment unrelated to foreign assets, such as omitted domestic sales, does not trigger the adjustment.

• Paragraph (1) — If a timely filed Statement of Foreign Assets lists the foreign assets underlying the amendment or similar action, additional tax for underreporting or nonfiling isreduced by five percentage points.
• Paragraph (3) — If no statement was filed on time, or the statement omitted those foreign assets (including materially insufficient descriptions), the additional tax isincreased by five percentage points.

Filing produces a five-point reduction; not filing produces a five-point increase. The difference is ten percentage points.

However, the increase under paragraph (3) has exceptions.Amended returns and similar actions concerning deceased persons are excludedunder the opening language of paragraph (3). For foreign assets acquired by inheritance (inherited foreign assets),failure to file or omissions not attributable to the personare also excluded (parenthetical provisions in the items of paragraph (3)). For inheritance tax amendments and similar actions, paragraph (5) excludes certain heirs.

Under the same article,Paragraph (7)if a tax official requests presentation or submission of documents concerning the acquisition, management, or disposal of foreign assets andthe person fails to comply by the designated date, which must be within 60 days,（except where the failure is not attributable to the person,the reduction under paragraph (1) does not apply, and “five percent” in paragraph (3) is replaced by “ten percent”. In certain cases involving inherited foreign assets, the increase remains five percentage points.

Missing the deadline is not necessarily the end of the matter.Under the same article,Paragraph (6)A provision allows even a late-filed Statement of Foreign Assets to qualify if it was filedwithout anticipating a reassessment or determinationandbefore notice of an auditunder Article 65(6) of the General Act of National Taxes.It is then deemed to have been filed on time.Such a provision exists.

The Additional Tax Rules for Statements of Assets and Liabilities Differ from Article 6

Under the same Act,Article 6-3has three differences in scope.

The increase applies only to income tax, not inheritance tax.Foreign assets that need not be listed in the Statement of Assets and Liabilities under Article 6-2(5) are excluded from “assets” in Article 6-3(1).

Penalties: Only Failure to File the Statement of Foreign Assets Is Itself Penalized, but Other Conduct Can Be Penalized

Article 10 of the same Act.

If a person submits a Statement of Foreign Assets containingfalse informationto the tax office director, that person is subject toimprisonment for up to one year or a fine of up to JPY 500,000.This is the prescribed punishment.

2　Without a justifiable reason,a person who fails to submit a Statement of Foreign Assets to the tax office director by the filing deadline is subject to imprisonment for up to one year or a fine of up to JPY 500,000.However, the punishment may be waived in light of the circumstances.

Article 10 expressly refers only to the Statement of Foreign Assets.There is no penalty specifically for failure to file, or false statements in, a Statement of Assets and Liabilities itself.

However, this does not mean that Statements of Assets and Liabilities are entirely outside the scope of criminal penalties.Article 7(2) of the same Act includes, within the relevant officials'Right to inspection and questioning authority, investigations concerning the filing of a Statement of Foreign Assetsor a Statement of Assets and Liabilities.Failure to answer, false answers, refusal, obstruction, or evasion of an inspection (Article 9(iii)), and failure without justifiable reason to comply with a request to present or submit materials (Article 9(iv)), are all subject toimprisonment for up to one year or a fine of up to JPY 500,000.the prescribed penalties. Article 11 also provides for penalties against both the individual offender and the entity.

The statutory penalty is now “imprisonment” rather than “imprisonment with work.”ImprisonmentIt is.

Points that require care in practice

• What constitutes a “foreign asset”?The rules for determining location differ by asset type.
• How is value determined?There is an issue of market value versus estimated value.
• Are overseas pensions and insurance included?This concerns the scope of reportable assets.
• What happens in a year in which an inheritance occurs?Article 5(2) (Statement of Foreign Assets), Article 6-2(2) (JPY 300 million/JPY 100 million thresholds), and paragraph (4) of that article (JPY 1 billion threshold) allow the determination to be made excluding inherited assets.
• Do nonpermanent residents really not have to file?The parenthetical language in Article 5(1) excludes nonpermanent residents. However, they become subject to the requirement from the year they cease to be nonpermanent residents.The Statement of Assets and Liabilities has no such exclusion.
• How much detail on liabilities is required?The Statement of Assets and Liabilities is not simply an asset list.

For anyone considering relocation, these two statements provide a record of how much of their assets has been disclosed to the Japanese authorities.Whether you appoint a tax representative before leaving can change even that year's filing obligation. Please consult us before moving.

Legal basis

• Act on Submission of Statements of Overseas Remittances for the Purpose of Securing Proper Taxation of Domestic Taxes, Article 5 (Submission of Statements of Foreign Assets)
• Article 6 of the same Act (Special Provisions for Additional Tax for Underreporting or Nonfiling Relating to Foreign Assets), paragraphs (1), (3), (5), (6), and (7)
• Article 6-2 of the same Act (Submission of Statements of Assets and Liabilities), paragraphs (1)–(5)
• Article 6-3 of the same Act (Special Provisions for Additional Tax for Underreporting or Nonfiling Relating to Assets and Liabilities)
• Article 7(2) of the same Act (Officials' Authority to Ask Questions and Conduct Inspections)
• Articles 9 and 10 of the same Act (Penalties), and Article 11 (Dual Liability Provisions)
• General Act of National Taxes, Article 65(6) (Audit Notification) and Article 117(2) (Tax Representatives)
• Income Tax Act, Article 2(1)(iii), (iv), and(xlii) (Definition of Departure from Japan)and Article 60-2 (Special Provisions for Capital Gains and Similar Income upon Departure from Japan)

Individual assessments require confirmation of the nature and valuation of the assets.