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Japanese Taxes on Capital Gains from Sale of US Stock

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Kouhai
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I'm a permanent resident of Japan. On my Japanese tax return for this year, I will have to report capital gains from the sale of some US stock. All I can find online is information saying that capital gains from the sale of overseas stock is reported "separately from ordinary income" in Japan and is also subject to "separate taxation". Fair enough. I called the National Tax Agency information hotline for further information, but they were of no help. Next I'll try my local office for advice.
In the meantime, does anyone know about this (eg: Which Japanese tax form(s) to use? What the tax rates are -- both national and local -- for capital gains on overseas stock? etc.)
I'll probably end up having to go to a Japanese tax professional for help, but in the meantime I want to try to understand what I'm up against, and also try to learn the related vocabulary in Japanese.
 

johnnyG

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I report gains, both from sales and from distributions thru the year (biggest a year-end). Take your brokerage statement, along with an excel printout summarizing what went on, in to the tax office when doing your taxes. They will figure it out for you.

You can use a tax accountant, but it will cost you a few man or more. I've just gone to that tax office and prostated myself in front of the tax people there.

I think they are fair, and paying someone to do your taxes for you would yield the same results.

Generally, any gains or distributions are added to income and is taxed accordingly, so you have to be a little careful if something you've sold bumps you up to the next level of withholding.

I've always only done it that way (gains/distrubutions added to income, and taxed accordingly), but I think there is something different for "qualified" gains, which may be a flat 20%, rather than a higher income tax rate. For "qualified" I think you have to be invested via a Japan-based acct, whereas I use a US broker, and so I've never acted on that.
 

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Kouhai
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Thanks for the website recommendation, KyushuWoozy. Actually, I've previously looked at that site, and while there is some good information there, little of it pertains to my overall situation. And I see nothing directly related to the present thread about capital gains taxation on the sale of overseas stock. (If I'm missing something, though, please send me a direct link to the proper thread on Japanese capital gains taxation.)

Also, thanks JohnnyG. I've always done the exact same as you each year for my US-based interest, dividends, and capital gains distributions -- I've gone in to the local tax office and had the people there help me, even though I doubt they're as savvy or willing to tell me about all my tax-reducing options as a paid tax pro would be.
This year, however, with a hefty long-term capital gain from the sale of US stock, getting this right is very important to me. (Note: I actually didn't want to have this gain this year, but the company merged with another company, liquidated all stock in the old company, and re-issued new stock. Ugh...) Anyway, the gain, if treated as straight income on my personal return, would be taxed at my 33% national rate + the 10% local tax rate. Ouch!
If, however, I'm entitled to "separate taxation" on overseas capital gains -- which the things I've been reading online seem to indicate -- that would be MUCH, MUCH better.
Just yesterday, on a separate forum, I asked a similar question and got this hope-inspiring reply about "separate taxation" (分離課税) regarding my situation:
as same as domestic stock selling.
national tax : 15%申告分離課税
residential tax : 5 %
分離課税 : the tax will be calculated separately from your salary.
you may choose 総合課税 (combine your salary and capital gain). in mot cases, 分離課税 is better (cheaper tax).
calculation of capital gain : exchange at TTB on the selling date.
you can claim 外国税額控除, if US withdraws some tax when selling.
the system is complicated.
follow the advise by an accountant.

Yes! That's exactly what I want to find out about -- paying a lower rate on my overseas capital gains. A 20% combined tax rate beats the heck out of a 43% rate.
 

Majestic

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The NTA website explains everything, but I find the language and the way they have presented the information to be very confusing. Be that as it may, the system itself is straightforward, so if your take you info to the tax office I believe they will get you the right information. If you had a simple sale of foreign stocks, there is a definitive way to report that gain, and therefore you don't need to agonize over tax-minimizing options.
The form you need is the tax return Form B (3rd Form with Separate Taxation)
確定申告書の記載例|所得税(確定申告書等作成コーナー)|国税庁
The tax rate is normally 20% (15% national + 5% local).
However, if you are talking about stock options or ESPP the tax treatment is different.
 

johnnyG

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@Buzzcut Here I sit trying to suss out what particular stock(s)/merger you're talking about. Something similar, but perhaps with less effect, happened to me with MO/PM some years ago and RAI/LO more recently (I don't mind investing in sin stocks). No need to for you to say--I'm not asking.

I've been quoted about ¥50,000 for a local place to do my taxes for me. I've never done the exact arithmetic, but I think most years just adding various gains to income has been okay (but still painful). It is certainly the path of least resistance.
 

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Thanks for the information on the correct version of Form B with separation taxation. That's just what I was looking for!

In past years I asked the local tax office for help with my return, and they definitely did not tell me about the option of using separation. They have had me pay tax on my capital gains and dividends at the normal, higher tax rate.

Besides using the form with separation for this year, I need to talk with the local tax office people -- or, if they're not helpful, with a zeirishi -- to see about amending my returns for the past several years since I paid way too much tax.
 

Majestic

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they definitely did not tell me about the option of using separation
This, to me, is strange, because its not really an option. Its just the way you are supposed to report this income.
It is certainly a possibility that the people at the tax office did not know this, and put the gain in the wrong place. And, as I mentioned, if the shares were from the company you worked for, they might be treated as regular compensation (instead of "separate" income).
One thing might be to bring along a printout of the NTA website that shows exactly how normal overseas shares are to be reported, to be sure you and the NTA are on the same page.
No.1937窶ル緒Z者が海外で株式等を売却した場合の課税関係等|所得税|国税庁
No.1463窶リ博ョ等を譲渡したときの課税(申告分離課税)|所得税|国税庁
 

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Kouhai
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I'm not in a large city. I live out in the provinces, and the tax office people who help prepare returns do not inspire confidence. Every year, without fail, they have to run off and consult someone in another room for every question I raise.
My capital gains have simply been reported on the top page (without use of the extra separation sheet) and thus taxed at the higher rate. Apparently it's not "wrong"; it's just far less advantageous to the taxpayer, as was pointed out, above:
>you may choose 総合課税 (combine your salary and capital gain).
>in most cases, 分離課税 is better (cheaper tax).

Until the other day, when I followed the cited link to the Form B with Separation, I had never seen the separation worksheet before. Thank you, once again!
After reading up on all this and printing out the relevant materials, I hope to go in to the tax office soon and get some satisfaction about last year's overpayment, and, of course, to eventually get this year's return done correctly.
I'm not optimistic that they'll let me amend even older returns, though, despite the fact that the overpayment was due to my following their instructions. I've heard that there's a very short limit on being able to claim tax overpayments in Japan -- shorter than the statute of limitations on underpayment/non-payment.
 

Majestic

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My capital gains have simply been reported on the top page (without use of the extra separation sheet) and thus taxed at the higher rate. Apparently it's not "wrong"; it's just far less advantageous to the taxpayer, as was pointed out, above:
>you may choose 総合課税 (combine your salary and capital gain).
>in most cases, 分離課税 is better (cheaper tax).
Hmm, the kind advice you got from the other poster on the other site notwithstanding, this isn't what the NTA instructions say. Look on page 7 of the English tax guide for foreigners in Japan. Aggregate taxation (総合課税) is only for specific assets (golf memberships and whatnot). Capital gains from sale of shares are always 分離課税. But, I can well imagine that your local tax office might have given you wrong advice.
 

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Kouhai
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Besides taxation of the income from the sale of overseas stock, which I now understand well enough to go into the tax office and pursue a refund, I'm also curious.... How does your tax office treat various types of income from overseas mutual funds (eg: quarterly dividends and year-end capital gains distributions)?

The chart describing types of income and taxation methods (p.9 of the English language booklet) isn't clear about how to deal with income from foreign mutual funds. It's not clear to me, anyway. For instance, on p.9 of that English booklet, under "Dividend Income", it talks about "publicly-subscribed investment trusts" being subject to aggregate taxation, but in the very next section it refers to "securities investment trusts sold by public offering ...for which you choose to use separate taxation..."
 

Majestic

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Now this is over my pay grade. Income from foreign mutual funds is sufficiently complicated that I would pitch this to an accountant.
 

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Kouhai
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Thanks, again.

I think I now have enough information to go talk with the local tax office people about this year's capital gain, and also see about amending last year's return. If that doesn't go well, I'll definitely be visiting a zeirishi.
 

johnnyG

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Besides taxation of the income from the sale of overseas stock, which I now understand well enough to go into the tax office and pursue a refund, I'm also curious.... How does your tax office treat various types of income from overseas mutual funds (eg: quarterly dividends and year-end capital gains distributions)?

The chart describing types of income and taxation methods (p.9 of the English language booklet) isn't clear about how to deal with income from foreign mutual funds. It's not clear to me, anyway. For instance, on p.9 of that English booklet, under "Dividend Income", it talks about "publicly-subscribed investment trusts" being subject to aggregate taxation, but in the very next section it refers to "securities investment trusts sold by public offering ...for which you choose to use separate taxation..."
I'm not an expert, but I'd say that dividends will be aggregated as income--you've been paid something, and not due to a sale.

OTOH, capital gains/losses, either quarterly or more likely year-end, are due to turnover/churning within a fund due to buying and selling. You might have a chance of separating these. Good luck!
 

bluepeace

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I report gains, both from sales and from distributions thru the year (biggest a year-end). Take your brokerage statement, along with an excel printout summarizing what went on, in to the tax office when doing your taxes. They will figure it out for you.

You can use a tax accountant, but it will cost you a few man or more. I've just gone to that tax office and prostated myself in front of the tax people there.

I think they are fair, and paying someone to do your taxes for you would yield the same results.

Generally, any gains or distributions are added to income and is taxed accordingly, so you have to be a little careful if something you've sold bumps you up to the next level of withholding.

I've always only done it that way (gains/distrubutions added to income, and taxed accordingly), but I think there is something different for "qualified" gains, which may be a flat 20%, rather than a higher income tax rate. For "qualified" I think you have to be invested via a Japan-based acct, whereas I use a US broker, and so I've never acted on that.

What would happen if you owe 0% long term capital gains tax to the U.S. due to being in the lowest income bracket? Would a dual citizen living in Japan get taxed 20% by the Japanese government even if the money never reaches a Japanese bank account?

If I were in the next higher income bracket and pay the U.S. 15% on my long term capital gains, but owe Japan 20%, would there be a tax credit of some sort so I would pay just the 5% difference to Japan?
 

Majestic

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You haven't told us the right information to help you out. Its not enough to say your US tax liability - that doesn't help figure out what your Japanese liability would be. We'd need to know exactly how much your capital gains were, your income level, and your residence status. You could be a dual citizen, not live in Japan, and your Japanese tax liability could be zero. If you live in Japan, and have lived in Japan for a few years, your tax liability could be X percent of your capital gain.

In general, you do get a tax credit for any taxes paid in one or the other country. So yes you may just end up paying the difference in the tax rates.

The devil is in the details, though.
 

bluepeace

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You haven't told us the right information to help you out. Its not enough to say your US tax liability - that doesn't help figure out what your Japanese liability would be. We'd need to know exactly how much your capital gains were, your income level, and your residence status. You could be a dual citizen, not live in Japan, and your Japanese tax liability could be zero. If you live in Japan, and have lived in Japan for a few years, your tax liability could be X percent of your capital gain.

In general, you do get a tax credit for any taxes paid in one or the other country. So yes you may just end up paying the difference in the tax rates.

The devil is in the details, though.
Let's say capital gains were $10,000 for the year. Income is only from social security half from J gov and the other half from U.S. gov totaling $25,000/year.
Have been dual citizen living in U.S., but now moving back and forth but living in Japan long enough to trigger as tax resident in Japan.
 

Majestic

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Social security income of $25,000, and non-Japanese capital gains of $10,000, so a total income of $35,000. (I think if the capital gain is from outside of Japan it gets taxed at the same rate as income tax in Japan). This is a little over JPY 3,800,000, You get certain deductions in Japan, so lets say these drop you down to about 2,480,000 of taxable income. That puts you in the 10% tax bracket. Your tax would be 97,500 + 10% of the difference between 2,480,000 and 1,950,000 (which is 530,000). So your tax is 97,500 + (530,000 x 10%), therefore total national tax of 150,500. Actually you probably have more deductions, so you may not even pay that much.

You do get credit for some taxes paid to the US. If you paid over about US$2000 in taxes, these should wipe our your Japanese tax liability. The paperwork is a bit daunting, even if you speak Japanese. You will then have to figure out your local (resident) tax which is about 10% no matter how much your taxable income is. Here too, any local taxes paid in the US will work as a credit towards local taxes in Japan (in theory... actually figuring this out is a dark art).

As a resident for tax purposes, you get taxed even if the income never reaches Japan.

Japan usually has a higher tax rate than the US, so you might want to look at doing your Japan taxes first, then applying any Japanese taxes as a credit against US taxes.
 
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