Reviewed by Daigo Sato
The Exit Tax was introduced in Japan on July 1, 2015, for Japanese nationals, as a method for preventing tax avoidance on unrealized capital gains. However, for foreign nationals, it didn’t come into effect until July 1, 2020. Prior to the Exit Tax, it was possible to avoid Japanese capital gains, inheritance, or gift taxes by moving abroad and transferring or selling the assets while residing abroad. However, after the introduction of the Exit Tax, Japanese tax laws were no longer applicable.
Under Exit Tax rules, Japanese nationals or foreign nationals (table 2 visa holders) who have certain financial assets and have resided in Japan for a specific period shall be assessed with an exit tax on the unrealized capital gains portion at a rate of 15.315% upon their permanent departure from Japan. The Exit Tax would apply to individuals who meet the following conditions:
- Individuals who have lived in Japan for more than 5 years of the last 10 years.
- Individuals who hold certain financial assets with a total value of JPY 100 million or more at the time of their departure from Japan.
Certain financial assets are defined as securities (including stocks, ETFs, mutual funds, derivatives, bonds, options, and other securities). Cash, bank deposits, cryptocurrencies, real estate, and other real property are not included in the definition of securities and therefore are not subject to the exit tax.
Table 1: Visa holders, including the following visa types, are not subject to the Exit Tax under the current rules.
- Diplomat
- Highly Skilled Professional, Business Manager
- Engineer/ Specialist in Humanities/International service
- Entertainer, Skilled Labor, Technical Intern Training, etc.
- Temporary Visitor
- Student
Table 2: Visa holders include spouses/children of Japanese nationals and permanent residents.
Any foreign nationals considering moving to (or out of) Japan should seek professional advice about the type of visa to apply for, tax treatment of their income and assets, and prepare in advance for potentially becoming subject to the Exit Tax.
For U.S. citizens who are also taxed on worldwide income and assets, it is crucial to get qualified advice from tax professionals who understand the U.S.–Japan tax treaty and can provide guidance on how Japanese exit taxes are treated for U.S. purposes.
Please get in touch with our Tokyo-based team at jp@leowealth.com to see how we can help you with reviewing your Exit Tax status, providing tailored consulting, supporting your application for tax deferral (up to 10 years), and acting as your tax agent in the application process.
