1. Basic Overview of the Overseas Asset Report System

The Overseas Asset Report System (Kokusai Zaisan Chōsho Seido) in Japan is designed to help the tax authorities monitor wealth held abroad and ensure proper taxation. Under this system, residents of Japan (with some exceptions, as noted below) who have more than ¥50 million in overseas assets as of December 31 of a given year are required to file a specific report the following year with the tax office.

This report uses a dedicated form (“Overseas Asset Report”), on which one must list types of assets, quantities, and their values.

Submission Deadline:
Generally, the report must be filed by June 30 of the next year, which is different from the tax-filing period.

Who Needs to File:

• Residents of Japan whose total overseas assets exceed ¥50 million (at year end) must file.
• However, non-permanent residents (i.e., foreign nationals who have been in Japan for 5 years or less within the last 10 years) are not subject to this obligation.

When Filing Is Not Required:

• If the total overseas assets are less than or equal to ¥50 million at year end.
• If someone is not considered a resident under Japanese tax law or qualifies as a non-permanent resident: no filing is required.

Purpose of the System:
The system aims to prevent income concealment by wealthy individuals with substantial foreign holdings. To encourage proper reporting, there are special tax-penalty provisions: whether or not you file can affect how much additional tax you pay. 
 

2. Japanese Personal Income Tax: Structure and Mechanism

Japan’s income tax system varies significantly depending on your resident status, which determines how much of your global income is taxed.

• If someone has a residential address in Japan (or stays in Japan for more than a year), they are generally considered a resident for tax purposes.
• Within residents, those who are foreign nationals but have stayed in Japan for 5 years or less during the last 10 years are classified as non-permanent residents.

Here's how the categories break down in terms of taxable income:

Key Points:

• “Domestic-source income” includes Japanese salary, compensation, rental income in Japan, etc. Even non-residents pay Japanese income tax on this.
• Permanent residents pay tax on all global income.
• Non-permanent residents enjoy a partial exemption: overseas income not remitted into Japan may not be taxed in Japan.
• It's crucial for foreign executives to determine which category they fall into, as it affects how they report and pay tax.

Tax Rates:
Japan uses a progressive tax rate structure. Income tax ranges from 5% to 45%, depending on your taxable income. There’s also a 2.1% Reconstruction Special Income Tax, plus a local inhabitant tax (around 10%). Together, effective top marginal rates can exceed 50% for high-income earners.

Filing Period:
The annual tax return (“kakutei-shinkoku”) generally takes place from February 16 to March 15, for income earned in the previous calendar year.
 

3. Key Points of Filing Tax Returns for Foreign Executives

Foreign executives working in Japan should be aware of several important considerations when filing their tax return:

Required Documents:

• A withholding tax certificate (gensen-choshu-hyo), which your employer issues.
• Copy of your residence card (zairyū card) and possibly your My Number (Japanese social tax ID), which may be required.
• If you claim deductions for overseas dependents, you’ll need proof of family relationships, such as birth certificates or passports, and possibly documentation that confirms they are dependents.

Submission Methods & Deadlines:

• You can file your tax return by mail, submit directly to the tax office, or use the e-Tax system (online).
• Deadline for tax return and payment is March 15. Missed submissions may result in late-filing penalties.

Declaring Overseas Income:

• Whether or not you must declare overseas income depends on your tax residency status (see Section 2).
• Permanent residents must report all overseas income, such as director’s fees, dividends, interest, or property income.
• Non-permanent residents may not need to report overseas income unless it has been transferred into Japan.

Advice:

• Because Japanese tax forms and the law can be complicated, many foreign executives choose to work with a tax advisor / certified tax accountant.
• Even if there is in-house tax support at your company, you should personally understand the deadlines, required documents, and your resident status for compliance.

4. Conditions That Mandate Reporting Overseas Assets

Here’s how to know whether you need to file the Overseas Asset Report, with criteria and concrete examples.

Determining Obligation:

• Threshold: Your overseas assets must exceed ¥50 million (as of December 31) to trigger the obligation.
• Valuation: Use the market value of the assets. If they are denominated in foreign currency, convert them using the exchange rate at year-end.
• Liabilities: Do not subtract debts (like a mortgage) when calculating the amount, you assess based on gross asset value.

Examples:

• If you own overseas real estate worth ¥60 million but have a loan of ¥50 million, you still need to report, because the report uses the gross value (¥60 million).
• If you have U.S. stocks and foreign bank accounts totaling, say, ¥100 million, that would clearly require the report if you are a resident and not non-permanent.

Exemptions / Non-Requirements:

• Under ¥50 million → no need to file.
• If classified as a non-permanent resident → no obligation (even if you hold assets abroad).

Penalties for Non-Filing:

• Failure to file or making false statements can lead to criminal penalties (up to 1 year in prison, or a fine of up to ¥500,000).
• In tax terms, you may face additive taxes: non-filing or underreporting can incur additional penalty tax.
• There is a special provision: if you file properly by the deadline, certain additional taxes can be reduced by 5%.

Because the presence (or absence) of the report can change your penalty exposure, it's critical to assess whether you're required to file and ensure timely, accurate submission. 
 

5. Relationship Between VISA Acquisition and Tax Compliance

For foreign executives, tax compliance is closely tied to immigration status (VISA). In recent years, Japanese immigration authorities have increasingly coordinated with the tax office, reviewing tax compliance as part of visa applications.

Things to Watch:

• VISA Renewals:
  When you apply for an extension of a work visa, you’re often required to submit tax payment certificates and tax assessment certificates. These documents demonstrate that you have been paying income tax and resident tax according to your reported income.
• Change of Status:
  If you switch visas (for example, from a work visa to an investor or business visa) or apply for permanent residency, the immigration authorities may ask for 5 years’ worth of tax certificates. Stable income and proper tax payment history boost the chances of approval.
• Tax Compliance = Credit:
  Proper tax compliance not only helps you avoid penalties, but also strengthens your immigration profile. Non-compliance may lead to visa denial or less favorable conditions.

Conclusion:
To maintain or extend your visa smoothly, it is essential to remain in full compliance with Japanese tax obligations. Failing to do so can jeopardize not only your financial standing but also your immigration status.
 

6. Risks and Countermeasures for Non-filing

Neglecting to file your tax return or the Overseas Asset Report can lead to serious financial and legal consequences. Here are the risks and how to mitigate them.

Risks of Non-filing or Late Filing:

1. Additive Taxes:
   • If you file voluntarily after the deadline, you’ll usually pay a 5% penalty.
   • If the tax office requests a correction (after an audit), the penalty can be 10%, and for amounts over ¥500,000, up to 15%–30%.
   • For intentional concealment or tax evasion (“fraudulent practices”), the heavy additive tax (jūka-zōka-zei) can be 35–40%.
2. Late Payment Penalties:
   • On top of additive tax, you’ll also incur late payment interest (延滞税), calculated daily.
3. Criminal Liability:
   • As mentioned, non-filing or false statements can lead to jail time (up to 1 year) or fines (up to ¥500,000).

Countermeasures:

• File as soon as you realize a mistake:
  If you missed reporting, submit a corrected return (修正申告) or a late return (期限後申告) ASAP. Voluntarily doing so can minimize penalties.
• Back-file when necessary:
  You can correct past filings retroactively (up to 5 years, in many cases) via amended returns.
• Request refunds if overpaid:
  If you overpaid tax, you may file a request for adjustment (“kōsei no seikyū”) within 5 years of the original filing, to get a refund.
• Seek professional help:
  Working with a tax expert (e.g., a Japanese-certified tax accountant) can help you navigate corrections, prepare filings, and reduce your risk.

7. Lessons from Real-world Successes and Failures

Here are some illustrative cases showing what can go right and wrong when it comes to the Overseas Asset Report and tax compliance for foreign executives in Japan.

Success Case:
A foreign executive, upon being assigned to Japan, proactively engaged a tax advisor. They accurately evaluated their overseas assets, filed the required Overseas Asset Report within the deadline, and made all required income tax filings. As a result:

• No issues arose during a potential audit.
• Their visa renewals went smoothly, supported by proof of tax payment and compliance.

Failure Case:
Another foreign executive did not file their Overseas Asset Report and intentionally omitted some overseas income. During a later audit, tax authorities discovered the discrepancies.

Consequences included:

• Significant back taxes and interest.
• Additive tax (penalty) imposed for lack of reporting.
• Loss of trust within their company, and potential reputational damage.
• In a worst-case scenario, it could have led to criminal investigation, damaging both personal and corporate credibility.

Key Takeaway:
Timely, accurate reporting and early engagement with tax professionals are crucial. Proper tax behavior doesn’t just reduce risk, it helps protect your career, reputation, and your ability to stay in Japan.
 

8. Summary

For foreign executives working in Japan, navigating tax law is not just a financial necessity, it's central to legal compliance and immigration stability. Here’s what you need to keep top of mind:

• Determine your residency status (resident, non-permanent, non-resident), because it dictates how your income is taxed.
• Understand and adhere to the Overseas Asset Report requirement if your overseas holdings exceed ¥50 million.
• File your annual tax returns properly and on time; make sure you have all required documentation.
• Be aware that non-filing or underreporting carries steep penalties, both tax and criminal.
• Use a qualifed tax advisor, especially for complex issues like foreign income or asset reporting.
• Maintain good tax compliance, it supports your visa applications and renewal, and strengthens your professional standing.

Contact us

Complete this form and an RSM Shiodome Partners representative will be in touch.