Have you heard of the “property report”?
Individuals who own more than a certain amount of assets are required to report the property report to the tax office, in addition to the tax return.
The form for declaration of such assets is the “property report”.
Two types of reporting systems, the “Overseas Property Report” and the “Property and Debt Report”, were legislated by the tax reform in 2012 and have been implemented since 2013.
Please note that some people may need to submit both reports.
The property reporting system existed before 2012.
For individuals with an income amount of more than 20 million yen, it was supposed to submit a form called “Detail of property and debt” to the tax office together with the tax return of the income tax (former income tax law Article 232).
However, many people did not submit it because there is no penalty for not providing it, and they do not want to let the authority know such sensitive information.
However, as the number of wealthy people transferring their property abroad to escape taxation of Japanese income tax and inheritance tax has increased, the country has also moved to revise its reporting system.
In April 1998, the “Act on submission of statement of overseas wire transfers for the purpose of securing proper domestic taxation” (This name is well understandable, but too long! Hereinafter referred to as simply “Act”) came into force to enable the tax authorities (tax offices / National Tax Bureaus) to grasp the flow of funds (flow) by imposing various reporting obligations on individuals and corporations that send money from overseas to Japan and financial institutions that handle such transfers.
Then, the Act was amended in 2012 so that the authority can grasp the outstanding balance (stock) of overseas property as well, and the “Foreign Property Report” system has been implemented since 2013 (Act Article 5).
It is a resident of Japan (excluding “non-permanent residents“) whose total value (market value) of the overseas property exceeds 50 million yen at the end of the year.
It is important to note here that even a person who is not required to file income tax, gift tax, or inheritance tax is obligated to submit a foreign property record when the above requirements are met.
You need to file the report with the tax office that has jurisdiction over the address. You can search the tax office on the website of the National Tax Agency.
A set of two reports, Overseas Property Report and Summary Report of Overseas Property should be filed by March 15th of the following year (June 30th for reporting for 2022 onward).
〔Form of Overseas Property Report〕国外財産調書printed
〔Form of Summary Report of Overseas Property〕国外財産調書合計表printed
Unlike the former “Detail of property and debt”, there are penalty clauses (Article 10 of the Act).
False reporting is subject to imprisonment of not more than one year or a fine of not more than 500,000 yen. If you miss the filing deadline without a valid reason, the same criminal penalties are applied too.
Besides, if the report has not been submitted within the deadline, or if the report had been submitted by the deadline, but there is any property not included in the report, a 5% surtax together with the standard penalty tax will be imposed on the unpaid tax attributable to such unreported property found in amendment, late filing, correction, assessment (Article 6, Paragraph 2 of the Act).
On the other hand, if the report was submitted by the deadline, an unpaid tax amount incurred due to subsequent amendment, etc., and even if a penalty tax is imposed, the unpaid tax associated with the property stated in the report will be subject to a 5% reduced penalty tax (Article 6 Paragraph 1 of the Act).
The conventional “Detail of property and debt” has been incorporated into this report by the Act (Article 6-2).
It is a comprehensive report that includes not only overseas property but also domestic property and debt (borrowings, accounts payable, etc.). It is a balance sheet of a personal individual.
The assets and liabilities of business are listed on the balance sheet of the blue financial statements of personal enterprises.
In contrast, the scope of the Property and Debt Report is more extensive as it should report all property and debt not only for business but also for other purposes.
It is an Individual with a total income of more than 20 million yen and the value of property held at the end of the year of 300 million yen or more or the value of the property subject to the Tax on Overseas Transfer of 100 million yen or more.
For this reporting purposes, the “property subject to the Tax on Overseas Transfer” refers to rights related to securities, unsettled margin trades, and unsettled derivative transactions.
Individuals who meet the above requirements, regardless of whether they are non-residents or residents, are required to submit the report.
Non-permanent residents also need to submit it.
Even if you need to submit the “Overseas Property Report”, as long as you are a person who is obligated to submit this report, you must file this report, including overseas property. However, you do not have to report details to be reported in the Overseas Property Report.
In that case, just the total amount should be indicated in the specific line of this report.
Submit the report to the tax office to which you are filing your income tax return.
A set of two reports, “Property and Debt Report” and “Summary Report of Property and Debt”, should be filed by March 15 of the following year.
〔Form of Property and Debt Report〕財産債務調書printed2
〔Form of Summary Report of Property and Debt〕財産債務調書合計表printed
I do not know why, but there is still no criminal penalty clause for this report.
However, there are the same extra and relief measures for penalty tax as same for the Overseas Property Report (Article 6-3 of the Act).
Similar to tax returns, these reports are subject to audit by the tax office, the National Taxation Bureau (Article 7 of the Act).
If the audit reveals that the Overseas Property Report has not been submitted or was falsely stated, criminal penalties will apply. Besides, the audit of the reports may lead to other audits of income tax, gift tax, and inheritance tax.
There are no criminal penalties regarding the Property and Debt Report. Still, after all, if the auditors found any false or unreported item in the reports, the unpaid tax will attract a penalty tax.
As mentioned above, the unpaid tax attributable to misreporting in any of the reports will be subject to an extra penalty.
There still seem to be many people who did not fulfill the reporting obligations, especially the Overseas Property Report.
Nowadays, the tax office and the National Taxation Bureau are able to grasp the overseas property owned by residents of Japan by the information exchange rules of AEoI and the tax treaties.
It is safer to submit the reports honestly beforehand, rather than to be subject to the additional tax as the result of “ostrich policy”.