Questions on tokutei and FX-related gains in the tax declaration

[Sterk]

Hi folks! In the process of preparing my e-tax form and have a few questions. My background:

• Employee of a US 外資系 with income <20M but getting RSUs as part of compensation, so have to file the 確定申告 regardless
• Investing through NISA and a tax-withholding account (特定口座 源泉徴収あり
• Permanent Resident, non-US citizen

Pretty confident I handled correctly the calculation of additional income from RSU vests and sales, as I knew how to do this from last year. However, there’s a couple points I'm still struggling to understand and stressing over:

1. When the USD from my RSU sale proceeds are remitted to Japan and converted to JPY (which I do through my Wise account), I understand this can generate a taxable event in case JPY/USD on the conversion date yields an amount different from the JPY cost basis calculated on the date I sell the RSU. I have no issues calculating and declaring this, and I understand it counts as miscellaneous income. But then I went down the foreign currency gains rabbit hole with this Reddit post. If interpreted strictly, it seems to imply that literally every time I use a foreign currency (e.g. my home country’s) that would generate a taxable event based on the difference between amount spent in JPY and its historical cost basis, which seems to be extremely difficult to calculate (see this comment here). If that is the case and it applies no matter the goods purchased (e.g. lots of small daily or recreational expenses made when overseas), it sounds like an absolute nightmare to be 100% compliant. The take from this forum post instead claims that to generate taxable gains/losses you need both a buy and a sell event. I admit I had no idea about these nuances and am pretty confused.
2. Other than RSU, I have sold some of the stocks in in my 特定口座 源泉徴収あり. In principle I fall under the cases where one does not need to submit the 確定申告 (explained here). However, in my case I need to prepare one anyway due to being paid RSUs. In such a case, am I required to fill out the section on the 特定口座 as well or can I skip it as any due taxes on that account were already withheld at the source? I thought this were the case, but I am slightly confused. If I try to load the .xml transaction data I got from Rakuten Securities into the section for separate taxation the projected tax to pay slightly increases. But if anything I would have expected a very slight deduction due to credit on some foreign dividends (which appear as 外国税額控除等 after loading the data file). Am I somehow double-dipping on taxes by inputting the data? Or just misunderstanding how the system works?

Would really appreciate reliable info on the above points. Thanks in advance!

[adamu]

No idea about FX but I can answer Q2.

am I required to fill out the section on the 特定口座 as well or can I skip it as any due taxes on that account were already withheld at the source? I thought this were the case, but I am slightly confused. If I try to load the .xml transaction data I got from Rakuten Securities into the section for separate taxation the projected tax to pay slightly increases. But if anything I would have expected a very slight deduction due to credit on some foreign dividends (which appear as 外国税額控除等 after loading the data file).

You can leave it. Technically it's considered as "separately taxed as source". Some info here: https://retirewiki.jp/wiki/Income_Tax

You're right that you're foregoing a deduction by doing that though, as you will have also paid some US witholding tax on the dividends, which you can put into the calculation for the foreign dividend deduction. However, in order to do that you need to declare the dividends (using the XML file) on the tax return. You can choose to keep it as separate taxation (probably better) or lump it in with aggregate taxation (better in some circumstances but I'm guessing not yours).

The way it works:
1) import the XML file to have the income and witheld yen show up, assign it as separate taxation (taxed at the same rate as the tokutei kouza). This will cause you to pay slightly more tax, because you'll be paying JP tax on the full dividend, not the dividend less US tax.
2) Make sure the already witheld Japanese tax also shows up in the witheld tax section so you get a tax credit for that amount.
3) You need to manually enter the details to claim the foreign tax deduction. It should cause you to get a tax credit equal to the amount of US tax you paid, but it might be less due to the credit being capped to a proportion of your tax bill (and due to this, any credit that you couldn't apply is rolled over in various complex ways).

I was actually planning to write a guide about this on the wiki but life happened and I didn't get around to it. I don't think there's a good English guide but there are some in Japanese.

Basically I think you should look at how much US witholding tax you paid on the dividends (it's listed on the human readable 年間特定口座取引報告書 that accompanies the XML file) and decide if reporting it to claim the foreign tax deduction is worth your time. In my case it's not, but I do it anyway.

There's a good overview here but that also doesn't tell you how to actually claim the deduction.

https://www.reddit.com/r/JapanFinance/c ... ax_credit/

[Sterk]

Basically I think you should look at how much US witholding tax you paid on the dividends (it's listed on the human readable 年間特定口座取引報告書 that accompanies the XML file) and decide if reporting it to claim the foreign tax deduction is worth your time. In my case it's not, but I do it anyway.

Thanks, very informative! I think I might just leave out the whole thing then, the amount of US dividends I get is very small and the deduction would most likely not be worth the time required to iron out all the details...

[Kiro]

@sterk

May I ask if you found a definitive answer about your point #1?

I will be in the same situation, as I sold some, paid the capital gain tax due, and received the USDs in Japan.
Now I'm not sure what to do... Invest the bulk into something like VT in USD, convert everything to JPY and invest in a JPY product, or keep some when I travel to pay for things. Or a mix of the two or three.

How would that work in reality? Every time something is bought or paid for with these USD in another currency, whether it's a coffee or an apple, I would need to calculate the difference in exchange rates? I'm a bit confused to say the least...