Do an unfiled income tax return and a late payment affect screening for permanent residence?
Foreigners Employment Support Organization (FESO) ／ Published ／ Last updated
This article is a translation of the Japanese original. Where the two differ, the Japanese version prevails.
Read the Japanese original（日本語版を読む）
Answer
An unfiled income tax return and a late payment may have some effect on screening for permanent residence. This is because how you have met your duty to pay tax carries weight in deciding whether you have "good conduct" and whether you have "sufficient assets or skills to make an independent living". That said, the fact that you corrected the matter yourself and paid in full is something that may be viewed positively.
What is this enquiry about?
An enquiry from someone who later found out that rental income from overseas property had not been declared.
Subject: permanent residence
Application type: change from 在留資格「技術・人文知識・国際業務」 (Engineer/Specialist in Humanities/International Services) to 「永住者」 (Permanent Resident)
Situation: British national. He came to Japan on 「技術・人文知識・国際業務」 and has lived here continuously for at least 10 years. His salary is around 9 million yen a year (900万円), and it was about the same in the past. No unpaid social insurance or pension contributions. He holds a period of stay of 5 years. No traffic offences.
Background: About 4 years ago he sold property in the United Kingdom. When he filed a tax return for the gain on the sale, it came to light that he had not declared the rental income up to then in Japan. He paid the income tax and the late-payment tax (延滞税) this year.
Question: If an income tax return was not filed and payment was late, how much effect does that have on screening for a permanent residence visa?
How do an unfiled return and a late payment affect screening?
They affect both the judgement on good conduct and the judgement on the ability to make an independent living.
Good conduct: The duty to file tax returns is one of the basic duties you have to meet while living in Japan. The fact that this was neglected may be viewed negatively when "good conduct" is assessed
Ability to make an independent living: Your past tax payment record is an important indicator of your financial reliability and of your ability to keep a stable living going into the future. Where a return was not filed or payment was late, that reliability may be damaged for a time
Whether it was intentional or serious: Whether the failure to file was intentional or simply careless is taken into account, as are how it came about, how long it lasted, and how large the amounts were. Here there were complicated circumstances, namely rental income from overseas property, and the matter came to light because he filed a return himself at the time of the sale. That background may be a factor pointing to a less serious case
Payment of the late-payment tax: Paying the 延滞税 properly is a point in your favour, in that you corrected the matter yourself and met your duty to pay tax rather than waiting to be told by the tax authorities
That said, the principle is that ignorance of the law is no excuse, and it is thought quite likely that a strict view will be taken of the applicant. The fact that there was a breach of the duty to pay tax is a plain fact, and some effect is unavoidable. Tax matters are given particular weight.
Are there any points in his favour?
4 points: social insurance and pension fully paid, no traffic offences, correcting the matter himself, and stable income.
No unpaid social insurance or pension contributions: Looking at how public duties have been met as a whole, paying these properly is a very big plus
No traffic offences: Having no other problems on the conduct side is a favourable factor
The matter came to light and was corrected because he filed a return himself: The background here, that it came to light as a result of filing a tax return himself rather than waiting to be told by the tax office, and that he then promptly paid up including the late-payment tax, may be viewed as an honest response
Steady, stable income: His current salary of around 9 million yen (900万円), which has been at about the same level in the past, is a strong point in terms of the ability to support himself
What can be done to strengthen the application?
Use a 理由書 and tax payment certificates to set out carefully how it happened and how it was put right.
Prepare a detailed 理由書 Explain in concrete terms why the past rental income was not declared. Set out carefully that it was simple carelessness and not intentional, and that the differences between the overseas tax system and the Japanese tax system were not fully understood. Describe clearly what was done once it came to light (filing a tax return yourself and paying everything, including the late-payment tax), stress the honest response, and then state your resolve to comply fully with Japanese tax law and other laws from now on.
Provide full documentation on tax payment Be sure to submit the tax payment certificate for the income tax and late-payment tax paid late (one that proves payment in full). Also submit tax payment certificates (income tax and residence tax) for the several years before the failure to file came to light, to show that the duty to pay tax was properly met in all other periods. Submit documents proving your pension and health insurance payment status too, without leaving any out.
A letter of recommendation from your employer It can also help to obtain a letter of recommendation from the company you work for, describing your attitude at work, your contribution in Japan, and the plan to keep employing you.
Think about the timing of the application Rather than applying just after the tax has been paid, applying once several months to about 6 months have passed, and you have a record of living stably during that time, may give a more settled impression. However, it is important to take account of the expiration date of your current period of stay and to keep to a schedule that leaves you enough time.
How is the amount taxed overseas treated?
The foreign tax credit adjusts for international double taxation.
Where foreign income is taxed under the law of another country by something equivalent to income tax, income tax is charged twice, once in Japan and once in that other country.
To adjust for this international double taxation, a certain amount can be deducted from the income tax due. This is called the foreign tax credit (外国税額控除). Going through this procedure should put you in the best position possible after the event.
For the foreign tax credit procedure, we recommend consulting a specialist such as a tax accountant.
Frequently Asked Questions
If I failed to file an income tax return, can I still not apply for permanent residence?
You can still apply. However, how you have met your duty to pay tax carries weight in deciding whether you have "good conduct" and whether you have "sufficient assets or skills to make an independent living", so it may have some effect.
Does it make a difference if I declared and paid on my own initiative?
The background of correcting the matter yourself and paying promptly, including the late-payment tax, rather than waiting to be told by the tax authorities, may be viewed as an honest response. Even so, the fact that there was a breach of the duty to pay tax remains.
Should I apply as soon as I have paid the tax?
Applying once several months to about 6 months have passed, and you have a record of living stably during that time, may give a more settled impression. Please take the expiration date of your period of stay into account as you go.
If I pay tax overseas, am I taxed in Japan as well?
Where foreign income is also taxed abroad by something equivalent to income tax, it is taxed twice. To adjust for this there is a system called the foreign tax credit, under which a certain amount can be deducted from the income tax due.
This article provides general information. Immigration rules change, and outcomes depend on individual circumstances. Please check the Immigration Services Agency website or consult a qualified specialist.
This page is a translation of the Japanese original. Where the two differ, the Japanese version prevails.
