(NB: I’ve already reached out to tax professionals, just curious what knowledgeable folks here think in the meantime.)
My partner and I are studying on a student visa for 2 years in Tokyo. Our budget is $40,000 the first year, and $40,000 \* 1.03 (3% inflation factor) the second year. We have enough cash set aside for both years, but wanted to invest all of the cash for the second year in a U.S. brokerage to let it grow. In the second year, we’d sell stocks that we’ve held long-term to fund our life, quarterly. We live pretty simply and are used to budgeting and tracking expenses, so I suspect that we won’t have problems keeping our annual expenses below $40,000.
My long-term U.S. tax strategy has been to pay zero federal taxes due to the high LTCG 0% bucket – about [$94,000 in 2024 when Married Filing Jointly](https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-short-term-vs-long-term-capital-gains-taxes-brokerage-accounts-etc/L7KCu9etn) – and living off of stock sale proceeds (we need substantially less than $94,000 in non-capital gains dollars to live annually). After selling off stock to fund our life, I’d then fill up the rest of the LTCG allowance in the 0% tax bracket with capital gains harvesting: selling and rebuying stock to bump up our cost basis, thereby reducing our capital gains tax liability for future years. Then since I wouldn’t be working (I’ve entered FIRE), I’d fill up the U.S. Standard Deduction ($29,200 for 2024) with a Roth Conversion, pay zero taxes on the conversion.
Some questions to check my understanding of how this maps to the two years we’ll spend in Japan:
1. Is it true that when doing capital gains harvesting (selling then buying back immediately to bump the cost basis), **as long as the proceeds are not remitted to Japan, and the stock was originally purchased when not an non-permanent resident (NPR) of Japan,** I won’t be taxed on the LTCG?^(1)
2. If 1) is true, and I do capital gains harvesting which includes re-buying U.S. stocks at the end of my first year here, do I then have to pay unrealized capital gains tax on that bought stock for that tax year **even if I don’t sell while I’m in Japan**? If I leave before the end of the tax year without selling, would it be included as part of some exit tax?
3. What portion of the remitted proceeds from a stock sale is taxed in Japan – the capital gains, or the total remitted amount?
* For a specific example, if we’re planning to fund the 2nd year in Japan with proceeds from a $40,000 gross sale amount with 10% capital gains profit, is our tax obligation then 20% \* 10% \* $40,000 = $800, or 20% \* $40,000 = $8,000?
4. If I do a Roth Conversion of up to the U.S. Standard Deduction amount in a tax year, while an NPR in Japan, I’ll be able avoid paying U.S. taxes, but will I be taxed in Japan?
I’m also curious to hear from any Americans that have achieved FIRE in Japan. 20% of capital gains proceeds can be pretty big, so I’m wondering how folks make this work in the long-term. Maybe it’s worth it when comparing Japan’s quality of life to the U.S., even if one can pay zero taxes the U.S. (both capital gains and income tax) when FIRE.
Thanks!
^(1)The guide in [this thread ](https://www.reddit.com/r/JapanFinance/comments/p07dk9/i_wrote_a_guide_on_capital_gains_tax_in_japan/)from u/alexkwa says that I’ll be taxed as long as the stock sale happens when I’m a tax resident, but I don’t think that’s true, given [this PwC document, specifically the part regarding exemption](https://web.archive.org/web/20221204162149/https://www.pwc.com/jp/en/taxnews-international-assignment/assets/gms-20170511-en.pdf) (see screenshot).
https://preview.redd.it/wt5wchayr3pc1.jpg?width=1105&format=pjpg&auto=webp&s=aa793fe3cbe73c4113d71278152b8afada27f8cb
by Altruistic-Mammoth
4 comments
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Regarding Roth Conversions (question 4), this was asked on Ben’s podcast 8 months ago: [https://www.youtube.com/live/iuZiI9E2Nvg?si=Fhkfu114FEgMpIBL&t=3531](https://www.youtube.com/live/iuZiI9E2Nvg?si=Fhkfu114FEgMpIBL&t=3531)
It seems that if you’re NPR, you wouldn’t be taxed on the conversion, unless you remit the money to Japan. But remitting would defeat the purpose of the conversion, so this scenario doesn’t really make sense.
Once you’re a tax resident and no longer NPR, then you have to pay taxes on it as global income, regardless of the fact that it’s tax-free from the U.S. perspective.
I’m not an expert, but here is my understanding.
1. Your statement implies that you would send money other than the proceeds from your capital gains. This would be considered remitted income, as described in [Article 17 of the Order for Enforcement of the Income Tax Act](https://www.japaneselawtranslation.go.jp/en/laws/view/3121/en). So for your particular situation (i.e., no Japan source income paid abroad), any funds sent to Japan will be considered to be remitted income up to the amount of capital gains (edit: and any other foreign income). Also, note that use of foreign credit cards in Japan is considered as remitted income.
2. If you are here on a two year student visa I don’t believe you would be subject to Exit Tax. According to [this PWC document](https://www.pwc.com/gx/en/hr-management-services/newsletters/global-watch/assets/pwc-japan-delays-application-exit-tax-foreigners-five-years.pdf), it doesn’t apply if you are on a Table 1 visa. (But note that if you purchase stocks while NPR and sell them while NPR, they are considered taxable income. See [this PWC document](https://www.pwc.com/gx/en/services/people-organisation/publications/assets/pwc-japan-increased-scope-of-taxation-for-non-permanent-residents.pdf) for details. Also keep in mind that Japan tax law specifies FIFO as the basis for ~~capital gains tax~~ *acquisition date*, as explained in [this Deloitte document.](https://choosedeloitte.com/Assets/PDF/Japan%20-%20Pre-Initiation%20Visual%20Guide.pdf))
3. Remitted income is what is taxed (see item 1 above). Practically speaking, the amount of remitted income for your scenario will be the amount of funds remitted to Japan up to the amount of capital gains income and any other foreign source income. (Also, keep in mind that capital gains are calculated as the sale price in yen minus the purchase price in yen, using the exchange rate on date of sale and the exchange rate on date of purchase. So changes in exchange rate may result in a so-called phantom gain or loss.)
4. As you mentioned in your reply, this might be considered as income and the amount remitted to japan would be taxable. See #1 above regarding what is considered remitted income.
>I’m also curious to hear from any Americans that have achieved FIRE in Japan. 20% of capital gains proceeds can be pretty big, so I’m wondering how folks make this work in the long-term. Maybe it’s worth it when comparing Japan’s quality of life to the U.S., even if one can pay zero taxes the U.S. (both capital gains and income tax) when FIRE.
A long term visa is required if you want to live in Japan long term. A student visa won’t get you there. And there is no retirement visa. So unless your spouse is Japanese or you have Japanese heritage, your only choice is to come on a work visa and try to eventually get permanent residency. So you’ll have to postpone your early retirement.
As to the taxes being higher than the US, think of it as part of the cost of living. So ask yourself if you have enough to retire given the cost of living. If the answer is no, you’ll need to work longer to save more for retirement if you want to retire here. Putting this together with the paragraph above, you can solve your income problem by working long enough to get permanent residency.
By the way, 20% capital gains tax is not that big when compared to tax at marginal rates. It’s only big when compared to your strategy to pay no taxes in the US.