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QROPS Japan Pension Transfer for British Expats to Avoid Paying Taxes


QROPS Japan | UK Pension Transfers for British Expats in Japan

QROPS Japan: If you wish to retire in Japan, anyone who has built up a final salary or private pension in the UK can transfer their UK pension to New Zealand to avoid UK taxes. Both British expats and Japanese who have worked in the UK should look into the option of moving a UK pension to a Recognised Overseas Pension Scheme in New Zealand or Hong Kong. A UK pension transfer directly to a ROPS in Japan is not possible.

A New Zealand ROPS avoids UK taxes, but you would pay Japanese income tax. If you want full pension flexibility and the ability to access your entire pension pot from age 55, you would need to transfer to a ROPS in Malta.

However, you would pay Maltese income taxes as Malta has no Double Taxation Agreement with Japan and you may also pay Japanese income taxes if no foreign tax credit it allowed in Japan.

Both a NZ ROPS and a HK ROPS would face Japanese income tax. A HK ROPS does not allow full pension flexibility, but there is zero tax in Hong Kong and you can self direct investments.

British expats living in Japan or wishing to retire in Japan can now transfer their pension into a QROPS Japan to maximize pension tax relief. British expats living or working in Japan can take advantage of their offshore status and transfer their UK pension offshore to somewhere secure like New Zealand and will no longer have to pay UK taxes on their pension if they stay offshore.

If you are Japanese and have built up a substantial pension working in the UK, then you can also move your pension via a QROPS in NZ to avoid UK taxes.

rops japan

Why live or retire in Japan as a British expat?

Over 23,000 British expats are estimated to live or work in Japan. Japan has the 3rd largest economy in the world at the moment. It is also the world’s 4th largest exporter and 4th largest importer.

Although Japan has officially renounced its right to declare war, it maintains a modern military force in self-defense and peacekeeping roles despite recent disputes with China over the Senkaku islands.

After Singapore, Japan has one of the lowest murder rates in the world. According to both UN and WHO estimates, Japan has the longest life expectancy of any country in the world. This has become a real problem in Japan and an aging population has led to the Japanese to realize the potential for robotics in care homes in the future. Many Brits come to work in Japan as teachers or businessman as the pay is often better. For those Brits who settle down and have made a life in Japan, it may be prudent to think about transferring your pension to Japan to avoid UK taxes.

Transferring a UK Pension to New Zealand for a Resident in Japan

If you are a British citizen resident in Japan or you are Japanese member of a UK pension scheme and returning to retire in Japan, a New Zealand QROPS / ROPS is a sensible solution. A NZ ROPS attracts zero tax at source. You just pay Japanese income taxes at retirement when you start drawing benefits. Retirement payments are made directly to your Japanese bank account from age 55 or whenever you choose to retire.

Taxation on pension is covered under article 18 of the New Zealand-Japan DTA

Article 18

Pensions

1.Subject to the provisions of paragraph 2 of Article 19, pensions and other similar remuneration paid to a resident of a Contracting State in consideration of past employment shall be taxable only in that Contracting State.
2.Notwithstanding the provisions of paragraph 1, pensions paid and other similar payments made by the Government of a Contracting State or a local authority thereof under a public welfare scheme or the social security system of that Contracting State may be taxed in that Contracting State.

This clearly gives the taxation rights to Japan.

Benefits of a NZ ROPS for Residents in Japan

  • 30% tax-free cash lump sum allowed; the rest to pay an annual income for life
  • Pooled investments allowed only based on your risk profile; self directed investments not allowed
  • Currency is GBP only
  • 0% tax in the UK as long as you remain tax resident outside the UK
  • 0% tax in New Zealand
  • Only pay Japanese income tax at retirement when you draw benefits
  • 100% of pension passed to named beneficiaries on death
  • A secure inheritance / estate planning tool; no need to take a a mandatory drawdown at 70 such as in Malta
  • Strong NZ pension regulations to secure your investments

Transferring a UK Pension to Hong Kong for a Resident in Japan

Transferring a UK pension to Hong Kong opens up your retirement portfolio to a much wider range of investments than in New Zealand and the tax rate in Hong Kong is zero on pensions.

The HK-Japan DTA gives the taxing rights to Japan, unless you are divorced and receiving alimony, in which case, the tax is zero in Hong Kong.

Article 17

PENSIONS AND ALIMONY

1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration beneficially
owned by a resident of a Contracting Party shall be taxable only in that Contracting Party.
2. Alimony or any other similar payments for the maintenance paid by a resident of a Contracting Party to a
resident of the other Contracting Party shall be taxable only in the first-mentioned Contracting Party. However, such payments shall not be taxable in either Contracting Party if the individual making such payments is not entitled to a deduction for such payments in computing taxable income in the first-mentioned Contracting Party.

So, most pensioners who have a HK ROPS would be taxed on income in Japan, except divorcees being paid alimony from a ROPS in HK, in which case, tax is zero.

Benefits of a NZ ROPS for Residents in Japan

  • 25% tax-free cash lump sum allowed; the rest to pay an annual income for life
  • Choice of investments; self directed investments allowed, but trustees must sign off on any investment decisions
  • Choice of currency
  • 0% tax in the UK as long as you remain tax resident outside the UK
  • 0% tax in Hong Kong
  • Only pay Japanese income tax at retirement when you draw benefits after age 55
  • 100% of pension passed to named beneficiaries on death
  • Strong HK pension regulations to secure your investments
  • HK ROPS is an unvested, occupational pension scheme

pension transfer japan

What Would be the Tax on My QROPS in Japan?

What tax do I have to pay in Japan on my offshore pension and any income I receive?

A foreign resident who is employed in Japan pays tax only on income earned in Japan. If you have income paid abroad it is not taxable. If income is remitted to Japan, you would pay tax on that portion.

A NZ ROPS attracts Japanese income tax (see tables below). There is no tax on growth or death.

A HK ROPS attracts Japanese income tax (see tables below). There is no tax on growth or death.

A Malta ROPS attracts Malta income withholding tax of 25% and Japanese income tax (see tables below). You can then claim for foreign tax credit relief if available. There is no tax on growth or death.

Here is the income tax guide in Japan for foreigners.

Personal Income Tax Rate in Japan

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Can I Get a Return on My Contributions to the Japanese Pension Scheme

Foreign employees who enrolled in the Japanese public pension schemes for 6 months or longer can apply for lump sum withdrawal payments from the Japan Pension Service after they leave Japan. When you receive the payments, a 20% income tax is withheld at source. Expats may claim a refund of the amount withheld if you opt to file a tax return pursuant to Article 171 of the Income Tax Law. You would need to do this with your Japanese tax man.

What is a QROPS Japan?

A Qualifying Recognized Overseas Pension Scheme (QROPS Japan) allows your UK pension to be transferred offshore to reduce your tax burden. Effectively, you will no longer pay UK tax on your pension whilst you are offshore and after 10 years of living offshore, the reporting requirements to HMRC cease. These reports are handled by the QROPS trustees on your behalf.

If you transfer to a QROPS in New Zealand, you can get access to a higher lump sum of 30% at 55 if you have been offshore for 5 years, you avoid UK income tax and you are allowed to take 100% of any increase in the value of your pension pot as an additional cash lump sum tax-free. Upon death, your named beneficiaries get the entire pension pot.

If you are a British expat living in Japan at the moment, you can take advantage of your offshore address in order to move your UK pension into a QROPS in New Zealand to avoid further UK taxes down the line.

QROPS Trustees in Japan

Do I need to move my pension to Japan?

No. There are no QROPS trustees in Japan, so you can’t transfer your pension there. The best two options are to move to a QROPS in New Zealand who have a DTA with Japan and your pension would be paid out with zero tax deducted, but there would be a narrow range of strategies or you could transfer to a QROPS in Hong Kong which would allow a much wider range of investments.

What Will Happen to My QROPS if I Leave Japan?

If you are still outside the UK, your QROPS will still grow tax-free. However, if you decide to return to the UK, your QROPS would be taxed in the UK. Although, if you return, time apportionment relief would minimise any taxes on death as well as keep your pension outside of UK IHT at 40%. Any growth of the QROPS would not be taxed in the UK.

Please contact us if you have any questions regarding a UK pension transfer abroad if you are living in Japan or plan moving there.

QROPS Pension Transfers for British Expats in Japan written by QROPS Specialists.

QROPS Japan Pension Transfer for British Expats to Avoid Paying Taxes by

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