Do I need to file a tax return for losses from overseas forex trading? We'll explain how to fill out the necessary forms and how to offset losses against gains for tax purposes!

 

If I incur losses from overseas forex trading, do I need to file a tax return? Also, can losses incurred this year be carried forward to the following year?

Losses from overseas forex trading generally do not need to be declared on your tax return

However, if you have profits from other miscellaneous income, you can offset those profits against your losses for that year only, thereby reducing your taxable income and thus lowering your taxes

Therefore, this article will explain the tax system for overseas forex trading, methods for saving on taxes, and the procedures for filing tax returns

Since the tax systems for domestic and overseas forex trading differ, it's important to understand them properly

For information regarding taxes on overseas forex trading, please read the "Complete Guide to Overseas Forex Taxes

Tax system and mechanisms for overseas forex trading

Profits from overseas forex trading are treated as miscellaneous income and are subject to comprehensive taxation, where they are combined with other taxable income such as salary income for tax purposes

Let's get straight to explaining the tax system and mechanisms that apply to overseas forex trading

Losses from overseas forex trading are not required to be declared

If you incur losses from overseas forex trading throughout the year and do not make any profit, you are not obligated to declare those losses on your tax return

Tax filing is the process of calculating and reporting your taxable income from January 1st to December 31st each year in order to pay the correct amount of income tax

Since income tax is calculated based on taxable income, if you only incur losses in a given year, you will not be liable for income tax, and therefore you do not need to file a tax return

If you have made a profit, you should also declare any losses in your tax return

If you have other miscellaneous income besides overseas forex trading, you should include your overseas forex losses in your tax return

This is because the lower your total miscellaneous income, the less income tax you will have to pay

Income tax is calculated based on taxable income earned during the year. Therefore, by offsetting profits from overseas forex trading with losses from overseas forex trading, taxable income can be reduced, thus lowering income tax.

Furthermore, offsetting profits and losses for the same year is called offsetting profits and losses

For example, if you have a loss of 300,000 yen from overseas forex trading and a profit of 1,000,000 yen from cryptocurrency trading (which is considered miscellaneous income), you would calculate income tax on the remaining 700,000 yen in taxable income after offsetting the losses

However, losses cannot be offset against gains from domestic FX brokers

Overseas forex trading and domestic forex trading are categorized differently in terms of income, so profits and losses from these transactions cannot be offset against each other

Since income tax is calculated separately for each income category, profits and losses can be offset against each other within the same income category.

However, because overseas FX is subject to "comprehensive taxation" and domestic FX is subject to "separate taxation," profits and losses from the same FX cannot be offset against each other

	Overseas FX	Domestic FX
Tax classification	Comprehensive taxation	Separate taxation upon declaration
tax rate	5％〜45％	20.315％
Loss carryforward	Not possible	Possible
Offsetting profits and losses	Possible	Possible

Comprehensive taxation calculates income tax by totaling various income amounts, while separate taxation calculates income tax without totaling other income amounts

Therefore, even if you have a loss of 300,000 yen from overseas forex trading and a profit of 1,000,000 yen from domestic forex trading, you cannot offset the losses against each other, and income tax will be calculated on the 1,000,000 yen profit from domestic forex trading.

Also, be aware that losses cannot be carried forward

Be aware that losses incurred in overseas forex trading cannot be carried over to subsequent years

While losses from overseas forex trading can be offset against miscellaneous income earned in the same year to calculate taxable income, losses cannot be carried forward to subsequent years

On the other hand, losses incurred in domestic FX trading can be carried forward for up to three years, allowing you to deduct the previous year's losses from your income in the following year

• If you incur losses in overseas forex trading:
  Year 1: Loss of 300,000 yen Year 2: Profit of 1,000,000 yen

Since overseas forex trading does not allow loss carryforward, income tax will be calculated on the 1 million yen in the second year

• If you incur losses in domestic FX trading:
  Year 1: Loss of 300,000 yen Year 2: Profit of 1,000,000 yen

Since losses from domestic FX trading are allowed to be carried forward, in the following year, income tax will be calculated on the remaining 700,000 yen after deducting 300,000 yen from 1 million yen

Be aware that the tax regulations regarding loss carryforward differ between overseas and domestic forex trading

You are required to file a tax return if your income exceeds 200,000 yen for salaried employees and 480,000 yen for business owners, etc

If the profits you earn from overseas forex trading exceed a certain amount, you will be subject to taxes and will need to file a tax return

Those who need to file a tax return are as follows:

Salaried employees

Target audience	- People who receive a salary from their employer, such as company employees or part-time workers • Those who have income from public pensions, etc
conditions	If the profit earned in a year exceeds 200,000 yen

Non-salaried workers

Target audience	Unemployed individuals, self-employed individuals, housewives, students, and others who do not receive a salary
conditions	If your total annual income, including profits from overseas forex trading, exceeds 480,000 yen

Generally, for salaried employees and others who receive a salary from a company, the company handles the calculation and payment of taxes on their payroll

Therefore, those whose only income is their salary do not need to file a tax return

However, if you have income from overseas forex trading in addition to your salary, or if you are a housewife or student and earn a certain amount of profit from overseas forex trading, you will need to file a tax return

Please note that income other than that from overseas forex trading is also included in the scope of income that requires filing a tax return. If you have other sources of income besides overseas forex trading, be sure to remember to include them in your total.

In some cases, those with low salary income may not need to file a tax return

Individuals with low annual income, such as those working part-time or on a casual basis, may not need to file a tax return even if they earn profits from overseas forex trading. For example, in the cases described below, a tax return is not required

• Annual salary for part-time work is 600,000 yen
• Profits earned from overseas forex trading are less than 430,000 yen per year

Calculation formula
: (Annual salary 600,000 yen - Employment income deduction 550,000 yen) + Overseas FX 430,000 yen - Basic deduction 480,000 yen = Taxable income 0 yen

In the case of an annual salary of 600,000 yen, you can receive a deduction of up to 1,030,000 yen. In other words, if your profits from overseas forex trading are 430,000 yen or less, your taxable income will be 0 yen, and you will not need to file a tax return

List of expenses that can be deducted in overseas forex trading | Explanation of what percentage of rent and mobile phone bills should be claimed as expenses

Additionally, there is a " tax return exemption system ," meaning that pension recipients who meet certain conditions do not need to file a tax return.

The conditions for being eligible for the tax return exemption system are as follows:

• The total amount of income from public pensions, etc. is 4 million yen or less, and all of the public pensions, etc. are subject to withholding tax
• Income other than miscellaneous income from public pensions, etc. is 200,000 yen or less

If the "payment amount" on your public pension withholding statement is 4 million yen or less, and your income other than pensions is 200,000 yen or less, you are not required to file a tax return for that year

Tax-saving tips! Declaring expenses will lower your taxes

Similar to how corporations and self-employed individuals can deduct business expenses, expenses incurred in overseas forex trading can be deducted from profits. Expenses refer to the costs and expenses necessary to generate profits from overseas forex trading.

By utilizing expenses to reduce profits, you can lower your income tax, making it an effective tax-saving measure

Tax evasion is illegal, but tax avoidance is considered legal, so use your expenses correctly and implement tax-saving measures

Expenses not related to overseas forex trading are not eligible as business expenses

First, expenses not related to overseas forex trading are not eligible as business expenses. This means that personal consumables used at home cannot be claimed as business expenses.

The following are the expenses that apply to overseas forex

• Cost of purchasing a computer or smartphone to be used for trading
• Communication costs
• Related book and newspaper expenses
• Seminar participation fee (including transportation and accommodation expenses)
• Rent and utilities
• VPS contract costs for automated trading
• Transaction fees
• Equipment costs (stationery, desks, chairs, etc. for business transactions)

Whether or not an expense is actually treated as a deductible expense is determined by the tax office with jurisdiction. If you cannot provide a valid reason when inquired about by the tax office, you should exclude that expense from your deductible expenses

Also, if you have any questions, checking with the tax office in advance will help ensure a smooth tax return process

It's also recommended to use deductions such as the spousal deduction and the blue return deduction

To reduce your income tax, it's recommended to utilize deductions such as the spousal deduction and the blue return deduction

• your spouse
  's taxable income is 480,000 yen or less (1,030,000 yen if it's only salary income), you can deduct 380,000 yen from their income.

 

• Special spousal deduction:
  If the spouse's taxable income is between 380,000 yen and 1,330,000 yen (or between 1,030,000 yen and 2,016,000 yen if it is only salary income), a certain amount of deduction can be received depending on the spouse's taxable income.

 

• Blue Return Deduction:
  By becoming a blue return filer and filing your taxes using generally accepted accounting principles, you can deduct 550,000 yen from your taxable income as a blue return deduction. If you meet certain requirements, such as filing via e-Tax, you can deduct up to 650,000 yen.

 

The more deductions you can subtract from your taxable income, the greater the tax-saving effect and the lower the amount of tax you have to pay

There are other deductions you can subtract from your taxable income, such as life insurance premiums you've paid, so don't forget to file your tax return

Summary of Tax-Saving Strategies for Overseas Forex Trading | Explanation of How to Avoid High Taxes and Whether Loopholes Will Be Discovered

Filing tax returns for profits and losses from overseas forex trading: Required documents and how to fill them out

This article explains the procedures for filing tax returns on profits and losses incurred from overseas forex trading

Tax returns are generally filed from February 16th to March 15th

As a general rule, you must file your tax return for any profits or losses incurred from overseas forex trading between February 16th and March 15th of the following year, and pay income tax

There are three ways to submit your tax return:

1. File your tax return using e-Tax
2. Send it to the tax office by mail or courier service
3. Take it to the tax office and submit it

Now, let's discuss the documents required for reporting profits and losses from overseas forex trading, and the documents you should prepare

There are mainly three types of declaration documents required

To file a tax return for overseas forex trading, you will need the following three types of tax forms:

1. Tax return form B (Page 1, Page 2)
2. Calculation details of miscellaneous income, etc., related to futures trading
3. Tax return form B, page 1 (right column)

This is an important document for reporting profits and losses from overseas forex trading, so please fill it out correctly and submit it

① Tax return form B (First page, Second page)

Source: National Tax Agency | Final Tax Return Form B, Page 2

Tax return form B is where you enter your total income and taxable income for the year, the expenses you deduct from your income, and the amounts of various deductions

[Left column of Table 1]

• salaried
  employees, enter the income amount shown on the withholding tax statement issued by your company.

 

• Income Amount, etc.:
  ① For salaried employees, enter the income amount shown on the withholding tax statement issued by your company.
  ② Enter the income amount from overseas forex trading.

 

• Amounts deducted from income:
  The amount to be deducted from income as expenses.

 

[Table 2]

• Breakdown of income:
  The income amount listed on the withholding tax statement and the income amount from overseas forex trading are listed separately.

 

• Matters concerning insurance premium deductions, etc.:
  ① Enter the amount of social insurance premiums, etc. as shown on the withholding tax statement.
  ② If there are any life insurance premiums, etc. that are eligible for deduction, please indicate them.

 

• tax
  on overseas forex trading deducted from your salary or pension, or to pay it yourself.

If you don't want your company to know that you have income from overseas forex trading, choose to pay the taxes yourself

If you choose to pay yourself, a payment slip will be sent to your home

② Calculation details of miscellaneous income, etc., related to futures transactions

Source: National Tax Agency | Calculation Statement of Miscellaneous Income, etc. Related to Futures Trading

To prepare your statement, you will need a trading report detailing your income and expenses for the year . Prepare this in advance using MT4, MT5, or your overseas forex broker's tools.

The main items to be included in the statement are the following four:

• Details of the transaction
• Total income
• Necessary expenses, etc
• Income amount (Total revenue - Total necessary expenses, etc.)

Please note that you do not need to attach an annual transaction report

③ Tax return form B, page 1 (right column)

Source: National Tax Agency | Final Tax Return Form B, Page 1

The following two points should be entered on the first page (right column) of the tax return form B:

• Tax calculation:
  ① Enter the special reconstruction income tax
  ② Enter the total tax amount
  ③ Withholding tax amount
  ④ Declared tax amount

In addition, if you are eligible for tax deductions such as the special deduction for housing loan interest, be sure to include that information.

• Other
  ① If claiming the special spousal deduction, please indicate the total income of your spouse.
  ② If applicable, please indicate the special blue return deduction amount.

If you have any income other than public pensions or any unpaid withholding tax, you must include it

A complete guide to filing your tax return for overseas forex trading! How to avoid losing money on taxes?

Q&A regarding losses from overseas forex trading and tax filing

Here are four frequently asked questions regarding losses from overseas forex trading and filing tax returns

Q. When do taxes on overseas forex trading begin?

Once a position is closed, the total amount of realized profit or loss will be subject to taxation when filing your tax return. Positions that are not closed and whose profit or loss fluctuates due to exchange rate changes are not subject to taxation.

However, swap points received when adjusting for interest rate differences between currencies being bought and sold are subject to taxation when they are received and reflected in the account

Furthermore, salaried employees are required to file a tax return if their profits from overseas forex trading exceed 200,000 yen, while non-salaried employees are required to file a tax return if their annual income, including profits from overseas forex trading, exceeds 480,000 yen.

Q. When will my company find out about my income from overseas forex trading?

Generally, there are two reasons why your company might find out about your side income, such as from overseas forex trading:

• Local resident tax is incurred at a rate higher than income from primary employment
• Colleagues or others inform the company

Local resident tax is calculated based on taxable income from January 1st to December 31st of the previous year and is deducted from your salary through special collection

It's conceivable that the company's resident tax officer will notice if the amount of resident tax is significantly higher than the taxable income from your main job when checking your resident tax

Therefore, when filing your tax return, by selecting "pay resident tax on side income through ordinary collection," you can eliminate the risk of your company finding out about the change in your resident tax

However, some municipalities do not offer this service, so be sure to check with your local city hall before filing your tax return

Also, be careful, as there are cases where people report you to the company if you tell a colleague about your side job or if they see the notifications on your smartphone screen

Q. Which has higher taxes, overseas forex trading or domestic forex trading?

If you earn the same amount of money from both overseas and domestic forex trading, and your annual taxable income exceeds 3.3 million yen, the tax on domestic forex trading, which is subject to separate taxation, will be higher.

annual income	Overseas FX (income tax + resident tax 10%)	Domestic FX (income tax + resident tax 5%)
1.5 million yen	225,000 yen	379,725 yen
1.95 million yen	370,500 yen	468,960 yen
3.3 million yen	861,750 yen	727,173 yen
6.95 million yen	2,083,620 yen	1,598,389 yen
9 million yen	3,209,520 yen	1,889,512 yen
18 million yen	7,602,000 yen	3,848,893 yen

*Taxable income consists only of profits earned from overseas and domestic forex trading.
*No expenses.

If you have other income, such as salary income, please calculate based on the total amount of your taxable income

What are the differences between overseas and domestic forex trading? We'll explain who each is suitable for, as well as tax implications and profit/loss offsetting

Q. Are there any loopholes in the tax system?

Profits earned from overseas forex trading are also subject to tax, so failing to file a tax return and pay taxes constitutes tax evasion

Japanese tax authorities are supposed to be able to track income generated overseas through systems such as overseas remittance reports and CRS (Common Reporting Standard), so there are no tax loopholes.

A "Report of Overseas Remittances, etc." is a notification sent to the tax office when profits earned from overseas forex trading are deposited into a domestic account for use in Japan

The Critical Risk Management System (CRS) is a system designed to prevent tax evasion and avoidance through the use of foreign financial institutions

If you fail to declare your income, you will have to pay an additional penalty tax for failure to file. This penalty tax is 15% to 20% of the original tax amount, so you will have to pay extra tax

Furthermore, if you file your tax return or make your payment after the deadline, you may be subject to late payment penalties. In addition, if there is serious negligence such as concealing income, you may have to pay an additional heavy penalty tax of 35% to 40%

Profits from overseas forex trading are subject to Japanese income tax, so be sure to file a tax return if you make a profit

Q. How do I file my tax return for a dollar-denominated account?

Some overseas forex brokers offer dollar-denominated accounts, but if you make a profit in a dollar-denominated account, you must convert it to yen and file your tax return accordingly.

The yen conversion based on the provisions of Article 57-3, Paragraph 1 (Conversion of Foreign Currency Transactions) of the Act (excluding yen conversion when the provisions of Paragraph 2 of the same Article apply) shall be based on the mid-rate of the spot telegraphic selling rate to customers (hereinafter referred to as the "telegraphic selling rate" in Articles 57-3-7) and the spot telegraphic buying rate to customers (hereinafter referred to as the "telegraphic buying rate" in Articles 57-3-7) on the day the transaction should be recorded (hereinafter referred to as the "transaction date" in this paragraph).

(Source: National Tax Agency | Article 57-3 (Conversion of Foreign Currency Transactions) related information)

Converting to yen requires calculating the exchange rate for each transaction, which is extremely time-consuming for an individual to do

Bargain rate: The rate that is the midpoint between the buying price and the selling price. Financial institutions determine this rate based on the exchange rate at 9:55 AM every morning

If you are unfamiliar with dollar-denominated accounts, we recommend using yen-denominated accounts. However, if you have any questions about filing tax returns for dollar-denominated accounts, you should consult a tax professional

summary

This page explains how to calculate your income and file your tax return if you incur losses from overseas forex trading

Finally, let's review the important points

• Losses from overseas forex trading are not required to be declared
• If you have profits from other miscellaneous income, you can offset them against losses
• Losses from overseas forex trading cannot be carried over to subsequent years
• Salaried employees are required to file a tax return if their profits exceed 200,000 yen
• Individuals who do not receive a salary are required to file a tax return if their profits exceed 480,000 yen
• Tax returns are filed from February 16th to March 15th
• Unrealized gains and losses are not subject to taxation

When comparing the taxes incurred from overseas forex trading and domestic forex trading, if your annual taxable income is less than 4.75 million yen, the taxes on overseas forex trading, which is subject to comprehensive taxation, will be lower

Furthermore, you can reduce your taxes by utilizing expenses and various deductions incurred for overseas forex trading.

When filing your tax return, be sure not to forget to include it in your filing

*Please note that we cannot be held responsible for any omissions or errors in the information provided. Furthermore, due to changes in product/service content, or changes in laws and regulations set by the government, there may be temporary discrepancies between the information posted on the site and the actual situation. Please verify the information yourself

[Tax Accountant Supervised] Complete Guide to Taxes on Overseas Forex Trading | Differences in Tax Rates and Calculation Methods Compared to Domestic Forex Trading, and How to File Your Tax Return