Japan proposes to withhold taxes on winnings by foreigners

The Japanese government is looking over proposals to withhold taxes on winnings by non-resident foreigners at casino resorts.

It is said to be studying the tax system as sources claim tax investigations would prove difficult once gamblers left the country.

Countries such as South Korea and the US currently employ a withholding tax system for casino winnings.

If the system is approved in Japan, winnings made by foreigners will be taxed in a similar way to horse racing in the country – a tax will be levied based on the difference between the value of chips purchased and the amount converted back to cash.

Because of this, the Japanese government is also considering making it compulsory for casino operators to keep records of chip purchases and gaming results. The rules will be designed to prevent players from pretending that chips won were purchased. It would also prevent winners from leaving chips with a friend on the premises of a casino resort to reduce their winnings.

Winnings are planned to be taxed as “temporary income” although the exact tax rate has not been announced. The proposals are set to be included in the outline of 2020 tax reforms, which will then need to be finalized by ruling parties and implemented after April 2021.

In a statement, a Japanese government official said, “If we do not decide on a certain framework in advance, it will affect the investment decisions of operators.”

Back in July 2018, lawmakers approved a bill to allow for casinos in the country. Before the amendment to the law, betting on horse racing and certain motor sports such as cycling and powerboat racing were the only gambling activities that were legal.

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Plans have been outlined for three integrated resorts which are set to each include a large hotel, conference rooms, and gambling areas. The resorts plan to be operating by mid-2020.

Yokohama, Wakayama Prefecture, Nagasaki Prefecture, and the city of Osaka and Osaka Prefecture have all declared their intention to bid so far. Hokkaido recently pulled out after residents expressed concerns about the project’s environmental impact and unease over the development of gambling issues.

The country is set to become the third-richest gaming market in the world, following behind only Macau and Nevada.

Several international casino operators have indicated their interest in Japan. In September, Wynn vowed to build the world’s largest casino in the country at a conference at Encore Boston Harbor in Massachusetts.

Leader of the campaign, Chris Gordon, said, “The government has set goals for the next 20 years to raise tourism to a very high level. We like that.”

“It’s also a society that has had an interest in gaming. They certainly have gaming now, with pachinko, horses, and motorboats.”

MGM Resorts International has put a lot of effort into seeking a license; the company now has an office space in the city and is organizing a team to work in the area. The venerable Genting Group also stands a good chance of gaining a license thanks to its large cash reserves and experience; the company currently has two casinos in Singapore.

Yokohama, the second biggest city in the country, has so far received draft proposals from Galaxy Entertainment, the Genting Group, Caesars Entertainment, Melco Resorts, Wynn Resorts, and MGM Resorts.

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Caesars gave up its hopes of pursuing a license in August, deciding to focus on its $17.3 billion merger with Eldorado Resorts Inc instead.

The company had been working towards a foothold in the Japanese market for years – it promised the country a $5 billion resort back in 2014 and announced a “100 Year Partnership for Japan” campaign in 2018, but it seems the timing is no longer right.