At TFX we have been preparing taxes for Americans in Japan since 1995.
Taxes for US Expats Explained - Japan
Japan has been an Asian economic hub for many years. It is an attractive destination for expats trying to find business opportunities and unique culture. But, it is vital to understand the impact that living in Japan has on your expat taxes in the United States, and the taxes you pay to Japan while you live there.
US Expat Taxes - Japan
US citizens, as well as permanent residents, are required to file expatriate tax returns with the federal government every year no matter where they reside. Along with the typical tax return for income, many people are also required to submit a return disclosing assets which are held in bank accounts in foreign countries by using FinCEN Form 114 (FBAR).
The United States is among only a few governments who tax international income earned by their citizens, as well as permanent residents, residing overseas. There are, however, some provisions that help protect from possible double taxation situations. These include:
- The Foreign Earned Income Exclusion. This exclusion allows one to exclude USD $104,100 (this amount is for 2018 taxes) in earned income from foreign sources.
- A tax credit allowing a tax on remaining income to be reduced based on the taxes paid to foreign governments.
- An exclusion on foreign housing that allows additional exclusions from their income for some amounts paid to cover household expenses due to living abroad.
Preparing a quality tax return following proper tax planning should allow one to use these, as well as other strategies, in minimizing or possibly eliminating tax liability. Note that in most cases the filing of a tax return is required, even if taxes are not owed.
Who Qualifies as a Resident of Japan?
Everyone in Japan pays taxes regardless of their residency status. How the tax is imposed is different depending on residency status. Japan has 3 residency categories:
- A Permanent Resident - Japanese nationals along with expats who have had a domicile and home in Japan at least 5 of the previous 10 years.
- A Non-Permanent Resident - Expats with a home and domicile in Japan a minimum of 1 year, but haven’t exceeded 5 of the last 10 years.
- A Non-resident - People who are not in either category above. Usually, foreign employees are granted Non-Permanent Resident status after they organize the paperwork required to begin their employment.
Tax Rates for Japan
The tax rates in Japan are:
| Tax Rate | Income | |
| 5% | On | Under JPY 1,950,000 |
| 10% | JPY 1,950,001 - JPY 3,300,000 | |
| 20% | JPY 3,300,001 - JPY 6,950,000 | |
| 23% | JPY 6,950,001 - JPY 9,000,000 | |
| 33% | JPY 9,000,001 - JPY 18,000,000 | |
| 40% | JPY18,000,000 - JPY 40,000,000 | |
| 45% | OverJPY 40,000,000 |
Expats also pay Inhabitants Tax. This tax is combined by the municipality and prefecture where the person lives. The rate is dependent on the particular municipality, but is often 10%.
Tax Treaty
An approved tax treaty between Japan and the United States is in place. It helps a taxpayer decided which country to pay taxes to, when the taxes are due, and helps prevent dual taxation. In most cases, residency status is what determines the country that receives the taxes. Tax treaties can be complex, so it is always advisable to consult a professional tax advisor.
When Are Japanese Taxes Due?
The tax year in Japan is identical to the US tax year - January 1 - December 31. There are not many other similarities between the two tax systems, though. Tax returns must be submitted to the Ministry of Finance no later than the 15th of March. There are not any provisions for extending this deadline. Remember that this deadline occurs before the US deadline.
There are two deadlines for tax pre-payments. These payments happen on July 31st and November 30th of each year after the year the taxpayer first arrives. In the case that there is still a balance due on the 15th of March, the remainder is due on that date.
Japanese Social Security
Usually, expats pay taxes into the Japanese Social Insurance system after they start employment with any Japanese company. This tax funds things like welfare, health insurance, workers compensation, unemployment insurance, and pension plans.
Expats on temporary assignments must pay into the US Social Security system too. The self-employed must pay their social security tax to the place where they spend the most time. It is Social Security that can sometimes lead to double taxation.
Does Japan Tax Foreign Income?
Whether or not an expat pays income taxes on earned income from foreign sources depends on the residency status they hold. Permanent residents must pay income tax, plus municipal and prefectural taxes, on all their income globally. Non-permanent residents only pay tax on Japanese sourced income, with an exception for foreign income paid in Japan or sent to Japan. Taxpayers who are classified as non-residents only pay taxes on income earned inside Japan. Additionally, they only pay the inhabitants tax if they are owners of the property or Japanese companies.
Japanese Taxes
Along with income taxes, there are also other types of taxes in Japan that expats should be informed about. These taxes are similar to the taxes US citizens are familiar with back in the US, but understanding them is still a good idea.
All people who live in Japan pay the inhabitant tax to local municipalities and prefectures. The rate is generally 10% of income but does vary by municipality.
Any compensation is taxable, including non-cash forms of compensation. Some items that are included are relocation expenses, housing stipends, club memberships, meal allowances, clothing allowances, education reimbursement, payments for home leave, and commuting costs. There are some exceptions, but most expats should be prepared to pay tax on any compensation in non-cash form.
Japan does tax capital gains, including sales of antiques, art, equipment, and machinery by entrepreneurs, memberships, bonds, and patents. These taxes get filed separately, although capital losses (if any) can offset other income.
Foreign nationals pay estate taxes on the condition that they were a Japanese resident at the point in time of the donor’s death, and this tax is on all property - whether inside Japan or outside. If the estate beneficiary isn’t a Japanese resident, the tax is only on properties within Japan.
A Japanese gift tax is similar to US gift taxes. The donee pays the applicable taxes on the gift. The donor is relieved of tax responsibility. Gift taxes are only levied on non-residents for the property that was located within Japan.
How to read Japanese Tax Statement (Gensen Choshu Hyo)
A Gensen-Choshu-Hyo is the official tax form that you get from your employer. It outlines your earnings and the amount of taxes you paid during the calendar year. Find out more on how to read it.
Questions About Japanese Taxes?
With so many different taxes applied to expats who live or work in Japan, you should make sure to apply any available deductions, credits, and exclusions to your taxes in the United States. Understanding the taxes you must pay while in Japan is one key to enjoying the experience.
Contact us! We have an expert team to provide tax advice to expats, and give you all the information you need to know to file your United States expat tax return while living outside the country.
Japanese Frequently Asked Questions
1. My salary gets paid by an employer in Japan. Do I need to file?
Yes, you do. This certainly adds a bit of work to you or your tax accountant, but the effect on your taxes is likely to be minimal. For salaries less than USD $104,100(for 2018) there is a zero net effect. It is placed on the form first as a positive, and then later on down the form as a negative.
2. My spouse is not a resident and has no U.S. income. Do I need to get a US tax ID number for them?
No, but there are situations where it may be beneficial to do so. Secondly, unlike Japan, they cannot be claimed as a dependent on your Tax return. However, it is important to note that if you are married you are not allowed to file single. You don’t have to declare your non-US spouse’s information, but you cannot file single on your tax return.
3. My filing status is head of household. Am I required to report income from my Japanese spouse?
No. The only time you must report your spouse’s income is if you file using married filing jointly status. Please see this article.
4. What about my spouse’s parents? Can they be claimed as dependents?
There are rules that must be met to qualify as dependents. One of the key rules is that your parents or your spouse’s parents must have US Social Security numbers or live in the US. Then other conditions such as their income may be further considered to qualify them as your dependents.
5. My Japanese spouse has accounts that don’t have my name on them. Am I required to report these?
No. You must report financial accounts on form FBAR which is an informational form - no tax due generated. If you are not a signatory on the account, you do not need to report them. See article here.
6. I have interest from Japanese post office and bank accounts. How is the interest reported?
The entries for regular post office accounts will show gross income, along with withholding tax (20.315%). Passbooks for bank accounts usually only show the net, so you must divide by 0.79685. For the United States, report the gross amount as income, then claim the foreign tax credit for the Japanese withholding tax.
7. I own stocks that are held in a brokerage account in Japan. Am I required to report this to the Internal Revenue Service?
Simply holding the stocks does not generate a tax obligation, but a taxable event occurs (ie if you receive dividends or sell stock) you must report this on your tax declaration.
8. Am I required to pay taxes on my Japanese pension (kōsei-nenkin)?
If you receive these payments, you must report it on your U.S tax return. However, if you pay tax in Japan on these distributions, the payments will count as foreign tax credit towards your US tax obligations.
9. I own a home in Japan and pay property taxes and mortgage interest. Am I allowed to claim a deduction?
Yes. The rules are the same as for homes in the United States. You can itemize deductions or claim the standard deduction (whichever is higher). Please see this article.
10. I pay tuition to a Japanese school. Am I allowed to claim a tuition deduction?
No. There are no provisions for this.
11. I am an owner of a KK (Kabushiki Gaisha) - what does this mean for my U.S tax filing requirement?
This may require the filing of Form 5471 which is submitted with your U.S. tax return.
Please see the following information which may be useful for you.
Foreign Corporation Guide
U.S. Business Owners Abroad - Top Issues To Be Aware Of
12. Am I subject to double taxation in Japan and the United States?
If your return is prepared correctly there should be no double taxation in most cases. There are tax treaties involved, and any tax paid to Japan should be applied to your U.S. tax liability.
13. What exchange rate should I use?
Optimizing currency for the benefit of the client is a tool we use to help mitigate tax due. The Internal Revenue Service allows any published rate to be used, as long as it is consistently used throughout the return. There are some rates published by the IRS as guidance, though.
Unlike the tax return which allows more flexibility, the rates for form 8938 and FBAR must be the treasury rate.
FAQs
How are US citizens taxed in Japan? ›
What Are Japan's Taxes like for Americans abroad? In general, US expats living in Japan are required to file tax returns with both the US and Japanese governments. As a US citizen, you are required to file a US Federal Tax Return every year, regardless of where you live or work.
Is there an income tax treaty between US and Japan? ›One primary benefit of the US-Japan Tax Treaty is the relief from double taxation. In other words, the double taxation relief allows a person to claim a credit for taxes paid in the other country to avoid double-taxation. This helps to avoid and/or minimize having to pay tax in both jurisdictions on the same income.
How are foreigners taxed in Japan? ›Non-residents pay taxes only on income from sources in Japan, but not on income from abroad. A person who has lived in Japan for less than five years, but has no intention of living in Japan permanently. Non-permanent residents pay taxes on all income except on income from abroad that does not get sent to Japan.
How can we avoid double taxation in Japan? ›In order to prevent double taxation on the same income, Japan has concluded tax treaties with many countries for the purposes of promoting investment and economic exchange with those countries through providing legal stability in taxation, eliminating international double taxation, and preventing tax evasion and ...
How are US citizens taxed on foreign income? ›In general, yes — Americans must pay U.S. taxes on foreign income. The U.S. is one of only two countries in the world where taxes are based on citizenship, not place of residency. If you're considered a U.S. citizen or U.S. permanent resident, you pay income tax regardless where the income was earned.
Are taxes higher in Japan or America? ›The highest income tax rate of Japan is 55% compared to 37% of the U.S. Another difference is that the above rates in the table are not marginal. The Japanese government applies the rate to the entire income. This is another significant difference compared to the U.S.
Is there double taxation in Japan? ›ELIMINATION OF DOUBLE TAXATION
Where a resident of India derives income which, in accordance with the provisions of this Convention, may be taxed in Japan, India shall allow as a deduction from the tax on the income of that resident an amount equal to the Japanese tax paid in Japan, whether directly or by deduction.
nonresidents. Nonresidents are taxed at a rate of 20.42%. Resident income tax rates range from 5% to 45%. In addition to national income tax, individuals pay a surtax of 2.1% (this is included in the total nonresident tax rate) and residents pay a local tax of 10%.
Does Japan tax foreign retirement income? ›Except for US or Canada (See later), if the source country of the Pension has a Tax Treaty with Japan, then (according to the treaties that I have checked so far - usually Article 17) the pension income is only taxable in the country of residence; i.e. Japan, and not in the other country.
Can an American own property in Japan? ›In Japan, unlike other countries, there are no restrictions for foreigners based on whether or not they have permanent resident status, Japanese nationality, or based on their visa type. This means that foreigners are allowed to own both land and buildings in Japan as real estate properties.
Do I have to pay residence tax in Japan? ›
A resident having a domicile within Japan as of January 1, and earned income during the previous year, in principal, the resident must pay resident taxes. However, depending on income or family situation, the resident may not need to pay resident taxes.
How can I reduce my income tax in Japan? ›- Home Loan Tax Deduction. This is a pretty big one, and it applies to people that purchased their residence in Japan. ...
- Employee Expenses. Resident taxpayers who earn an employment income are eligible for earned income deduction. ...
- Spousal Tax Deduction. ...
- Charitable Contributions.
Foreign Tax Credit
Well, if you qualify for the Foreign Tax Credit, the IRS will give you a tax credit equal to at least part of the taxes you paid to a foreign government. In many cases, they will credit you the entire amount you paid in foreign income taxes, removing any possibility of US double taxation.
Tax exemption in Japan basically applies to all items, from general items such as home appliances, accessories, and shoes, to consumable items such as alcohol, food, cosmetics, cigarettes, and medicines. Tax is exempt only under certain conditions.
What happens if I don't pay my residence tax in Japan? ›Failure to pay will result in late penalties. In some cases, your assets could be seized to pay for outstanding taxes. The late penalty is calculated from the day after the due date.
Do dual citizens pay taxes in both countries? ›Yes, if you are a citizen or resident alien of the United States, you have a U.S. tax obligation, even if you're a dual citizen of the U.S. and Canada. The U.S. is one of two countries in the world that taxes based on citizenship, not place of residency.
Do US citizens living overseas pay taxes? ›Yes. The United States is one of only a few countries that taxes its citizens no matter where they live in the world. If you are an American living abroad, you must file a US federal tax return and pay US taxes on your worldwide income no matter where you live at that time.
Do US citizens need to report foreign income? ›Federal law requires U.S. citizens and resident aliens to report their worldwide income, including income from foreign trusts and foreign bank and other financial accounts.
Can an American citizen live in Japan? ›If you want to stay longer than 90 days, you will have to gain a working visa or a spouse visa. This means you must either work in Japan or marry a Japanese citizen. The final way to get a permanent resident visa takes many years. First, you must stay in the country for three years on one-year visas.
How much tax will I pay in Japan? ›...
Your Social Insurance.
| Annual Salary | Tax Rate |
|---|---|
| 3,300,001－6,950,000 | 20% |
| 6,950,001－9,000,000 | 23% |
| 9,000,001－18,000,000 | 33% |
| 40,000,001 + | 40% |
How long can I stay in Japan with US passport? ›
You must have a valid passport and an onward/return ticket for tourist/business "visa free" stays of up to 90 days. Your passport must be valid for the entire time you are staying in Japan. You cannot work on a 90-day "visa free" entry.
Is Japan tax heavy? ›Strengths. Japan has a low VAT rate of 10 percent. The consumption tax base is relatively broad, covering 65 percent of consumption. Japan's personal income tax rate on dividends is 20.3 percent, below the OECD average of 24.2 percent.
Is Japan a high tax country? ›Top 10 Countries with the Highest Personal Income Tax Rates - Trading Economics 2021: Ivory Coast - 60% Finland - 56.95% Japan - 55.97%
What is the tax withholding in Japan? ›Dividends, interest, and royalties earned by non-resident individuals and/or foreign corporations are subject to a 20% national WHT under Japanese domestic tax laws in principle. An exceptional rate of 15% is applied to interest on bank deposits and certain designated financial instruments.
How much is health insurance in Japan? ›The average cost of health insurance in Japan is about 35–40,000 JPY per month (330–370 USD). Your medical bills will remain the same and you can use the lump sum given to you by your private insurance to pay the 30% that is normally left over after the public health insurance coverage.
Can you retire in Japan as a US citizen? ›Japan is a stunning destination and highly sought after by Americans who want to retire abroad. It is very difficult to gain residency in Japan, but if you do, it can be a great place to retire. The healthcare system is one of the best in the world.
Can I move to Japan after retirement? ›You can apply for a long stay (D Visa) depending on the type of visa you find more suitable for you. After having a long-stay visa for a certain period of time, you can apply for permanent residence if you wish to reside permanently in Japan.
Can you be a dual citizen of United States in Japan? ›Dual citizens should carry both valid passports (U.S. and Japan) at all times when traveling to/from the U.S. The dual citizen must present the Japanese passport when going through Japanese immigration and the U.S. passport at U.S. immigration.
How much is a house in Japan in USD? ›The average price of a new house listed for sale in Japan last month was ¥35,760,000 (about $337,000), which is lower than the median house sale price of 2022's first quarter in the US, which was $428,700.
Can I open a Japanese bank account from the US? ›Setting up a bank account in Japan from abroad is not possible as you will need to present your visa and residence card in-person to your chosen Japanese bank. Only those with a residence permit may open a bank account in Japan.
Do you get residency if you buy property in Japan? ›
Buying Property Doesn't Give You A Visa
The residency process is the same whether you own property or not. If you don't have residency, you may still purchase property in Japan (even on a tourist visa), however you'll be limited to the amount of time you can spend in Japan.
If a resident taxpayer is a Japanese national, or a foreign national with an aggregate stay in Japan of more than five years within the preceding ten years, the taxpayer is considered a permanent resident taxpayer.
Who needs a residence card in Japan? ›A Person who is 16 years and over need to carry his / her residence card at all times. It can be used as an ID when you carry out an official procedure at local government or enter into a contract. A residence cards is issued to a person who stay in Japan over three months.
Who are exempted from tax in Japan? ›| Total income (JPY) | Personal exemption for national income tax (JPY) | Personal exemption for local inhabitants tax (JPY) |
|---|---|---|
| Under 24 million | 480,000 | 430,000 |
| Over 24 million and under 24.5 million | 320,000 | 290,000 |
| Over 24.5 million and under 25 million | 160,000 | 150,000 |
| Over 25 million | Not eligible | Not eligible |
The average monthly salary for employees in Japan can range from approximately 130,000 JPY (1,128 USD) to 2,300,000 JPY (19,963 USD). Note: The upper range of salaries is the highest average and not the maximum salary Japanese people earn.
What is the easiest way to reduce taxable income? ›An effective way to reduce taxable income is to contribute to a retirement account through an employer-sponsored plan or an individual retirement account. Both health spending accounts and flexible spending accounts help reduce taxable income during the years in which contributions are made.
How do I maintain US residency while living abroad? ›- Maintain and use U.S. savings and checking bank accounts. ...
- Maintain a U.S. address. ...
- Obtain a U.S. driver's license. ...
- Obtain a credit card from a U.S. institution. ...
- File U.S. income tax returns.
The expatriation tax provisions (prior to the AJCA amendments) apply to U.S. citizens who have renounced their citizenship and long-term residents who have ended their U.S. residency for tax purposes, if one of the principal purposes of the action is the avoidance of U.S. taxes.
How do taxes work if you live in two countries? ›If you are a resident of both the United States and another country under each country's tax laws, you are a dual resident taxpayer. If you are a dual resident taxpayer, you can still claim the benefits under an income tax treaty.
Does Japan check tax free items? ›Customs inspect your possession of the tax-free goods as necessary. If you DO NOT EXPORT the tax-free goods, you have to pay the consumption tax at customs. You may be subject to penalty (Imprisonment up to 1 year or a fine up to maximum of 500,000 yen) if you have transferred the tax-free goods prior to departure.
Do you have to file taxes in Japan? ›
All income tax returns are filed on an individual basis in Japan; joint tax returns are not permitted. The tax year is the calendar year for all resident-status individuals, and a taxpayer is required to file a national tax return by 15 March of the following year.
Do you tip in Japan? ›Tipping in Japan is not expected, and attempts to leave a tip will almost certainly be turned down (a potentially awkward moment). In Japan, it's thought that by dining out or drinking at a bar, you are already paying the establishment for good service.
Should I close my bank account before leaving Japan? ›Please also note that foreign citizens who will leave Japan (non-residents of Japan) are required to close their account before leaving the country permanently.
What is the 183 day rule in Japan? ›(*) For any twelve-month period that begins or ends in the tax year, the stay in Japan must not exceed 183 days. For example, if you stay for a total of 10 months, the last five months in this tax year, and the first five months of the following tax year, it will exceed 183 days.
Is Japan tax free for foreigners? ›Consumption tax and tax-free shopping
Tax-free shopping is available to foreign tourists at licensed stores when making purchases of over 5000 yen at a given store or mall on one calendar day. A passport is required when shopping tax-free.
U.S. citizens entering either visa free or with a tourist visa are not allowed to work in Japan. Persons found working illegally are subject to arrest and deportation.
Do expats pay income tax in Japan? ›Non-residents
A non-resident taxpayer's Japan-source compensation (employment income) is subject to a flat 20.42% national income tax on gross compensation with no deductions available. This rate includes 2.1% of the surtax described above (20% x 102.1% = 20.42%).
One ounce is about 28ml. 200,000yen. Any item whose overseas market value is under 10,000yen is free of duty and/or tax and is not included in the calculation of the total overseas market value of all articles.There is no duty-free allowance for articles having a market value of more than 200,000yen each or each set.
Do tourists have to pay tax in Japan? ›Visitors to Japan pay a 1,000 yen departure tax to expand and enhance the country's tourist infrastructure—a small tax that will make a significant difference. Japan National Tourism Organization (JNTO) operates a visitor hotline 24 hours a day, 365 days a year.
Do retirees pay taxes in Japan? ›In addition to the income tax, the inhabitant tax (local tax) is imposed on the retirement income. Social insurance contribution is not required.
What is the most taxed country in the world? ›
While both its sales and corporate tax regimes may be considerably lower than those of other countries globally, at 60%, Côte d'Ivoire's income tax rates are markedly higher compared to developed countries.
Is it hard for Americans to move to Japan? ›Unlike some Asian countries, relocating to Japan is not difficult as long as you are prepared. This means having all of the right documents together before you even board your flight to the island nation. What do you need for a Japanese relocation?
Should an American move to Japan? ›Is Japan a good place for North American expats? U.S. News and World Report ranked Japan the second-best country in the world to live in. North American expats can enjoy a high standard of living in Japan with its stable economy, government, and robust social services.
Can I retire to Japan as an American? ›If you want to stay longer than 90 days, you will have to gain a working visa or a spouse visa. This means you must either work in Japan or marry a Japanese citizen. The final way to get a permanent resident visa takes many years. First, you must stay in the country for three years on one-year visas.