If you are a US expat in Japan who is earning foreign income, you’ll need to make sure you are aware of taxation laws in both Japan and the US. While the US is one of the few governments that taxes the international income of its citizens and permanent residents, it does have provisions to protect us from double taxation. These include the Foreign Earned Income Exclusion, Foreign Tax Credit, and Foreign Housing Exclusion.
In the video below, you’ll learn about the most important tax issues as a US expat living in Japan.
As a US expat living in Japan, your tax obligations may have fallen to the bottom of your list. However, living in a foreign country means you are responsible for knowing the tax laws for both your host country and your home country. Fortunately, we’ve outlined the 7 things you need to know as an expat living in Japan.
If you are employed in Japan, one of the most important factors to consider is your income tax rate, which can range from five to forty percent, depending on your annual income.
In addition, all US expats are required to pay an Inhabitants Tax. This tax is combined for the prefecture and municipality in which you reside. It is typically a flat rate of 10 percent, but varies according to the municipality.
In Japan, there are three types of residency that will impact your taxes.
The first, Permanent Residents, have lived in Japan for at least five out of the last 10 years. The second, Non-permanent residents, are expats who have lived in Japan for at least one year. And, the third type, non-residents, are expats who do not meet the status requirements of either a permanent or non-permanent resident.
Fortunately for US expats, the tax year in Japan, which runs from January first to December 31, is the same as in the United States. The tax dates, however, differ significantly.
In Japan, tax returns are due to the Ministry of Finance on March 15th, and there are no extensions.
If you choose to pre-pay your taxes, you can do so at the end of July and November for each year except for the first initial year of arrival. Any unpaid amounts are due by March 15th.
If you are employed by a Japanese company, you’ll likely need to pay into Japanese Social Security. This covers the cost of health insurance, welfare, pension plans and other social programs.
However, there are a few exceptions for individuals who are self-employed or are on a temporary assignment in Japan.
Fortunately for US expats, a tax treaty between the US and Japan helps prevent double taxation. It is important to know how the tax treaty affects you when it comes time to file your taxes.
It’s also worth noting that you may need to pay taxes on forms of income other than wages. These may include capital gains tax, estate tax and gift tax. Non-cash compensation, such as housing stipends and education reimbursement, are also taxable.
If you are a US citizen or resident, you will still be required to file US taxes each year. If you have assets in foreign bank accounts, you may also be required to report those as well. Specifically, anyone with 10,000 dollars or more in a foreign bank or financial institution during a calendar year will be required to file the FBAR.
Fortunately, there are a few ways you can lower or eliminate your tax obligations. The first is the Foreign Earned Income Exclusion, which allows you to exclude a certain amount from your foreign earned income on your US expat taxes. The second is the foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar. And third is the Foreign Housing Exclusion, which allows an additional exclusion from income on US expat taxes for certain amounts paid for household expenses that occur as a consequence of living abroad.
Want to Know More About the Tax Implications of Earning Foreign Income?
For more detailed information regarding US expats in Japan, check out this blog post. If you have questions about filing your US expat taxes or would like help completing your tax forms, please contact us.