US Expat Taxes for Americans Living in Japan
- Living In Japan as a US Expat
- Japan at a Glance
- Americans Living in Japan Have US and Foreign Tax Obligations
- Tax Filing Requirements in Japan
- How Is Tax Residency Determined in Japan?
- Japan Resident Income Tax Rates
- Other Taxes in Japan
- Social Security
- US-Japan Tax Treaty
- Totalization Agreement with Japan
- Tax Forms for Expats in Japan
- Navigating Tax Compliance for US Expats in Japan
Living In Japan as a US Expat
Living as an American in Japan offers a unique and exciting opportunity to experience a rich cultural heritage, a high standard of living, and numerous career prospects. However, it is essential to understand the Japanese tax system and how it may impact Americans living abroad.
Japan has a comprehensive tax system that includes income tax, consumption tax, and other taxes such as property tax and automobile tax. As a US expat, you may be required to pay taxes in both Japan and the United States. However, to avoid double taxation, the US and Japan have signed a tax treaty that provides relief for certain taxes.
However, it is important to note that you may still be required to file a tax return in both Japan and the United States, even if you do not owe any taxes. Failure to file these returns could result in penalties and fines from both countries.
In this guide, we’re going to look at how Japan taxes foreigners. Here’s what you need to know.
Japan at a Glance
- Primary Tax Forms: Form A
- Tax Year: January 1 to December 31
- Tax Deadline: March 15th
- Currency: Japanese Yen (JPY)
- Population: 126 million
- Number of US Expats in Australia: Over 60,000
- Capital City: Tokyo
- Primary Language: Japanese
- Tax Treaty: Yes
- Totalization Agreement: Yes
Americans Living in Japan Have US and Foreign Tax Obligations
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. Failure to file your US taxes can result in penalties and fines, even if you do not owe any taxes.
Additionally, as a resident of Japan, you may also be required to file taxes with the Japanese government. Japan has a comprehensive tax system that includes income tax, consumption tax, property tax, and other taxes. The specific tax obligations you have in Japan will depend on your residency status, income, and other factors.
Learn where the best tax havens are, common traps, and ways to save money on your US expat taxes.
Tax Filing Requirements in Japan
Japanese residents and non-residents whose income meets certain thresholds will be taxed on that income. However, because Japan imposes a withholding tax on employees, foreigners living in Japan with only Japan-sourced employment income paid in Japanese Yen (JPY) will not need to file a return. Most foreigners will only need to file a tax return if:
- They receive employment income from a source outside of Japan
- Their employer doesn’t withhold their taxes during the tax year
- They have more than one employer
- They are self-employed
- They leave Japan before the end of the tax year
- Their annual income exceeds 20 million JPY
- Their side income exceeds 200,000 JPY
Americans who do have to file a tax return must self-assess their tax obligations when filing a return, much like in the US.
How Is Tax Residency Determined in Japan?
To be considered a resident of Japan for tax purposes, you must either own a home in Japan or have a temporary residence for at least one year. After living in Japan for five out of the previous ten years, you will become a permanent resident.
If you do not meet these residency standards, you will be considered a non-resident for tax purposes. This status can have significant tax implications, as non-residents are only taxed on their Japanese-sourced income.
Non-Resident Income Tax in Japan
Japanese non-residents are taxed only on their Japan-sourced income. Japan’s non-resident tax is levied at a flat rate of 20.42% of gross income. No deductions are available for this tax.
Japan Resident Income Tax Rates
Unlike non-residents, Japanese residents are taxed on their worldwide income. Residents of Japan are taxed at progressive rates, shown below. (All amounts are given in JPY.)
Income Tax Rates in Japan for Residents:
|962,500 plus 23% on the excess over 6,950,000
|232,500 plus 20% on the excess over 3,300,000
|962,500 plus 23% on excess over 6,950,000
|4,404,000 plus 40% on the excess over 18,000,000
|13,204,000 plus 45% on the excess over 40,000,000
All self-employment income must be self-reported. The excess of gross revenue over total deductible business expenses is then subject to taxation.
Due to the US-Japan tax treaty (as well as various IRS tax credits and deductions), it’s rare for a US expat in Japan to be subject to double taxation.
Other Taxes in Japan
Capital Gains Tax
Capital gains are taxed in Japan, but they are considered part of the standard income tax rather than a separate category. As such, capital gains are taxed at the same rates as income.
You can deduct your capital losses to reduce the amount of taxable capital gains.
Japan imposes a consumption tax when businesses transfer goods, provide services, or import goods into Japan. The standard flat rate is 10%, though some services are taxed at 8%, such as:
Japan has a gift tax with progressive rates based on the amount gifted (minus deductions and exclusions). The maximum tax rate for gifts is 55%, applying to gifts over 45 million JPY.
As with the gift tax, inheritances are taxed at progressive rates, with a maximum rate of 55% for inheritances over 600,000,000 JPY.
Real property is taxed at a flat rate of 1.7% of the appraisal value. This tax is imposed at the local level rather than the national.
Domestic corporations in Japan are taxed on their worldwide income, while foreign corporations are only taxed on their Japan-sourced income. (Though the US-Japan tax treaty protects corporations from double taxation.)
The corporate tax rate in Japan varies widely depending on the details of the company and the amount of income they must report.
Foreigners who qualify as residents of Japan are subject to an inhabitant tax levied at the local level. This tax is a combination of a flat fee of 5,000 JPY + 10% of the resident’s annual income.
Non-residents are exempt from the inhabitant tax.
Self-employed residents of Japan are subject to an enterprise tax. Like the inhabitant tax, this is levied by local governments. The rate for the enterprise tax ranges from 3%–5%, depending on the type of business.
When you live in the US, tax day is simple: April 15th! When you move abroad, it’s not so straightforward! Learn about all the expat deadlines and extensions you need to know to file.
Japan boasts a comprehensive social security system. Some foreigners may be required to pay into this, while others will instead contribute to the US Social Security system. This is determined by the US-Japan totalization agreement, which is designed to help non-residents avoid having to contribute to both systems at once.
- If a US company assigns you to work in Japan for less than five years, you will pay into US Social Security.
- If the assignment exceeds five years, you will pay into the Japanese social security.
- If you are working for a non-US employer in Japan, you will always pay into the Japanese social security.
- If you are self-employed, you will pay into the social security system of whichever country you live in for more days during the tax year.
US-Japan Tax Treaty
Yes. The US has agreed to a formal tax treaty with Japan. This treaty helps US citizens living in Japan avoid double taxation (being taxed twice on the same income).
Totalization Agreement with Japan
The US also has a totalization agreement with Japan. This agreement defines which country’s social security system you should contribute to, protecting you from double taxation.
Tax Forms for Expats in Japan
As an American living in Japan, you may have to file tax forms with both the Japanese and US governments. Let’s take a look at some of the most common Japanese tax forms for expats:
Form A is the individual income tax return in Japan, comparable to America’s IRS Form 1040. If you are required to file a Japanese tax return, you will almost certainly use Form A.
You must submit Form A to Japan’s National Tax Agency (NTA) by March 15. Extensions are rarely allowed. And if you leave Japan before the end of the tax year, you must file Form A before departing unless you appoint a tax agent to represent you in your absence.
If you have any income-generating assets, such as real estate, investments, or business operations, you will have to fill out Form B.
Form B should be attached to Form A and filed at the same time.
Report of Foreign Assets
If you qualify as a permanent resident of Japan and own assets in other countries worth more than 50 million JPY, you must file a Report of Foreign Assets. Using this form, you will report the type, quantity, and value of all of your foreign assets.
If you are required to file a Report of Foreign Assets, you must do so by March 15.
The IRS provides a variety of credits and deductions for Americans living in Japan. Using these tax credits, most expats are able to erase their US tax bill entirely. To learn more, see our guide on expat tax benefits.
Navigating Tax Compliance for US Expats in Japan
Thank you for reading our guide on the impact of Japan’s tax policies on US citizens living abroad. We hope that it has enriched your understanding of this topic. If you’re seeking further information, our team of knowledgeable expat tax experts is always available to assist you.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.