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As an American expat in Australia, you’ll probably have to file both a US and Australian tax return. Here’s what you need to know to meet all of your expat tax obligations.
Living and working in Japan can be an incredible experience. For years, US expats have flocked to Japan to enjoy its high standard of living and rich cultural heritage. But what are Japanese taxes like for Americans living abroad?
Let’s take a look.
First things first: Do expats living in Japan have to file their taxes with the US or Japan?
In most cases, the answer is both. Virtually all US citizens are required to file an annual US Federal Tax Return no matter where they live. On top of this, most expats living in Japan will also have to file taxes to the Japanese government as well.
Generally, all residents and non-residents of Japan whose income meets certain thresholds will be taxed on that income. However, because Japan imposes a withholding tax on employees, expats living in Japan with only Japan-sourced employment income paid in Japanese Yen (JPY) will generally not need to file a return. Most expats will only need to file a tax return if:
Expats who do have to file a tax return must self-assess their tax obligations when filing a return, much like in the US.
Compared to most countries, Japanese residence guidelines are remarkably straightforward.
US expats are considered residents of Japan if they own a home in Japan or have a temporary residence for at least one year. Once an expat has lived in Japan for at least five out of the previous ten years, they are considered permanent residents.
US expats living or working temporarily in Japan are considered non-residents if they do not meet the standard of residency.
If you do not meet any of these qualifications, you will generally be considered a non-resident for tax purposes.
In Japan, residents are taxed on their worldwide income. However, Japan has tax treaties with many countries, including the US, so it’s rare that a US expat in Japan would be subject to double taxation.
Residents of Japan are taxed at progressive rates, shown below. (All amounts are given in JPY.)
Income Tax Rates in Japan for Residents:
Unlike residents, non-residents are taxed only on their Japan-sourced income at a flat rate of 20.42% of their gross income. No deductions are available for this tax.
All self-employment income must be self-reported. The excess of gross revenue over total deductible business expenses is then subject to taxation.
Capital gains are taxed in Australia, 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.
Pro Tip: Expats can deduct 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 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.
Japan boasts a comprehensive social security system. Some expats 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 expats avoid having to contribute to both systems at once.
Domestic corporations in Japan are taxed on their worldwide income, while foreign corporations are only taxed on their Japan-sourced income. (Though, as with individual expats, the US-Japan tax treaty typically 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.
Expats 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 generally 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.
Yes. The US has agreed to a formal tax treaty with Japan. This treaty helps US expats living in Japan avoid double taxation (being taxed twice on the same income.)
The US also has a totalization agreement with Japan to define which country’s social security system expats should contribute to.
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 for each—as well as their deadlines.
Form A
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 15th. 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.
Form B
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, they 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 15th.
Form 1040 is the standard US individual income tax return. Every US citizen is required to file this form regardless of where they live in the world.
The due date for Form 1040 is typically April 15, but in the case of expats, that due date is automatically extended to June 15. (You can also request a further extension to October 15.)
Pro Tip: If necessary, you can request a further extension to October 15th for filing your Form 1040.
The US has its own version of the Japanese Report of Foreign Assets: IRS Form 8938, better known as a FATCA report. If you own foreign (non-US) financial assets above certain thresholds, you must file this report. The specific threshold depends on your filing status and whether you are a bona fide resident of a foreign country.
If you are required to file a FATCA report, attach it to your Form 1040 once you’ve completed it and file them together.
If you have a total of at least $10,000 in one or multiple foreign (non-US) bank accounts, you have to report it by filing FinCEN Form 114, better known as FBAR.
This form must be filed electronically through the FinCEN BSA E-Filing System. As with Form 1040, the standard due date is April 15th, but if you miss that deadline, there’s an automatic extension until October 15th.
Because of the US-Japan tax treaty, most Americans living abroad in Japan are exempt from double taxation. However, the IRS also provides several other potential tax credits and deductions for expats, such as:
Using these tax credits, most expats are able to erase their US taxpaying obligations entirely. (Though you are still required to file a US Federal Tax Return even if you don’t owe anything.)
We hope this guide has given you a better understanding of how Japan’s tax policies impact US expats. If you’d like to learn more, though, our team of expat tax experts can help.
At Greenback Expat Tax Services, we’ve spent years helping expats optimize their financial strategies and file their taxes accurately and on time. Just contact us, and we’ll be happy to answer any questions you have.
Click here to get started on your expat taxes today.
