Foreign nationals residing and working in Japan must comply with Japanese tax laws and fulfill their tax obligations. Japan’s tax system is relatively complex, and for foreign nationals, understanding relevant tax policies, obligations, and filing procedures is crucial. This guide will provide a detailed overview of tax obligations, income tax filing procedures, and key points for foreign nationals in Japan, helping them fulfill their tax responsibilities in Japan more effectively.

Determining the Taxpayer Status of Foreign Nationals

1.1 Foreign Resident Taxpayers

According to Article 2, Paragraph 1, Item 3 of the Japanese Income Tax Act, foreign individuals who meet any of the following conditions are considered Japanese resident taxpayers:

Have a domicile in Japan;

Have resided in Japan continuously for more than one year.

Foreign resident taxpayers are required to pay income tax in Japan on their worldwide income.

1.2 Foreign Non-Resident Taxpayers

Foreign individuals who do not meet the conditions for resident taxpayers are considered non-resident taxpayers. Foreign non-resident taxpayers are only required to pay income tax in Japan on their Japan-sourced income.

1.3 Foreign Permanent Residents and Non-Permanent Residents

Foreign resident taxpayers can be further classified as permanent residents or non-permanent residents:

Foreign Permanent Residents: Foreign nationals who have been Japanese residents for more than 5 years within the last 10 years.

Foreign Non-Permanent Residents: Foreign nationals who have resided in Japan for less than 5 consecutive years.

Foreign non-permanent residents enjoy certain tax benefits, as they are only required to pay taxes on Japan-sourced income and income remitted to Japan from overseas.

Taxable Income for Foreign Nationals

2.1 Taxable Income for Foreign Resident Taxpayers

Foreign resident taxpayers are required to pay taxes in Japan on their worldwide income, which mainly includes:

Salary and wages earned from Japanese companies or institutions;

Income from personal business activities in Japan;

Investment income such as interest, dividends, and rental income from both Japan and overseas;

Pensions and retirement benefits from both Japan and abroad;

Capital gains earned in Japan and overseas;

Other income from Japan and overseas.

2.2 Taxable Income for Foreign Non-Resident Taxpayers

Foreign non-resident taxpayers are only required to pay taxes on Japan-sourced income, including:

Salary and wages earned from providing services to Japanese companies or institutions;

Dividends, interest, royalties, and other income sourced from Japan;

Capital gains from the transfer of real estate within Japan;

Other income sourced from Japan.

2.3 Special Provisions for Foreign Non-Permanent Residents

Foreign non-permanent residents are required to pay taxes on Japan-sourced income and on overseas income that is remitted to Japan. However, overseas income that is not remitted to Japan is exempt from taxation. This provides a tax benefit for foreign nationals who have recently started working in Japan.

Applicable Tax Rates and Calculation Methods for Foreign Nationals

3.1 Comprehensive Income Tax Rate Table

Japan applies the same progressive tax rates to foreign nationals as it does to Japanese citizens. The applicable comprehensive income tax rates for the 2024 fiscal year are as follows:

3.2 Calculation Formula for Foreign Nationals’ Income Tax

The income tax payable by foreign nationals is calculated using the following formula:

Income Tax Payable = Taxable Income × Applicable Tax Rate – Quick Deduction

For example, if a foreign national has an annual taxable income of JPY 5,000,000, the income tax is calculated as follows:

Income Tax Payable = 5,000,000 × 20% – 427,500 = 572,500 JPY

3.3 Special Tax Treatment for Foreign Nationals

Certain foreign nationals who qualify as high-level professionals may be eligible for tax benefits provided by the Japanese government. According to the Highly Skilled Foreign Professional Incentive Scheme, qualified individuals can enjoy the following benefits for up to 5 years:

Partial exemption from taxes on overseas income;

Special treatment for income from stock options;

Benefits in gift tax and inheritance tax.

The specific conditions and benefits should be consulted with a tax professional.

Tax Filing Procedures for Foreign Nationals

4.1 Determination of Filing Obligations

Whether a foreign national is required to file a tax return in Japan depends on the following factors:

Taxpayer status (resident/non-resident);

Source and amount of income;

Whether the income is subject to withholding tax.

In general, the following foreign nationals are required to file a tax return:

Foreign resident taxpayers with an annual income exceeding JPY 20 million;

Foreign resident taxpayers with multiple sources of income;

Foreign non-resident taxpayers with income not subject to withholding tax.

4.2 Filing Deadlines

Foreign nationals must file their income tax returns for the previous year between February 16 and March 15 each year. If March 15 falls on a weekend or public holiday, the deadline is extended to the next business day.

4.3 Preparation of Filing Documents

When filing a tax return, foreign nationals must prepare the following documents:

Tax return form (available for download from the National Tax Agency website or from the local tax office);

Income statements (such as withholding tax slips, pay stubs, etc.);

Deduction certificates (such as social insurance payment certificates, life insurance payment certificates, etc.);

A copy of the residence card;

Bank account information (for tax refunds);

Other relevant income or deduction certificates.

4.4 Filing Methods

Foreign nationals can choose from the following filing methods:

E-filing: File online through the Japanese National Tax Agency’s e-Tax system.

Postal Filing: Mail the completed tax return form and related documents to the relevant tax office.

In-Person Filing: Submit the tax return form and related documents directly to the local tax office.

For first-time filers, it is recommended to file in person to resolve any issues that may arise.

4.5 Post-Filing Procedures

After the tax return is filed, the tax authorities will review it. If a tax refund is due, it is generally processed within 1-2 months after filing. If additional taxes are owed, they must be paid within the specified deadline.

Common Tax Issues and Considerations for Foreign Nationals

5.1 Double Taxation Issues

Many foreign nationals may face tax obligations in both Japan and their home countries, leading to double taxation. To address this, Japan has signed Double Taxation Avoidance Agreements with many countries. Foreign nationals can apply for tax credits or special treatment under these agreements.

For example, under the China-Japan Tax Agreement, Chinese nationals working in Japan for less than 183 days, whose salary is paid by a Chinese employer and not borne by a Japanese permanent establishment, may be exempt from taxation in Japan on that portion of their income.

5.2 Tax Treatment Upon Leaving Japan

Foreign nationals leaving Japan should be aware of the following tax considerations:

Perform a year-end tax settlement;

File a retirement income tax return (if applicable);

Appoint a tax manager (if there is still Japan-sourced income);

Consider whether a tax refund application is necessary.

5.3 Social Insurance Contributions

Social insurance contributions paid by foreign nationals in Japan (including health insurance, welfare pensions, etc.) can be fully deducted when calculating taxable income. It is important to note that National Pension contributions can also be deducted, but National Health Insurance contributions can only be partially deducted as social insurance expenses.

5.4 Overseas Asset Reporting

Since 2014, Japan has implemented an overseas asset reporting system. Foreign resident taxpayers meeting the following conditions must report their overseas assets:

Having a domicile in Japan;

Overseas assets exceeding JPY 50 million as of December 31 of the reporting year.

Failure to report may result in hefty fines.

5.5 Retaining Immigration Records

To accurately determine residency status and tax obligations, foreign nationals are advised to keep detailed records of their immigration status, especially when approaching the 5-year residency mark, as these records are crucial in determining whether they become permanent residents for tax purposes.

5.6 Coping with Language Barriers

Given that many foreign nationals may face language barriers, the Japanese National Tax Agency provides multilingual tax guides and consultation services. Some tax offices in major cities are also equipped with translators. Foreign nationals with limited English proficiency are encouraged to:

Use multilingual tax guides;

Schedule appointments for translation services;

Seek help from professional tax advisors.

Conclusion

Japan’s tax system is complex, and it can be particularly challenging for foreign nationals. This guide aims to provide foreign nationals with basic tax guidance, but individual circumstances may vary. It is recommended to consult a professional tax advisor or accountant for important tax matters to ensure compliance and optimize tax arrangements. Staying informed about changes in Japan’s tax policies and adjusting your tax strategy accordingly is also important. Understanding and fulfilling your tax obligations in Japan is not only a legal requirement but also an important step in integrating into Japanese society and achieving long-term success.