Cross-Border
Cross-Border - Living in the US, Returnees to Japan, International tax, Tax planning
When Are You Considered a Japanese Tax Resident? What Types of Income Are Taxable?
We provide a simple explanation of what kinds of income are subject to tax under both the Japanese and U.S. tax systems.
How is Japanese Tax Residency Determined?
You are generally considered a Japanese tax resident from the day you establish your “base of life” in Japan—meaning the day you truly begin living here.
While you are expected to initially declare your “base of life” based on various factors, the final determination is made by the tax authorities during a tax audit.
- Where is your home located?
- Where does your family live?
- How long do you stay in Japan?
- What kind of work are you doing?
- Where are your main assets located?
- Do you have a resident record (juminhyo)?
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Having a juminhyo (resident record) is just one factor in determining your “base of life”; it is not the sole deciding factor. For instance, even if you have a juminhyo in Japan, you may still be considered a non-resident of Japan if your actual living situation is primarily based in the U.S.
Residency determination can vary greatly depending on individual situations, so if you are unsure about your situation, we recommend seeking individual consultation.
Do I need to declare U.S. income and assets in Japan too?
Once you become a Japanese tax resident, you must declare your U.S.-sourced income and U.S. assets in Japan, converted into Japanese Yen.
Be especially careful with capital gains from selling stocks and similar assets!
When calculating capital gains, you must take into account any foreign exchange rate fluctuations between the purchase and sale dates. You cannot simply calculate based on the dollar gain alone.
About tax filing as a married couple
In Japan, each spouse files taxes separately; you cannot file jointly as is common in the U.S. If profits are generated from a jointly held investment account, each spouse must include their respective share (e.g., 50% each) in their individual Japanese tax return, based on their ownership proportion of that account.
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The ownership percentage for joint accounts is typically determined by each spouse’s contribution to the account. Please note: For property owned by couples in certain U.S. states (Community Property states), a separate review is necessary, so please consult us individually for specific advice.
What income is taxable depends on your nationality!
We’ve compared how income is taxed based on whether you hold Japanese or U.S. nationality. Essentially, the country where you reside determines whether that country will impose taxes.
For Individuals with Japanese Nationality
From the day you start living in Japan, you are treated as a “permanent resident” for income tax purposes.All income worldwide is subject to taxation.
For Individuals with U.S. Nationality
For the first five years after moving to Japan, you are treated as a “non-permanent resident.” During this time, in principle, only income earned in Japan or sent (remitted) to Japan is taxed.
What Does “Remittance” Include?
It’s crucial to understand that “remittance” is not limited to bank transfers. Payments made using international money transfer services like Wise or even credit card payments drawn from your U.S. bank account can be considered “remittances,” and may therefore be subject to Japanese taxation.
Be careful with capital gains from financial products!
If you sell overseas financial products and earn a profit while you are a non-permanent resident, the profit may be subject to Japanese taxation depending on the acquisition timing and whether the assets are listed or unlisted, as it could be considered income sourced in Japan.
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For U.S. citizens, remittance taxation is based on comparing their U.S.-sourced income for that year and the total amount remitted to Japan. The lower of these two figures is generally treated as the taxable amount in Japan. Therefore, even if you send a large sum of money to Japan in a year when your U.S. income is low, your taxable income in Japan may be capped at that lower U.S. income amount. With proper planning, remittances can be timed strategically to minimize your Japanese tax liability, so please consult us individually before making any remittances.
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