U.S.-Japan Tax

U.S.-Japan Tax - For U.S. Residents, Those Planning to Return to Japan, International Tax, Tax Planning

When Are You Considered a Japanese Tax Resident? What Types of Income Are Taxable?

We provide a clear explanation of what types of income are taxable under the Japanese and U.S. tax systems.

How Is Tax Residency in Japan Determined?

You are generally considered a Japanese tax resident from the day you move your primary residence to Japan—that is, the day you begin living in Japan in a substantive way.
You should determine and declare your primary residence based on the following factors; however, the tax authorities ultimately make the final determination 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)?

Point

Having a resident record (Juminhyo) is one factor in determining your primary residence, but it is not the sole determining factor. For example, even if you have a resident record in Japan, you may still be deemed a “non-resident” for Japanese tax purposes if where you principally live is recognized as being in the U.S.
Tax residency determination depends on individual circumstances. If you have any concerns, please consult with us individually.

Do I need to report U.S. income and assets in Japan as well?

Once you become a Japanese tax resident, you must report your U.S.-sourced income and U.S. assets in Japan, converted into Japanese yen.

Be especially careful with capital gains from selling securities.

When calculating capital gains, you must convert both the purchase price and the sale price into Japanese yen using the exchange rates on the respective dates. This means your taxable gain includes both the appreciation of the securities and any foreign exchange gain. You cannot calculate the gain in U.S. dollars first and then convert only that gain into yen—doing so would understate your taxable income.

Tax Filing for Married Couples

In Japan, each spouse files taxes separately; unlike in the U.S., you cannot file jointly. If a jointly held investment account generates gains, each spouse must include their respective share (e.g., 50% each) in their individual Japanese tax return, based on the ownership proportion of the account.

Point

The ownership proportion for joint accounts is determined based on each spouse’s contribution to the account. For marital property in certain U.S. states (community property states), separate consideration may be required; please consult with us individually.

What income is taxable depends on your nationality!

When you reside in Japan, what income is taxable depends on your nationality. Below, assuming you have begun residing in Japan, we compare the tax treatment between Japanese nationals and U.S. citizens.

For Japanese Citizens

From the day you start living in Japan, you are treated as a “permanent resident” for income tax purposes. This means that your worldwide income is subject to Japanese income tax.

For U.S. Citizens

For the first five years after moving to Japan, you are treated as a “non-permanent resident” for income tax purposes. During this period, only domestic-sourced income and foreign-sourced income remitted to Japan are subject to Japanese tax. This is called remittance-based taxation.

What Does “Remittance” Include?

Note that “remittance” includes not only bank transfers but also international money transfer services such as Wise and credit card payments drawn from your U.S. bank account, so caution is needed.

Be Careful with Capital Gains from Securities!

If you sell overseas securities and earn a profit while you are a non-permanent resident, the profit may be subject to Japanese tax, depending on the acquisition timing and whether the securities are listed or unlisted, as it may be treated as domestic-sourced income.

Point

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 subject to Japanese tax. Therefore, even if you send a large sum of money to Japan in a year when your U.S. income is low, the taxable amount in Japan is capped at that lower U.S. income amount. By planning your remittances, you may be able to reduce your Japanese tax liability, so please consult with us individually before remitting.

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