Many of my clients considering a return to Japan have told me that the remittance-based taxation rules for non-permanent residents are highly complex and difficult to understand. I have to agree.

That said, a proper understanding of these rules is essential, not only to avoid unnecessary tax liabilities but also to identify opportunities for tax savings.

The key points are outlined below:

1. Timing of Japanese Tax Residency

The remittance-based taxation rules apply to non-Japanese individuals who are tax residents and who have lived in Japan for an aggregate period not exceeding 5 years in the past 10 years.

Therefore, any remittances made before becoming a Japanese tax resident are not subject to these rules.

However, determining the exact point when tax residency begins is not clearly defined in Japanese tax law. In practice, it tends to be interpreted in favor of the tax authorities. Accordingly, the question of “From what date does Japanese tax residency begin?” must be assessed on a case-by-case basis. We recommend seeking professional advice tailored to your specific circumstances.

2. Scope of Taxable Incom

Taxable income for non-permanent residents falls into two categories:

(1) income sourced in Japan, and
(2) foreign-source income that is remitted to Japan.

Therefore, it is important to first determine whether income is Japan-source or foreign-source.

The general classification is as follows:

Japan-source income

• Salary earned while working remotely in Japan for a foreign employer
• Capital gains from securities acquired after moving to Japan
• Capital gains from the sale of unlisted securities (even if acquired before moving to Japan)

Foreign-source income

• Social Security benefits, IRA and 401(k) withdrawals
• Interest, coupons, and dividends from overseas accounts

Rental income and capital gains from overseas real estate

3. Definition of Remittanc

“Remittance” includes not only standard bank wire transfers, but also:

• Payments made in Japan using a credit card linked to a foreign account
• Transfers made through third-party remittance services such as Wise

For example, suppose your U.S.-source income is deposited into Bank A, while you remit funds to Japan from Bank B. You might assume that you are not remitting “income.” However, this is a common misunderstanding.

Under the remittance-based taxation rules, the taxable amount is determined by comparing total foreign-source income and total remittances made to Japan within the same year.

In other words, even if the funds remitted come from a separate account (Bank B), they are still treated as a remittance of your foreign-source income.

4. Timing of Remittances

Since the taxable amount is determined by comparing income and remittances within the same calendar year, remitting funds in a different year from when the income was earned can be an effective strategy to reduce or eliminate taxation.

Case 1:

• 2026: Income 100 / Remittance 70 → Taxable: 70
• 2027: Income 20 / Remittance 0 → Taxable: 0

Case 2:

• 2026: Income 100 / Remittance 0 → Taxable: 0
• 2027: Income 20 / Remittance 70 → Taxable: 20

If you need to remit 70 to Japan, making the remittance in 2027 is more tax-efficient. This is because, under Case 2, the taxable amount is capped at 20 (the foreign-source income for that year), even though 70 was remitted.

Conclusion

By carefully managing the timing and amount of remittances, you may be able to reduce your tax liability in Japan. If you are planning to move to Japan or have questions about your specific situation, please feel free to contact us.