“Who should pay income tax in Japan and how much?” is not an easy question to answer. It depends on classification for residential status and scope of taxable income.
This article explains the overview of this complex rule. As this is a high level generic explanation only, for detailed understanding about your own case, it is better to consult with your local tax office or English speaking tax accountant.
Classification for residential status
There are 3 classification categories for residential status, residents, non-permanent residents and non-residents like in the below table. If you stay in Japan with a short term (less than 3 months) visa, you cannot have a resident card (domicile) and can be classified as non-permanent residents.
|Has a “JUSHO (domicile)” or owns a “KYOSHO (residence)” continuously for one year or more in Japan
|(2) Non-permanent residents
|Non Japanese nationality who has had a domicile or a residence in Japan for an aggregate period of five years or less within the preceding ten years
|Any individual other than (1) and (2)
Scope of taxable income
Taxable income can be different depending on which residential classification you belong to. Here is the outline.
1) Residents other than non-permanent residents
Residents other than non-permanent residents are obligated to pay the income tax etc. for their whole income. You simply have to pay the income tax for all of your income if you are residents.
2) Non-permanent residents
Non-permanent residents are obliged to pay income tax etc. with respect to their income below.
(a) income other than foreign source income
(b) foreign source income paid in Japan
(c) foreign source income paid abroad and remitted to Japan from abroad
This means, if you make money in Japan, it is taxable. If you make money abroad but get paid in Japan, it is also taxable in Japan. If you make money and get paid abroad but send the money to Japan, it is also taxable in Japan.
The amount “remitted to Japan from abroad” means, among the amount remitted and received by non-permanent residents from abroad to Japan in each year, “the amount exceeding the amount of the income other than foreign source income paid abroad” in that year.
This is a bit hard to understand. Let’s assume you make $250 in Japan but get paid abroad and you make and get paid another $100 abroad, and then send $260 to Japan. In this case, $250 out of received $260 is treated as non-taxable income because it is foregin source income. But the rest of $10 out of the $260 is taxable because it belongs to (c) .
Non-residents are obligated to pay the income tax etc. for their domestic source income. If you are classified as non-residents, income you make in Japan is taxable no matter where it gets paid. Income you make outside of Japan is also not taxable in Japan no matter where it gets paid. That income may be taxable in foregin countries.
As you see above, income tax for individuals is very complex. Just understanding “who should pay income tax in Japan?” is complex enough, and you can imagine how tough it is when you file the tax return form…
Your local tax office can provide you with some consultancy service for free of charge, but it is hard to find English speaking staff there. So I would be happy to help you if you need assistance. It is not free but you will be released from pain and anxiety. Please contact me at Funatsukaikei Tax Accounting through the inquiry form below.
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