From the hustle and bustle of Tokyo to the bamboo forests near Kyoto to the world-renowned street food of Osaka, there’s no shortage of fascinating places in Japan. And with a lower cost of living than the US, it’s no wonder that tens of thousands of Americans have chosen to move to Japan.
While living abroad can be the adventure of a lifetime, it can complicate your taxes. In this article, we break down key aspects of taxes in Japan.
Snapshot of Taxes in Japan
- Primary tax forms: Form A
- Tax deadline: March 15
- Reporting website: e-Tax
- Administrative language(s): Japanese
- Japan/US tax treaty: Yes
- Totalization agreement: Yes
How do Japanese taxes work for Americans living there?
Americans living in Japan must pay taxes according to their residency status.
- Non-Residents: Those who have been living in Japan for less than a year and don’t plan to stay. Only subject to taxes on Japanese-sourced income at a flat rate of 20.42%
- Non-Permanent Residents: Those who have lived in Japan for less than five years but don’t plan to stay. Subject to taxes on all income besides income earned abroad, but not sent to Japan
- Permanent Residents: Those who have lived in Japan for five years or more, or who intend to stay permanently. Subject to taxes on all income
Who qualifies as a tax resident in Japan?
In order to qualify as a tax resident of Japan, an individual must either a) maintain a permanent residence in Japan or b) have maintained a temporary residence in Japan for one year or more. Any US expat with a long-stay Japanese visa tends to be subject to taxation by the government. This includes visas like the:
There are 16 different categories of working visas for job titles such as journalist, researcher, artist, and instructor, among others. There are also visas for individuals whose company is transferring them to Japan, and for workers with trade skills.
Highly-Skilled Foreign Professional Visa
For highly-skilled workers, often in technical positions.
For dependents (e.g. spouses, children) of Japanese residents.
Student visas allow holders who possess them to study in Japan for up to four years and three months. Unlike some other countries, students are considered tax residents and are therefore subject to taxes.
Cultural Activities Visa
For those who want to live in Japan to further their knowledge of the Japanese language or culture.
For entrepreneurs who are planning to open an office in Japan and hire two or more permanent employees OR have capital or investments exceeding ¥5,000,000 (about $38,000 USD).
What’s the tax-governing authority in Japan?
The National Tax Agency
Japan’s tax authority is the National Tax Agency. They are tasked with informing the public, handling inquiries, processing tax returns and correcting any mistakes they might find, collecting taxes, enforcing tax laws, and coordinating with other authorities as needed.
Tax brackets in Japan
The tax rates in Japan for 2023 are as follows:
|¥0 – ¥1,949,999
|¥1,950,000 – ¥3,299,999
|¥97,500 + 10% of anything above ¥1,950,000
|¥3,300,000 – ¥6,949,999
|¥232,500 + 20% of anything above ¥3,300,000
|¥6,950,000 – ¥8,999,999
|¥962,500 + 23% of anything above ¥6,950,000
|¥9,000,000 – ¥17,999,999
|¥1,434,000 + 33% of anything above ¥9,000,000
|¥18,000,000 – ¥39,999,999
|¥4,404,000 + 40% of anything above ¥18,000,000
|¥13,204,000 + 45% of anything above ¥40,000,000
Additional income taxes that tax residents of Japan may be subject to include:
- A 2.1% surtax
- A local inhabitant tax of 10%
Property taxes in Japan
Those who own property in Japan will have to pay taxes at a rate of 1.7% of the property’s value, as determined by the local tax authorities. Depending on where the property is registered, property owners may also be subject to a tax of 0.1% to 2% of its value. If your property depreciates, you may be able to claim a tax break.
Capital gains tax in Japan
Capital gains from selling stock are taxed at a rate of 20.315% (15.315% of which is levied by the national government, and 5% of which is levied by the local government). Gains from selling real estate, however, can be taxed up to 39.63% (30.63% national, 9% local), depending on factors like residency status and how long someone has held the property.
Payroll tax in Japan
Employers automatically withhold income taxes from their employees’ salaries, and in fact, many employees don’t even need to file a Japanese tax return unless:
- They leave Japan before the end of the year
- Their employer doesn’t withhold Japanese taxes (due to being based outside of the country or other circumstances)
- They are self-employed
- They work for more than one employer
- Their annual income is above ¥20,000,000 (around $150,000 USD)
- They have a side income that brings in more than ¥200,000 (around $1,500 USD)
Do I have to pay social security in Japan?
Japan has a totalization agreement with the US which stipulates that Americans living in Japan pay social security taxes to the US if their employer is US-based and they’ll be in Japan for five years or less. If their employer is based in Japan, however — or if they work for a US-based company but live in Japan for over five years — they will pay social security taxes to Japan.
In Japan, social security taxes are levied on monthly salaries and bonuses, and go toward:
- Unemployment insurance (.3%)
- Welfare (9.15%)
- Health insurance
- This varies based on prefecture and age. For example, someone under 40 living in Tokyo would pay 4.905%.
VAT, aka Consumption Tax
Japan’s value-added tax (VAT), commonly referred to as the Consumption Tax, is a 10% charge on most goods and services. However, the rate is lowered to 8% for:
- Food, excluding dining out
- Drinks, excluding alcohol
- Newspaper subscriptions
What are the filing deadlines in Japan?
In Japan, taxes for any given calendar year are due by March 15 of the following year. However, you can start to pay taxes as early as February 16th.
I’ve heard there’s a “Japan fat tax” — what is it?
In 2008, Japan passed the Metabo Law, which aims to help residents live a healthier lifestyle by taxing companies and local governments whose employees or residents fall below certain milestones related to physical health. This doesn’t impose any tax burden on individuals, however.
Do US expats living in Japan also have to file US taxes?
Because of the US’s unique taxation system, all citizens and permanent residents must file a federal tax return if they meet the minimum income reporting threshold. This rule applies even if they’re living in another country.
Planning to spend your retirement years in Japan? Check out our article, US Tax Tips For Americans Who Retire In Japan
Does Japan have a tax treaty with the US?
Yes, there is a US/Japan tax treaty that in theory prevents expats living in Japan from being taxed by both countries. In 2003, the treaty was updated to reflect changes in the countries’ income tax agreement. These updates went into effect in 2005 and can be reviewed via this short overview provided by the American Bar Association.
Regarding the US-Japan tax treaty, expats should be aware of a tricky clause called the Savings Clause allows the US government to tax expats in Japan as if the treaty didn’t exist at all. To avoid double taxation, your best bet is to claim one of the common tax deductions below.
Common tax deductions available for expats in Japan
Foreign Tax Credit (FTC)
US expats can use the Foreign Tax Credit in Japan (or any other non-US country, for that matter) to greatly reduce their tax liability. The FTC allows you to essentially subtract what you’ve paid in taxes to a foreign government from what you owe the US government, as long as the taxes are income-based, made out to you specifically, legal, and paid.
Since income taxes tend to be higher in Japan, you may very well end up owing nothing at all to the IRS, or even getting credits that you can apply toward future tax payments.
Learn more about the Foreign Tax Credit.
Foreign Earned Income Exclusion (FEIE)
The FEIE allows you to exclude a certain amount of your earned income from taxation. For tax year 2022 (aka the taxes you’ll file in 2023), the FEIE limit is $112,000. For tax year 2023 (aka the taxes you’ll pay in 2024), the FEIE limit will be $120,000.
Under the FEIE, you can also claim qualified housing expenses as tax deductions.
To qualify for the FEIE, you have to meet one of two tests:
This test requires you to prove that you’ve been present outside of the US for at least 330 days in any twelve-month period.
This test requires you to demonstrate your residence of more than one calendar year in another country through official documents like visas, rental contracts, and utility bills, among others.
Read more about the Foreign Earned Income Exclusion.
Child Tax Credit (CTC)
If you have a qualifying child or dependent, you can claim the CTC just as you would in the US, which can give you up to $2,000 per child/dependent.
Read more in our guide to the Child Tax Credit.
Tax implications of renting out your US residence while in Japan
If you own property in the US, you might choose to rent it out while living abroad. If you do so, though, keep in mind that you’ll have to report any income you receive from it and the expenses you spend on it on Form 1040. And because rental income is considered passive income and not earned income, you won’t be able to claim it under the FEIE.
Rental income while living in Japan: Frequently Asked Questions
If I own a rental property in the US or outside of Japan, do I have to report it to Japan?
If you are a non-resident taxpayer, you don’t have to report any income you receive outside Japan. If you are a resident taxpayer, however, you will be expected to report your worldwide income, which would include rental income from a US property.
Which country do I pay taxes to on my rental property income?
Non-resident taxpayers will only pay taxes on rental income from a US property to the US government. Resident taxpayers earning rental income from a US property, however, are subject to taxes by both the Japanese and US governments. The good news is you can usually avoid being taxed on this same income twice by claiming the Foreign Tax Credit.
US expats living in Japan may need to file an FBAR
As an expat, you may need to file some additional tax forms, such as:
- FBAR: Mandatory for anyone who has had $10,000 or more in foreign accounts at any point during the tax year. To file it, you’ll submit FinCEN Report 114 via the BSA E-Filing System.
- Form 8938: Mandatory for any expat with $200,000 or more in foreign financial assets on the last day of the tax year, or over $300,000 at any point during said year.
I’m a US expat who’s lived in Japan for years. Do I owe past US tax returns?
Yes. Even if you weren’t aware that you had to file a US tax return as an expat, you’ll still be held accountable for filing them. The good news is that it’s not uncommon for US expats to learn about the annual filing requirement after missing a few years, so the IRS has created a provision to accommodate this. Via a process known as the Streamlined Procedure, you may be able to catch up penalty-free.
Getting caught up on US Taxes with the Streamlined Procedures
The Streamlined Procedure is an IRS amnesty program that enables US expats who have fallen behind on their tax returns to catch up without financial or criminal penalties. To benefit from this program, you must initiate the process before the IRS notifies you about missing tax returns.
To do so, you’ll:
- File federal tax returns for the last three years
- File FBARs for the last six years
- Pay any back taxes you owe
- Certify that your previous failure to file was non-willful
Simplify your US taxes with Bright!Tax
It can be complicated navigating taxes in Japan as a US expat who also needs to file a US tax return. If you have any questions about how to file US taxes in Japan, feel free to contact Bright!Tax. We’ve helped US expats all around the world with their taxes, and we’re happy to help you with yours too.
Reach out today to get started, and one of our expat tax experts will get back to you to learn more about your tax situation.