Japan Tax Guide
Everything you need to know about taxes as an expat in Japan.
Disclaimer
This guide is for informational purposes only and does not constitute tax advice. Always consult with a qualified tax professional for your specific situation.
Overview
Japan uses a comprehensive "domicile" approach to tax residency, NOT a strict 183-day rule. The system has three categories: • **Non-Resident:** No domicile, less than 1 year residence → Japan-source income only at flat 20.42% • **Non-Permanent Resident:** ≤5 years within past 10 years → Japan-source income + foreign income remitted to Japan • **Permanent Resident:** >5 years within past 10 years → **Worldwide income** This means Americans become subject to worldwide taxation after 5 years in Japan, creating complex planning considerations.
Tax Residency Rules
Japan uses a "domicile" approach rather than strict day-counting: **Non-Resident:** No domicile/place of residence in Japan AND less than 1 year residence. Taxed only on Japan-source income at flat 20.42%. **Non-Permanent Resident (NPR):** Has domicile in Japan but has NOT been a Japanese national or had domicile/residence for more than 5 years within the past 10 years. Taxed on Japan-source income + foreign-source income that is paid in or remitted to Japan. **Permanent Resident:** Has domicile in Japan AND has been a Japanese national or had domicile/residence for more than 5 years within past 10 years. Taxed on worldwide income. **Important:** Moving abroad does NOT automatically end tax residency. Must formally break domicile ties.
Income Tax Rates
| Income Range | Tax Rate |
|---|---|
| 0 - 13,000 | 5% |
| 13,000 - 22,000 | 10% |
| 22,000 - 46,333 | 20% |
| 46,333 - 60,000 | 23% |
| 60,000 - 120,000 | 33% |
| 120,000 - 266,667 | 40% |
| 266,667+ | 45% |
All amounts in USD at ¥150 = $1
Capital Gains Tax
**Securities Capital Gains:** ~20.315% (income tax 15% + reconstruction surtax 0.315% + resident tax 5%) **Real Property:** • Short-term (<5 years ownership): ~39% • Long-term (≥5 years): ~20% **Cryptocurrency:** Treated as miscellaneous income, taxed at progressive rates up to 55%. Japan has some of the highest crypto taxes globally.
Property Tax
~1.4% of assessed value annually. Assessed value is typically 70% of market value for land, 50-70% for buildings.
VAT / Sales Tax
**Consumption Tax (VAT):** 10% standard rate **Reduced Rate:** 8% for food and non-alcoholic beverages (excluding restaurant dining)
Special Tax Regimes
Non-Permanent Resident (NPR) Regime
For first 5 years of residence, foreign-source income is only taxed if remitted to Japan. Allows strategic planning of foreign income remittances.
Eligibility:
Domicile in Japan for ≤5 years within past 10 years
Duration: 5 years from establishing domicile
Highly Skilled Professional Tax Benefits
HSP visa holders may bring parents and domestic helpers. Employer-provided housing and commuting allowances can reduce taxable income significantly.
Eligibility:
HSP visa holders
Duration: Duration of HSP status
For US Expats
**CRITICAL CONSIDERATIONS FOR US EXPATS:** **Double Taxation:** Americans face potential double taxation - US taxes worldwide income, Japan taxes residents on worldwide income after 5 years. **FEIE vs FTC Decision:** Japan's high tax rates (up to 55.95%) often make Foreign Tax Credit (FTC) more advantageous than FEIE. **5-Year Rule:** Strategic planning should begin BEFORE reaching 5-year mark. Consider timing of asset sales, remittances, and bonuses. **State Taxes:** Some US states continue taxing former residents. California is particularly aggressive. **Retirement Planning:** Japanese pension contributions may reduce US Social Security benefits under Totalization Agreement. Taking lump-sum withdrawal resets pension period to ZERO.
Foreign Earned Income Exclusion (FEIE)
**FEIE Eligibility:** Yes, Japan qualifies for Foreign Earned Income Exclusion. **2024:** $126,500 exclusion **2025:** $130,000 exclusion **2026 (projected):** $132,900 exclusion **Qualifying Tests:** • Physical Presence: 330 full days in foreign country • Bona Fide Residence: Genuine resident for entire tax year **Limitations:** • Only covers earned income (NOT dividends, interest, pensions, capital gains) • Self-employment tax (15.3%) still applies • May reduce Child Tax Credit eligibility • 5-year revocation rule if you claim FEIE then exclude less **RECOMMENDATION:** For Japan, Foreign Tax Credit is often more advantageous due to: • Covers earned AND passive income • Japan's high rates generate excess credits • 10-year carryforward available • Preserves IRA contribution eligibility
Tax Treaty Benefits
**US-Japan Tax Treaty Key Provisions:** **Article 11 - Interest:** Generally 10% withholding **Article 12 - Royalties:** 0% withholding **Article 13 - Dividends:** 10-15% withholding **Article 17 - Pensions:** Private pensions taxable only in country of residence **Article 17 - Social Security:** Taxable only in paying country (US Social Security only taxed by US) **IMPORTANT: Savings Clause** - US can still tax its citizens regardless of treaty provisions. **Totalization Agreement (Social Security):** • Effective: October 1, 2005 • Assignment ≤5 years: US Social Security only • Local hire OR >5 years: Japanese system only • Certificate of Coverage (Form J/USA 6) exempts from one country's system • US requires minimum 6 credits (1.5 years) to count Japanese credits **WARNING:** Taking Japanese pension lump-sum withdrawal resets pension period to ZERO - cannot combine with US Social Security.
Filing Deadlines
March 15
Recommended Approach
**Recommended:** Professional expat tax preparer familiar with both systems. **Cost Estimate:** $500-2,000 for expat tax prep (US + Japan coordination) **Popular Services for US Expats:** • Greenback Expat Tax Services • Bright!Tax • H&R Block Expat Tax Services **DIY Risk:** High - interaction between US and Japan systems creates many pitfalls. FEIE vs FTC decision alone can cost thousands if wrong. **Required US Filings:** • Form 1040 (annual return - required even if owing nothing) • FBAR/FinCEN 114 (foreign accounts >$10,000 - due April 15, auto-extension to Oct 15) • FATCA Form 8938 (higher thresholds for expats: $200K-$600K) • Form 2555 (FEIE) or Form 1116 (FTC)
Frequently Asked Questions
Do I need to file US taxes while living in Japan?
Yes. US citizens must file regardless of where they live. You may owe nothing due to FEIE or FTC, but filing is mandatory.
Should I use FEIE or Foreign Tax Credit in Japan?
Foreign Tax Credit is often better for Japan due to high tax rates (up to 55.95%). FTC covers passive income too and has 10-year carryforward.
What is the 5-year rule?
After 5 years of residence in Japan, you become a Permanent Resident for tax purposes and Japan taxes your worldwide income - not just Japan-source.
Do I need to report my Japanese bank accounts to the US?
Yes. FBAR (FinCEN 114) if total foreign accounts exceed $10,000 at any time. FATCA Form 8938 if assets exceed $200,000 (year-end) or $300,000 (any time).
Should I take the Japanese pension lump-sum withdrawal when leaving?
Carefully consider this. Taking the lump-sum resets your pension period to ZERO - you cannot combine those years with US Social Security under the Totalization Agreement.
Need Help with Your Taxes?
Use our tax calculator or find recommended expat tax preparers.