For Americans living in Japan, the experience can be exciting and culturally enriching, offering opportunities to enjoy a high quality of life and excellent career prospects. However, navigating the Japanese tax system can be complex, particularly when it comes to managing tax obligations in both Japan and the United States.
Japan has a well-structured tax system that includes income tax, consumption tax, and additional levies like property tax and automobile tax. As a US expat, you may need to pay taxes in both Japan and the US. Fortunately, the US and Japan have a tax treaty that helps mitigate the risk of double taxation on certain types of income.
Still, you may be required to file tax returns in both countries, even if no taxes are owed. Failure to file can lead to penalties and fines from either government. Here’s an overview of what you need to know about taxes as a US expat in Japan.
Japan at a Glance:
- Primary Tax Form: Form A (Japanese Individual Income Tax Return)
- Tax Year: January 1 to December 31
- Tax Deadline: March 15
- Currency: Japanese Yen (JPY)
- US Expats in Japan: Over 60,000
- Capital: Tokyo
- Language: Japanese
- Tax Treaty: Yes
- Totalization Agreement: Yes
US Expats in Japan: Dual Tax Obligations
As a US citizen living in Japan, you are required to file a US federal tax return annually, regardless of where you live. Failure to file can result in penalties, even if you owe no taxes. At the same time, as a resident of Japan, you may also have to meet Japan’s tax obligations, which include income, consumption, and other taxes. Your specific tax requirements in Japan depend on your residency status and income.
Japan’s Tax Filing Requirements
In Japan, both residents and non-residents must pay taxes on income that exceeds certain thresholds. However, if your only source of income comes from a Japanese employer who withholds taxes, you may not need to file a return. Typically, expats are required to file a tax return if they:
- Earn income from outside Japan
- Have an employer that does not withhold taxes
- Work for more than one employer
- Are self-employed
- Earn over 20 million JPY annually
- Have side income exceeding 200,000 JPY
When a tax return is necessary, expats must self-assess their tax obligations, similar to the US tax system.
Determining Tax Residency in Japan
Your tax residency status in Japan depends on how long you live there. To be considered a resident for tax purposes, you must either own a home or reside in Japan for at least one year. After living in Japan for five of the last ten years, you become a permanent resident for tax purposes.
Non-residents are taxed only on Japan-sourced income, while residents are taxed on their worldwide income.
Tax Rates in Japan
- Non-Residents: Japan imposes a flat income tax rate of 20.42% on non-residents’ Japan-sourced income, with no available deductions.
- Residents: Japan taxes residents progressively based on their worldwide income. The tax brackets for residents are as follows (in JPY):
| Income Range | Tax Rate |
| 0–1,950,000 | 5% |
| 1,950,000–3,300,000 | 10% |
| 3,300,000–6,950,000 | 20% |
| 6,950,000–9,000,000 | 23% |
| 9,000,000–18,000,000 | 33% |
| Over 40,000,000 | 45% |
Self-employment income is taxed similarly, based on gross income after deducting business expenses.
Other Taxes in Japan
- Capital Gains Tax: Capital gains are treated as part of ordinary income and are taxed at the same rates as income.
- Consumption Tax: Japan imposes a consumption tax of 10%, with a reduced rate of 8% for certain goods like food and newspapers.
- Gift and Inheritance Tax: Gifts and inheritances are taxed at progressive rates, up to 55%, depending on the amount.
- Property Tax: Real estate in Japan is taxed at 1.7% of the appraised value.
- Corporate Tax: Domestic corporations are taxed on worldwide income, while foreign corporations are taxed only on Japan-sourced income.
US-Japan Tax Treaty and Totalization Agreement
The US-Japan tax treaty is designed to prevent double taxation on income for expats, offering relief for certain types of income and outlining which country has the primary right to tax specific income sources.
Additionally, the US-Japan totalization agreement coordinates social security benefits between the two countries, ensuring that expats don’t have to contribute to both systems at once.
- If you’re assigned to Japan by a US company for less than five years, you’ll continue to pay into US Social Security.
- For longer assignments or if you’re employed by a Japanese company, you’ll contribute to Japan’s social security system.
Common Japanese Tax Forms for Expats
- Form A: The primary individual income tax return form used by residents in Japan.
- Form B: Required if you have additional sources of income such as real estate or business operations.
- Report of Foreign Assets: If you have foreign assets worth more than 50 million JPY, you must file this report by March 15.
Avoiding Double Taxation as a US Expat in Japan
Thanks to the US-Japan tax treaty and IRS provisions such as the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC), most US expats living in Japan can avoid being taxed twice on the same income. These tax credits and exclusions help reduce or eliminate US tax liability for expats.
Need Help Navigating Your US Expat Taxes?
Understanding your tax obligations as a US expat in Japan can be daunting. If you need assistance managing your US or Japanese tax returns, our team of expat tax experts is ready to help. Reach out for personalized advice or schedule a consultation to ensure you’re meeting your tax obligations in both countries effectively.
