Japanese taxes payable by a non-resident individual

October 5, 2010  |  Individual, Japan Source Rules
A ceremonial taiko drum from Hiyoshi Taisha shrine in Shiga prefecture.

A ceremonial taiko drum from Hiyoshi Taisha shrine in Shiga prefecture.

This article looks at the scope of Japanese taxation of non-resident individuals.  This topic is also likely to be of interest to individuals who are giving up their Japanese residence status, such as non-Japanese expatriate individuals who have lived and worked in Japan for a few years who are returning to their home country or Japanese expatriates going to work overseas.

Individuals who come to work in Japan for short periods of time without becoming tax resident in Japan may also be impacted by the scope of Japanese taxation on non-resident individuals.  The definitions of Japanese individual tax residence and semi-permanent and permanent resident status are given in this article.

Factors determining the Japanese tax obligation of a non resident individual

Similar to foreign corporations as discussed in this article, a non-resident individual is only taxed on his Japan source income.  Also like a foreign corporation, the precise scope of Japanese tax for such an individual and the way in which it is assessed depends on the following factors:

  • whether or not the individual has a taxable presence (a ‘permanent establishment’ or ‘PE’ in Japan)
  • if the individual does have a taxable presence in Japan, the nature of that taxable presence (whether a branch, agent PE or a construction site PE)
  • the underlying nature of the income concerned.

Scope of Japanese tax for a non-resident individual

This table explains the scope of taxation for non resident individuals. A difference between an non-resident individual and a foreign company is that, for practical purposes, it is very rare for an individual to have a branch or similar taxable presence in Japan while at the same time being non-resident.  An individual would normally incorporate their business as a foreign or possibly domestic Japanese company for limitation of liability or other purposes rather than run it in their own name from overseas.

Short term visitors to Japan

An non-resident individual may find themselves sent to work in Japan for a short period of time, under terms where they do not become Japanese tax resident.

Under Japanese domestic law (which would apply to individuals resident only in countries that do not have a tax treaty with Japan, such as Hong Kong at the present time) Japanese withholding taxes are imposed on the employment income of such short term assignees along with an obligation to file a Japanese tax return to report the Japanese source income concerned.  Any Japanese withholding taxes suffered would be creditable.  There are a lot of practical issues in the administration and enforcement of this law, as many short term visitors to Japan may be unware of this position.

Fortunately many of Japan’s tax treaties include terms that provide exemption from taxation of individuals visiting Japan to work in the country for short periods of time.  However the individual has to be entitied to the benefits under the treaty concerned and also certain other conditions specified in the applicable tax treaty have to be met.  These conditions relate to matters such as the length of the individual’s stay in Japan and whether or not the costs of their compensation is borne by a taxable presence in Japan (for example, by the Japanese branch of their employing entity).

To understand the tax position of short term non-residents working in Japan under a tax treaty, reference should be made to the precise terms of the treaty concerned.  However a common pattern is to exempt employment income from Japanese taxation where the non-resident has been in Japan less than 183 days and their costs are not borne by a Japanese PE.

Understanding the table

The table illustrates the scope of Japanese taxation for an individual.  Rows give the type of income.  Columns A to C show the scope of taxation on the different types of income depending on the individuals presence in Japan.  Columns A and B show the rare case of individuals who are non resident but maintains a taxable presence in Japan while column C is the much more common case of non-resident individuals with no taxable presence in Japan.

Three ways to discharge a Japanese tax liability

The colouring in the table indicates three ways in which a non resident individual can be taxed on their Japan source income:

  • Including the income on a Japanese tax return where it is subject to Comprehensive Taxation – that is, aggregated with other income and subject to tax at marginal rates.  The individual tax filing process is outlined in this article.
  • Through suffering withholding tax and then including the income on a Japanese tax return and subjecting it to Comprehensive Taxation, as above.
  • Withholding tax is a final tax for the non-resident individual and no further tax return filing is required.

Note that under the Japanese domestic law for a number of income sources non-resident taxpayers without a taxable presence (that is those shown in column C) are still required to file a Japanese tax return to report certain sources of income.  These sources include income from assets having a Japan source, other Japan source income, consideration for the sale of land, consideration for business of providing personal services and rental income (rows 7, 8, 10, 11 and 12 of the spreadsheet).

A non resident earning these types of income would have to either file a treaty claim exempting the income from Japanese tax or arrange to file a Japanese tax return.  Although the Japanese tax authority web site provides guidance for individuals filing Japanese tax returns, it may help to appoint a local representative for these purposes.

Future articles will review in more detail the definition and calculation of income from the different sources shown.


2 Comments


  1. I am a Canadian who worked from Aug-Dec. in 2010. I was told that I can not file a tax return because I am not a permanent resident. Is this true? My company has been taking 20% of my wages every pay cheque.
    I heard somewhere there is a personal exemption amount of JPY 380,000.

    Thank you.

  2. Hello – I can point you to some things to think about but I don’t know your precise circumstances and can’t give you any tax advice and, so you must check with a qualified Japanese tax accountant about your position in case the comments are not relevant to you. However, below are some of the things you may want to talk to your Japanese tax accountant about.

    It is critical to work out in which country (or possibly countries if you travelled a great deal during the year) you were tax resident for 2010. This means understanding your Japanese tax residence position under Japanese domestic law, as explained in the article on residence, and then looking at any tax treaty that may apply.

    Your comment does not have enough information to decide what your tax residence position is under Japanese domestic law, but there seems a decent chance that you may not be tax resident in Japan in 2010. You should explain your position in detail to your Japanese tax accountant to conclude on this matter.

    Also don’t confuse Japanese tax residence with residence for Japanese immigration purposes – they are completely different concepts. Just to illustrate this point, you can easily become tax resident in Japan by working in Japan for a period of time without having rights to permanent residence for immigration purposes. If you want to become a permanent resident in Japan for immigration purposes you might need to marry a Japanese national and spend many years living in the country.

    If you were not tax resident in Canada for 2010, perhaps because you spent a good part of 2010 in a third country, then your tax residence position becomes more complicated still. However below I will assume below that you spent the rest of 2010 in Canada, you were tax resident in Canada for 2010 and were not a tax resident of any third country other than Canada or Japan in the year.

    Given the above assumption we should first double check the Canada Japan double tax treaty to see if it has anything special to say about individual tax residence. The relevant article is article 4.

    This article, copied below, does not introduce any special new treaty definition of residence but refers to the domestic law of Canada and Japan to decide the position which makes the analysis a little easier.

    ARTICLE 4
    1. For the purposes of this Convention, the term “resident of a [Japan or Canada]” means any person who, under the laws of [Japan or Canada], is liable to tax therein by reason of his domicile, residence, place of head or main office, place of management or any other criterion of a similar nature.
    2. Where by reason of the provisions of paragraph 1 a person is a resident of both [Japan and Canada], then the competent authorities of [Japan and Canada] shall determine by mutual agreement [which out of Japan and Canaada] that person shall be deemed to be a resident for the purposes of this Convention.

    There is a chance that you are a dual tax resident in Japan and Canada. This would complicate the analysis further and you would have to speak to the tax authorities in the countries concerned to choose finally which one of the two countries you were tax resident in. However, I’ll assume below that you are not a dual tax resident.

    Also I’ll assume that you were employed in Japan rather than self-employed and that you were not in an employment category that receives special treatment under Japanese domestic tax law or the Japan/Canada tax treaty such as a student, professor, athlete or entertainer, diplomat, working in international transport such as a pilot or any other exceptional case.

    Given the above, assuming you were not a Japanese tax resident you would suffer a 20 per cent withholding tax on your Japan source income from employment and this would be a final tax (that is, no additional tax or no reclaim is possible under Japanese domestic law). You would have to look at whether any tax relief is available under the Japan Canada tax treaty.

    One place to look for relief from the 20 per cent withholding tax under the Japan Canada tax treaty is in article 15, which is copied below. However this article would only give you relief from the Japanese tax if the cost of your salary was not incurred by a Japanese company or Japanese branch of a foreign company.

    Therefore article 15 might help if, for example, you were sent to Japan by a Canadian or other non Japanese company that either does not have a branch in Japan or, if it did have a branch in Japan where the branch did not pick up your employment costs. If you think this last case could apply, you might want to double check with your employer’s accounting department to see what happened to your costs. Note that you also must also have spent less than the 183 days referred to below in Japan.

    ARTICLE 15
    “…2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a [Canada] in respect of an employment exercised in [Japan] shall be taxable only in [Canada], if:
    a) the recipient is present in [Japan] for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned; and
    b) the remuneration is paid by, or on behalf of, an employer who is not a resident of [Japan]; and
    c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in [Japan].

    If you are in the fortunate position of being able to apply the above article 15 then you would have to file the following treaty claim in order to recover the Japanese taxes that you suffered. You would probably count as a temporary visitor for the purposes of completing the form in these circumstances. Please take a close look at the notes on the back of the form.

    If you were not tax resident in Japan but could not apply article 15 above, you may still be able to claim any credit for the Japanese tax that you suffered, offsetting the Canadian tax on the same income.

    In principle this is allowed under the tax treaty, but in this case you would have to check with a Canadian tax expert to work out how to make your Canadian tax filing including the Japanese tax credit. You would also probably need evidence that the Japanese tax has been paid from your employer. The relevant article is article 21 below.

    ARTICLE 21
    1. In the case of Canada, double taxation shall be avoided as follows:
    a) Subject to the existing provisions of the laws of Canada regarding the deduction from tax payable in Canada of foreign tax paid and to any subsequent modification of those provisions which shall not affect the general principle hereof, and unless a greater deduction or relief is provided under the laws of Canada, tax payable in Japan on profits, income or gains arising in Japan shall be deducted from any Canadian tax payable in respect of such profits, income or gains.

    If you were actually tax resident in Japan then the above would not apply and instead you would then have to consider whether you were a permanent tax resident or a non-permanent tax resident as explained in the article.

    Assuming you were a non permanent tax resident you can file a Japanese tax return reporting your Japan source income and foreign source income to the extent that it was remitted to Japan and claim all relevant allowances. This is where the JPY380,000 allowance you refer to comes in. This allowance is not involved calculating the 20 per cent withholding tax you suffered.

    If you have to file a Japanese tax return you would also show on the return as a pre-payment of tax the 20 per cent tax that was withheld from your Japanese income. Whether or not you would be able to reclaim Japanese tax or have to pay additional Japanese tax in this circumstance would depend on your overall Japanese tax filing position for the year concerned

    A complication in the scenario of your being a Japanese tax resident and having to file a Japanese tax return could be how to calculate and report on the Japanese tax return other income that you received in 2010, for example from investments or from working outside Japan. In this case your best bet would probably be to look at the guide from the National tax authorities and to get some professional help.

    The individual tax filing deadline for 2010 is 15th of March 2011, so if you were a Japanese tax resident in 2010 you should file your tax return by this date.

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