Tax Considerations When a Non-Resident Becomes a Non-Permanent Resident in Japan

Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.

I aim to assist non-Japanese business owners who need help with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.

This blog may help if you need clarification about what you should be careful about regarding taxation when a non-resident becomes a non-permanent resident.

The Categories of Non-resident, Non-permanent Resident, and Others

Japanese tax law categorizes individuals as follows for individual income tax purposes:

(1) Resident:

An individual who has a domicile in Japan or has had continuous residence for more than a year.

① Non-permanent Resident:

Among residents, those who do not have Japanese nationality and whose period of having a domicile or residence in Japan totals less than five years over the past ten years.

② Permanent Resident:

Any individual who is not a non-permanent resident.

(2) Non-resident:

Any individual who is not a resident.

Taxable Income Scope for Each Category

Permanent residents are taxed on worldwide income. Non-residents are taxed only on income generated in Japan. Non-permanent residents are taxed on income generated in Japan, income paid in Japan, and income remitted to Japan.

Caution Regarding Remittance Taxation for Non-permanent Residents

When foreigners start businesses or establish corporations in Japan and change their status from non-resident to non-permanent resident, it’s crucial to be aware of remittance taxation. If remitting income to Japan after becoming a non-permanent resident, it might be subject to remittance taxation. This is because remittance taxation applies when sending money in the year overseas income is earned.   To avoid remittance taxation, it’s advisable to send money before becoming a resident period or after overseas income disappears.

For the meaning of “remittance,” please refer to the blog below. https://kotsicpafirm.com/what-does-overseas-income-remitted-from-abroad-include-in-the-taxable-income-of-non-permanent-residents-conducting-business-in-japan/

Our accounting and tax office has been actively assisting foreign business owners in Japan with accounting and tax matters. Also, not only in the tax and accounting field, our office can support your business in Japan in the fields of visa, registration, social insurance, and law by networking with specialists. Plus, we have networked with specialists in web marketing, building websites, and business consulting suitable for Japanese customers. All services are provided in English. Please feel free to reach out to us through the inquiry form.