Foreign Tax Deduction in Japan

【Koshida Accounting Firm Column Date:

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


I aim to assist non-Japanese business owners who struggle 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 are unclear about foreign tax deductions in Japan.



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What Is the Foreign Tax Deduction?

It’s a system to adjust double taxation when Japanese residents are taxed by both Japan and foreign countries.


How to Calculate the Foreign Tax Deduction:

The income taxes imposed by foreign countries can be deducted from this year’s Japanese income taxes, up to a certain limit called the “deduction limit for income taxes.”
Deduction limit for income taxes = Income taxes for the year * Total foreign taxable income for that year ÷ Total taxable income for that year
For instance, if the global taxable income for the year is six million yen, including two million yen from foreign taxable income, the Japanese income tax would be around 800,000 yen. If the foreign income tax is presumed to be 200,000 yen, the deduction limit for income tax would be:
800,000 yen * 2,000,000 yen ÷ 6,000,000 yen = 260,000 yen
The limit of 260,000 yen covers the foreign income tax of 200,000 yen, so the full 200,000 yen can be deducted. After this deduction, the final income tax to be paid to the Japanese tax office is 600,000 yen.


How to Claim the Foreign Tax Deduction:

To claim the foreign tax deduction, one must file an individual tax return.



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