Tax Resident of Japan? Resident vs Non-Resident Tax Rules

When determining what income is taxable in Japan, the first step is to determine your tax residency status.

First, you need to determine whether you are a resident or a non-resident of Japan for tax purposes.

If you are a resident, the next question is whether you are classified as a non-permanent resident.

This classification can significantly change the scope of income subject to Japanese income tax, particularly if you have income from outside Japan.

Resident, non-resident, permanent resident and non-permanent resident in this article are classifications under Japanese income tax law. They are separate from your immigration status or Permanent Residence visa status in Japan.

1. Do You Have a Domicile in Japan?

A person who has a domicile in Japan is a resident of Japan for tax purposes.

A domicile means the principal base of your life. It is not determined simply by where your resident registration is located.

Whether your principal base of life is in Japan is determined based on objective facts.

The factors include:

• the number of days you spend in Japan,
• your housing,
• your family situation,
• your job or business,
• the location of your assets,
• your nationality, and
• other facts concerning your actual living situation.

Therefore, Japanese tax residency is not determined mechanically only by counting the number of days you spend in Japan.

2. Have You Lived in Japan for More Than One Year?

Even if you do not have a domicile in Japan, you are a resident if you have continuously maintained a residence in Japan for one year or more.

A residence is a place where you actually live on an ongoing basis, even if it is not considered the principal base of your life.

When you temporarily leave Japan with the intention of returning, that temporary absence is treated as part of your continued period of residence in Japan.

3. When Are You Presumed to Be a Resident Because of Your Work?

If you are engaged in an occupation that normally requires you to live in Japan continuously for one year or more, you are presumed to have a domicile in Japan.

Therefore, if you come to Japan for business or employment and your work normally requires you to live in Japan for one year or more, you are treated as a resident.

This does not apply when your contract or other circumstances clearly show that your stay in Japan will be less than one year.

This means that you do not necessarily remain a non-resident until you have physically spent one full year in Japan.

If your work and contract show from the beginning that you are expected to live in Japan for one year or more, you can be treated as a resident before one year has actually passed.

4. What Is a Non-Permanent Resident?

Once you are classified as a resident, the next step is to determine whether you are a non-permanent resident.

A non-permanent resident is a resident who:

• does not have Japanese nationality, and
• has had a domicile or residence in Japan for a total of five years or less during the previous ten years.

A resident who does not meet these conditions is a resident other than a non-permanent resident.

Non-Permanent Resident for tax purposes is not the same as Permanent Residence under Japanese immigration law.

5. What Is a Non-Resident?

A person who does not qualify as a resident is a non-resident.

This generally means that the person does not have a domicile in Japan and has not continuously maintained a residence in Japan for one year or more.

6. When Are You Presumed to Be a Non-Resident Because of Overseas Work?

If you are engaged in an occupation outside Japan that normally requires you to live overseas continuously for one year or more, you are presumed not to have a domicile in Japan.

A typical example is a person transferred from Japan to an overseas position for one year or more.

A person can also be presumed not to have a domicile in Japan when the person has foreign nationality, has no spouse or other family member sharing the same household in Japan, and there are no circumstances relating to employment, assets or other factors indicating that the person is expected to return to Japan and mainly live here.

However, this is a presumption. It can be rebutted by evidence showing the actual circumstances are different.

7. Your Tax Residency Status Changes the Scope of Taxable Income

The scope of income subject to Japanese income tax changes depending on whether you are a resident other than a non-permanent resident, a non-permanent resident, or a non-resident.

Residents Other Than Non-Permanent Residents

Residents other than non-permanent residents are taxed in Japan on their worldwide income.

This includes not only income earned in Japan, but also income from overseas salaries, real estate, businesses, dividends, investments and other foreign sources.

Non-Permanent Residents

Non-permanent residents are taxed on Japanese-source income and also on certain foreign-source income.

Two particularly important categories are:

• foreign-source income paid in Japan, and
• foreign-source income paid outside Japan and remitted to Japan.

Therefore, when you are a non-permanent resident with overseas income, I check not only where the income arises, but also where it is paid and whether there are remittances to Japan.

For more information about what constitutes a remittance, see What Counts as a Remittance to Japan for Non-Permanent Residents?

I also explain foreign-source income paid in Japan separately in Foreign-Source Income Paid in Japan: Tax Rules for Non-Permanent Residents.

Non-Residents

Non-residents are taxed in Japan on Japanese-source income.

Therefore, moving outside Japan does not automatically mean that you no longer have any Japanese income tax obligations.

For example, income from real estate located in Japan can remain taxable in Japan even after you become a non-resident.

8. Do Not Determine Japanese Tax Residency Only by the 183-Day Rule

I am sometimes asked whether spending 183 days or more in Japan automatically makes someone a Japanese tax resident.

Japanese domestic income tax law does not determine residency simply by whether you have spent 183 days in Japan.

The basic questions are whether you have a domicile—the principal base of your life—in Japan, or whether you have continuously maintained a residence in Japan for one year or more.

The number of days spent in Japan is one factor, but your housing, job, family, assets and actual living situation also need to be considered.

If you are considered a resident under the domestic laws of both Japan and another country, the applicable tax treaty can also affect the determination of your tax residence.

9. When Moving to Japan, Determine Your Tax Residency First

When someone with overseas income moves to Japan, I do not start by calculating the Japanese tax on each item of foreign income.

I first determine:

• when the person became a Japanese tax resident,
• whether the person qualifies as a non-permanent resident, and
• how long the person has lived in Japan during the previous ten years.

After that, I check the Japanese tax treatment of each type of income, such as salary, rental income, capital gains, pensions and business income.

This is particularly important when someone moves to Japan in the middle of a calendar year because the date on which the person’s tax residency status changes can affect the scope of income taxable in Japan for that year.

For Americans moving to Japan, see Moving to Japan? How Your U.S. Income Is Taxed in Japan. It covers the five-year rule for non-permanent residents, remittance-based taxation, U.S. rental income, stocks, Social Security, 401(k)s and U.S. LLCs.

10. Tax Residency and Overseas Income in Japan

Japanese tax residency is determined from your actual circumstances, not simply by counting the number of days you spend in Japan.

If you have homes in both Japan and another country, work in more than one country, or have family members living overseas, I check your housing, work, family, assets and period of stay to determine your tax residency status.

Once the residency status is determined, I check the scope of income subject to Japanese tax.

Koshida Accounting and Tax Office provides English-language support for Japanese tax returns, tax residency issues and international taxation for foreign individuals living in Japan.

If you are moving to Japan or have income in both Japan and another country, please contact me here.