Working Holiday Visa in Japan: A Guide to Japanese Taxes
【Koshida Accounting Firm Column Date:】
Travel teaches toleration. – Benjamin Disraeli
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 struggle with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.
Japan’s Working Holiday Visa allows young people from many countries to live and work in Japan for a limited period. While many participants focus on finding work and enjoying life in Japan, fewer are aware of the Japanese tax rules that may apply to them.
This article explains how tax residency is determined, how income is taxed during a working holiday, and why some individuals who remain in Japan for more than one year should pay particular attention to Japan’s remittance taxation rules.
１. How Is Tax Residency Determined in Japan?
Under Japanese tax law, individuals with a domicile in Japan or who have a residence in Japan for more than one consecutive year are considered residents. Under Japanese tax law, individuals with a domicile in Japan or who have a residence in Japan for more than one consecutive year are generally considered residents. A “residence” generally means a place where a person lives continuously for a certain period, even if it is not their permanent home.
Moreover, individuals without Japanese nationality who have had a domicile or residence in Japan for over five years within the last ten years are considered permanent residents. All other residents are classified as non-permanent residents. Anyone who does not fall into the category of a resident is deemed a non-resident.
Additionally, individuals who are expected to stay in Japan for more than a year upon entry are treated as residents from the date of their arrival. An example of this is foreign nationals who are dispatched to a Japanese subsidiary on a two-year assignment.
２. How Are Working Holiday Visa Holders Taxed?
Non-residents are taxed only on income earned in Japan, while permanent residents are taxed on worldwide income. Non-permanent residents are taxed on income earned in Japan as well as on overseas income that is paid to or remitted to Japan after they become non-permanent residents.
３. Are Working Holiday Visa Holders Tax Residents?
As the duration of a working holiday visa is typically less than one year, individuals are generally treated as non-residents. However, if their stay extends beyond one year, they will be considered non-permanent residents from that date onward.
４. Hiring Employees on a Working Holiday Visa
Since payments are made to non-residents, employers are required to withhold 20.42% of income tax. Foreign employees do not and cannot file tax returns because their tax obligations are fulfilled through withholding.
５. Staying in Japan for More Than One Year
Initially, those who come to Japan on a working holiday and then stay for more than a year due to marriage or other reasons become non-permanent residents. If they earn income from engineering work or own real estate in their home country, they should be mindful of the remittance tax.
Amounts remitted to Japan after becoming a non-permanent resident are subject to remittance-based taxation, but only up to the amount of overseas income earned in that year after considered non-permanent residency status. There is no concern for individuals, such as students, who do not have any overseas income.
Furthermore, remittance taxation that leads to double taxation qualifies for the foreign tax credit in Japan, and the amount may be refunded, but the amount depends on the circumstances.
Many people arrive in Japan on a Working Holiday Visa without realizing that their tax status may change if they extend their stay. Understanding the rules before making long-term plans can help you avoid unexpected tax issues.
Our accounting office regularly assists foreign residents with Japanese tax planning, tax filings, and cross-border tax matters. If you have questions about your Japanese tax residency or remittance taxation, please feel free to contact us.