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.
The number of foreigners coming to Japan on working holidays is increasing.
In this blog, we’ll explain whether such foreigners become tax residents, the implications for employers hiring these individuals, and what foreigners should be mindful of tax-wise. In particular, the tax on remittances for non-permanent residents who have stayed in Japan for over a year after coming on a working holiday is a commonly overlooked risk.
１. Determining Tax Residency Status: Resident, Non-Resident, and Others
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. “Residence” refers to places like hotels and weekly apartments, among others.
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. Tax Implications Based on Residency Status
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. Determining the Residency Status of Foreigners on a Working Holiday in Japan
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. Employing Foreigners on a Working Holiday
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. Considerations for Foreigners on a Working Holiday Who Stay in Japan for Over a 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.
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.