Moving to Japan? How Your U.S. Income Is Taxed in Japan

【Koshida Accounting Firm Column Date:2026.06.26】

Many U.S. citizens are surprised to learn that Japanese tax law treats U.S. income very differently from the U.S. tax system.

If you become a tax resident of Japan, your U.S. salary, investment income, retirement accounts, capital gains, U.S. LLC income, and remittances may all be taxed differently from what you expect.

Understanding the tax system in Japan before moving can help you avoid unexpected tax liabilities and unnecessary mistakes.

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

I specialize in assisting foreign business owners and individuals with tax, international tax, and accounting matters in Japan. Among my clients, U.S. citizens make up the largest group.

In my experience, almost every U.S. client is surprised when they first learn how their U.S. income is taxed in Japan.

This page is intended to serve as a practical starting point for Americans moving to or living in Japan. It covers the issues that most often need to be considered together: Japanese tax residency, Non-Permanent Resident status, Remittance-Based Taxation, U.S. securities, Traditional IRAs, Roth IRAs, 401(k)s, U.S. LLCs, foreign tax credits, and Japanese tax returns.

In this article, I will explain how various types of U.S. income are generally treated under Japanese tax law, based on practical situations that I frequently encounter.

Table of Contents

1. Resident Status for Japanese Tax Purposes

For Japanese income tax purposes, foreign nationals who meet certain conditions are generally treated as Non-Permanent Residents during the first five years of residence in Japan within the preceding ten-year period.

This status is important because it directly affects how certain foreign-source income is taxed in Japan.

For a more detailed explanation of Non-Permanent Resident status, see
Non-Permanent Resident Tax Rules in Japan: What Foreign Residents Should Know.

If you are approaching five years of residence in Japan, also see
What Happens to Your Japanese Taxes After Living in Japan for 5 Years? A Guide for Americans.

2. How Foreign Income Is Taxed in Japan While You Are a Non-Permanent Resident

A practical way to understand the Japanese tax treatment is to separate income into two categories:

Japanese-source income
Foreign-source income

The Japanese tax treatment can be very different depending on which category the income falls into.

(1) Japanese-Source Income

Japanese-source income is generally taxable in Japan.

Examples include:

Salary for work performed in Japan
Rental income from real estate located in Japan
Certain capital gains on securities

(2) Foreign-Source Income

Foreign-source income can include:

Dividends from U.S. companies
Interest from U.S. bank accounts
Rental income from U.S. real estate
Distributions from a Traditional IRA, Roth IRA, or 401(k)

For a U.S. Non-Permanent Resident, Remittance-Based Taxation may apply to certain foreign-source income.

If you own property in the United States, see
How Is U.S. Rental Income Taxed in Japan? A Guide for Americans with Property in the U.S.
for a more detailed explanation of the Japanese tax treatment of U.S. rental income.

For U.S. Social Security and other pension income, see
How Is U.S. Social Security Taxed in Japan? Social Security, Government Pensions and UN Pensions.

(3) Remittance-Based Taxation in Japan

Remittance-Based Taxation is one of the most commonly misunderstood parts of Japanese taxation for foreign residents.

Many people assume that foreign-source income is taxable in Japan only when the same income is physically transferred to Japan.

That is not how the rule works.

The source of the remitted funds does not matter.

Even if you remit savings that you accumulated before moving to Japan, the transfer can still count as a remittance for this purpose.

In practical terms, the amount of foreign-source income taxable under Remittance-Based Taxation is generally determined by comparing the relevant foreign-source income for the year with the amount remitted to Japan during the same year.

For example, if you have $1,000,000 of foreign-source income that is subject to Remittance-Based Taxation but make no remittance to Japan during that year, the taxable amount under the remittance rule is generally zero.

On the other hand, remitting $1,000,000 to Japan does not by itself create $1,000,000 of taxable income if there is no relevant foreign-source income for that year.

Remittances are also not limited to ordinary bank transfers. Payments made in Japan with a U.S. credit card can also affect the remittance calculation.

For a practical explanation, see
Does Using a U.S. Credit Card in Japan Count as a Remittance?

If you want to see how Remittance-Based Taxation is handled when preparing an actual Japanese tax return (kakutei shinkoku), see
How to Prepare a Japanese Tax Return for U.S. Non-Permanent Residents: Remittances, IRA, and Foreign Tax Credits.

3. Traditional IRAs and Roth IRAs: Tax Treatment in Japan

One of the most common questions I receive from U.S. clients concerns Traditional IRAs and Roth IRAs.

For Japanese tax purposes, distributions from Traditional IRAs and Roth IRAs are generally considered taxable income, although the cost basis may be deductible when calculating the taxable amount.

The contribution history therefore becomes important.

A conversion from a Traditional IRA to a Roth IRA can also become a taxable event in Japan because the assets may be treated as being distributed at fair market value for Japanese tax purposes.

The important point is that the U.S. tax treatment of a Traditional IRA, Roth IRA, or IRA Conversion does not automatically determine its Japanese tax treatment.

4. 401(k) Retirement Accounts: Tax Treatment in Japan

The Japanese tax treatment of a 401(k) is generally analyzed in a similar way.

When a distribution is received, the cost basis may be deductible in calculating the taxable income.

The contribution history is therefore important, and the treatment of employee contributions and employer matching contributions should be reviewed separately.

In some cases, employer matching contributions may also be included in the cost basis depending on the facts and the tax treatment of the plan.

For a detailed explanation of distributions, contribution history, cost basis, exchange rates, and Remittance-Based Taxation, see
How Is a 401(k) Taxed in Japan? A Guide for Americans Living in Japan.

5. Calculating Capital Gains on Securities in Japan

Another issue that often causes difficulty is calculating the Japanese cost basis of U.S. securities.

Japan generally uses a moving-average method when calculating the acquisition cost of securities.

This can differ from methods commonly used in the United States, including FIFO.

For a U.S. taxpayer moving to Japan, it is therefore important to maintain records of each purchase and sale, including the acquisition date, quantity, acquisition price, and the relevant foreign exchange rate in Japanese yen.

If accurate records are maintained from the beginning, preparing the Japanese tax return later becomes much easier.

In my experience, reconstructing cost basis several years later can be extremely time-consuming.

Keeping the records from the beginning can save a considerable amount of time and work later.

For a more detailed explanation of acquisition cost, exchange rates, and the Japanese tax treatment of U.S. securities, see
How Are U.S. Stocks and Capital Gains Taxed in Japan? A Guide for Americans.

6. U.S. LLC Income Is Taxed in Japan

The Japanese tax treatment of a U.S. LLC depends on its legal characteristics and how the entity is classified under Japanese tax law.

If a U.S. LLC is treated as a foreign corporation for Japanese tax purposes and has a decision-making body such as a board of managers or directors, compensation paid to a manager may in some cases be treated as foreign-source employment income.

Distributions from the LLC may also be treated as dividend income in Japan.

The U.S. tax classification alone is therefore not enough to determine how the LLC is taxed in Japan.

For a broader explanation of U.S. LLC taxation, Permanent Establishment risk, foreign tax credits, and remittance rules, see
U.S. LLC Taxation in Japan: PE Risk, Foreign Tax Credits, and Remittance Rules.

The timing of an LLC distribution can also matter. For a practical explanation, see
How Are U.S. LLC Distributions Taxed in Japan? A Practical Guide for Americans.

7. Capital Gains on Securities and Japanese Tax

Capital gains on securities are generally taxable in Japan.

However, for a Non-Permanent Resident, gains on certain securities acquired before becoming a Japanese tax resident may be treated as foreign-source income for purposes of Remittance-Based Taxation.

This distinction can be very important.

The fact that the securities are held in a U.S. brokerage account is not, by itself, the decisive point.

The acquisition date and your Japanese tax status can be much more important.

For a more detailed discussion of securities acquired before moving to Japan and the five-year Non-Permanent Resident period, see
What Happens to Your Japanese Taxes After Living in Japan for 5 Years? A Guide for Americans.

For a practical guide focused specifically on U.S. stocks and capital gains, see
How Are U.S. Stocks and Capital Gains Taxed in Japan? A Guide for Americans.

8. Foreign Tax Credit in Japan and the United States

The same income can sometimes be taxed in both Japan and the United States.

For example, foreign-source income may become taxable in Japan depending on your Japanese tax residency status and remittance situation.

At the same time, U.S. citizens may remain subject to U.S. taxation on worldwide income even while living abroad.

One of the main mechanisms for reducing double taxation is the foreign tax credit.

Japan may allow a foreign tax credit for certain foreign taxes paid on income that is also taxable in Japan.

Similarly, the United States may allow a foreign tax credit for certain Japanese taxes paid on income that is also subject to U.S. tax.

However, foreign tax credits are not always simple.

You need to consider the type of income, the source of the income, which country taxed it, and when the tax was imposed.

For a more detailed explanation of how the foreign tax credit works for a U.S. Non-Permanent Resident in Japan, see
Foreign Tax Credit for Non-Permanent Residents in Japan.

9. Tax Planning Before Moving to Japan

For Americans moving to Japan, tax planning before the move can significantly reduce future tax problems.

In particular, planning remittances during the Non-Permanent Resident period can make a substantial difference.

It is also important to keep detailed records of securities, IRA contributions, Roth Conversions, and 401(k) contributions.

In my experience, many tax issues can be avoided simply by planning before moving to Japan rather than after becoming a Japanese tax resident.

Before moving to Japan, I normally want to know at least the following:

Your previous periods of residence in Japan
Your U.S. brokerage accounts and acquisition dates
Traditional IRA and Roth IRA balances and contribution history
401(k) contribution records
Ownership of a U.S. LLC
Expected dividends, interest, capital gains, rental income, and other foreign-source income
Expected remittances to Japan
Foreign taxes already paid or expected to be paid

For a practical overview of preparing the return after moving to Japan, see
How to Prepare a Japanese Tax Return for U.S. Non-Permanent Residents: Remittances, IRA, and Foreign Tax Credits.

10. How Our Accounting Firm in Japan Handles These Cases

When a new client contacts us, we first ask about their immigration history, Japanese tax residency, U.S. income, retirement accounts, investments, and remittance history.

Based on that information, we explain how Japanese tax law applies to their particular situation and suggest practical approaches before preparing any tax returns.

Our office provides international tax and accounting in Japan with English support, particularly for foreign residents, U.S. taxpayers, entrepreneurs, and small business owners.

In my experience, discussing these issues before moving to Japan is usually much easier than trying to correct them after becoming a Japanese tax resident.

If you are planning to move to Japan, have questions about your U.S. income, or would like to discuss Japanese taxation before relocating, please
contact us through our inquiry form.

Early tax planning can often save a considerable amount of tax and prevent unnecessary complications later.

11. Related U.S. Tax Guides for Americans Living in Japan

Japanese international tax issues rarely exist in isolation. A U.S. Non-Permanent Resident may need to consider several rules at the same time, including Remittance-Based Taxation, retirement accounts, securities, U.S. rental income, U.S. LLC income, foreign tax credits, and asset-reporting requirements.

The following guides cover these issues in more detail.

12. Frequently Asked Questions

Does the Japanese tax treatment shown on my U.S. tax return automatically apply in Japan?

No. This is one of the first things I check. Japan determines the character, source, timing, and taxable amount of income under Japanese tax law. A U.S. LLC, Roth IRA, Traditional IRA, 401(k), or capital gain may therefore need to be analyzed independently for Japanese tax purposes.

What records should I keep before moving to Japan?

Keep records that may be difficult to reconstruct later. In particular, I recommend retaining security purchase records, historical acquisition costs, IRA and 401(k) contribution records, Roth Conversion records, U.S. tax returns, LLC documents, and records of remittances to Japan. Reconstructing these records several years later can take a considerable amount of time.

Is the location of my brokerage account the most important factor for Japanese capital gains tax?

No. The fact that securities are held in a U.S. brokerage account does not by itself determine whether a capital gain is foreign-source income for Japanese tax purposes. The acquisition date and your Japanese tax status can be much more important.

Should I wait until my first Japanese tax return to review these issues?

No. In many cases, that is too late for planning. Transactions involving securities, Roth Conversions, large retirement-account distributions, LLC distributions, and remittances should be reviewed before the transaction when possible.

What changes after I have lived in Japan for more than five years?

If you cease to qualify as a Non-Permanent Resident for Japanese income tax purposes, Remittance-Based Taxation no longer limits the taxation of foreign-source income. Your exact residence history should be checked because previous periods of residence in Japan can also count toward the five-year test.

Do I need to finish my U.S. tax return before preparing my Japanese tax return?

Not necessarily. The Japanese tax treatment must be determined under Japanese tax law, so the amount shown on a U.S. tax return does not automatically become the amount reported in Japan. However, U.S. tax returns, Forms 1099, brokerage statements, LLC records, and other U.S. documents are often important supporting documents. I normally review the underlying transaction rather than simply transferring the U.S. tax result to the Japanese return.

I have several types of U.S. income. What should be reviewed first?

I normally separate the items first: salary, dividends, interest, capital gains, rental income, retirement-account distributions, and U.S. LLC income. Then I determine the Japanese tax treatment and source of each item. After that, I look at your Japanese tax residency, Remittance-Based Taxation, foreign tax credits, and the timing of the income. Mixing everything together at the beginning usually makes an international tax calculation harder, not easier.

Japanese Tax Support for Americans Living in Japan

Our accounting firm assists U.S. citizens and other foreign residents with Japanese individual income tax, international tax and accounting in Japan, U.S. LLC issues, Remittance-Based Taxation, Traditional IRAs, Roth IRAs, IRA Conversions, 401(k)s, U.S. stocks and capital gains, U.S. rental income, foreign tax credits, and Japanese tax returns (kakutei shinkoku).

When international income is involved, I normally start by identifying the Japanese tax treatment of each item rather than simply copying the treatment shown on the foreign tax return.

If you are moving to Japan or already live in Japan and need help understanding how your U.S. income is taxed in Japan, please
contact Koshida Accounting and Tax Office through our inquiry form.
English support is available.

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