At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and permanent residents living in Japan for over 10 years. Our clients hail from all parts of Japan - Tokyo, Osaka, Yokohama, Nagoya and Sapporo. As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country. The expatriate Foreign Earned Income Exclusion ($92,900 for 2011 and $95,100 for 2012) can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Japan and know how to integrate your U.S. taxes into the local income taxes you pay. Any Japanese income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Japan for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Unfortunately, unlike most countries in the world, you must also file your taxes on worldwide income so long as you are a U.S. citizen or green card holder. You always have the option to give up your U.S. citizenship - by following proper IRS and State Department procedures you can surrender your U.S. Citizenship and therefore cut off your obligation to file U.S. taxes in the future. You must surrender the Citizenship for non-tax avoidance reasons and then can usually only return to the U.S. for no more than 30 days per year for the subsequent ten years. This is another service that we have provided many clients in the past.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax and legal concerns; we look forward to working with you.
Below we include information on the Japanese Tax System for American expatriates.
Taxes in Japan are unavoidable. They are also fairly complicated, especially for American expats who will be wholly unfamiliar with the process. The majority of Japanese taxes fall into two categories: Local and National. In addition, however, there are twenty five other “consumption” taxes. Consumption taxes extend to golf course usage and a very high gasoline tax which raises gas prices two to three times above what we pay in the US. Fortunately, the majority of consumption taxes are factored into the price of the item or service, saving some confusion. The following is a summary of Japanese taxes.
Taxes on Income
In Japan, the more money you make, the more you will pay in taxes (from 5% to as high as 40% as of 2007). If you make below 380,000 yen each year you will avoid taxes altogether. Your income is not simply calculated based on your take home pay, however. If you have received bonuses or a housing allowance, those amounts are also taxed. If you commute to work, compensation for commutation is non-taxable under certain circumstances. Because the Japanese government encourages public transportation, if you rely on public transportation to and from work, you will not be taxed on an amount up to 100,000 yen per month. Business owners may lower their taxes by taking advantage of the many deductions available to them. All of these issues are complicate by a foreigner status, however, and it is important to seek expert guidance as an expat.
The following table shows Japan individual income tax rates for 2009:
| Tax Base (Yen) | Tax |
| 1 - 1,950,000 | 5% |
| 1,950,001-3,300,000 | 10% |
| 3,300,001 - 6,950,000 | 20% of base exceeding 3,300,000 |
| 6,950,001-9,000,000 | 23% of base exceeding 6,950,000 |
| 9,000,001 - 18,000,000 | 33% of base exceeding 9,000,000 |
| 18,000,001 and over | 40% of base exceeding 18,000,000 |
US Income Brackets and Tax Rates
| Marginal Tax Rate | Single | Married Filing Jointly or Qualified Widow(er) | Married Filing Separately | Head of Household |
| 10% | $0 - $8,375 | $0 - $16,750 | $0 - $8,375 | $0 - $11,950 |
| 15% | $8,376 - $34,000 | $16,751 - $68,000 | $8,376 - $34,000 | $11,951 - $45,550 |
| 25% | $34,001 - $82,400 | $68,001 - $137,300 | $34,001 - $68,650 | $45,551 - $117,650 |
| 28% | $82,401 - $171,850 | $137,301 - $209,250 | $68,651 - $104,625 | $117,651 - $190,550 |
| 33% | $171,851 - $373,650 | $209,251 - $373,650 | $104,626 - $186,825 | $190,551 - $373,650 |
| 35% | $373,651+ | $373,651+ | $186,826+ | $373,651+ |
Residents and Nonresidents
In Japan, income tax obligations differ for residents and nonresidents. Under normal circumstances, residents of Japan are required to pay taxes on income earned outside of Japan, while nonresidents may be required to pay taxes on income earned inside Japan (Did we mention that it’s difficult to avoid taxes in Japan?). The nonresident does not automatically owe, however, as the type of tax treaty that the nonresident’s home country has with Japan will affect his or her obligation. As a matter of definition, a person is considered to be a resident of Japan if they have maintained a home in the country for more than one year. Anyone who does not fit this criteria is considered a nonresident. If one is considered a resident, one of two more categories must then be applied (permanent or non-permanent).
If you aren’t Japanese, and if you have spent less than half of the last ten years (but at least one year) in Japan, you are considered to be a non-permanent resident. If you have spent more than half of the past ten years in Japan, you are considered a permanent resident and will be taxed accordingly. Non-permanent residents are only required to pay taxes on income either earned in Japan or paid for in Japan. Permanent residents pay taxes on all income, regardless of where it was earned.
Filing a Return
In Japan, the income tax is self-assessed by each resident. Every taxpayer is asked to calculate what he or she has paid and earned and submit that form to the Japanese Tax Office. The Tax Office reviews each form and makes alterations and adjustments as needed. If you have paid a large amount of tax during the year, you may get a return from the government. If you have not, you may owe an amount that will be specified by the Tax Office.
The largest burden lies with business owners with employees, as employees whose companies withdraw money for taxes may not be required to file a return. The company will file the return on behalf of all of the employees and will make a pay slip adjustment (plus or minus) to reflect either an owed amount or a refund. In the cases where a resident is employed by a company who does not withhold money for taxes, the employee will be required to file on his own. Any employee may decided to file (whether or not the company will be filing on behalf of said employee) if he or she has specific deductions to claim. Additionally, if an employee’s income exceeds twenty million yen, he or she will also be required to file. Keep in mind that the twenty million yen figure applies to all income (for those employees who earn from multiple companies or sources). If a return is due, it should be submitted to the Tax Office during the one year and one month period of February 16th and March 15th of the following year. All taxes due are due by the March 15th date.
Useful Links
- Ministry of Finance. Information on everything financial in Japan, including details on Japan’s tax system.
- National Tax Agency. In-depth data and statistics on Japan’s income tax system. English PDF documents available for download.
- Gaijintax.com.
- National Tax Bureau, regional offices: