Taxes for Americans Living in Japan

Living in Japan as an American is an adventure filled with cultural immersion, culinary delights, and unforgettable experiences. From the bustling streets of Tokyo to the serene landscapes of Kyoto, Japan offers a rich tapestry of traditions and modernity. Amidst the excitement of exploring this vibrant country, however, one aspect that cannot be overlooked is the realm of taxes.

If you need assistance filing your US taxes, feel free to contact Universal Tax Professionals. We have helped thousands of Americans living abroad, including those in Japan, with their US taxes. Our team has extensive knowledge of international taxation, so you can rest assured that your tax returns will be prepared accurately. We offer a wide range of US expat tax services, ensuring that we can help with any tax situation you may have.

Japan’s Tax Year

Japan’s tax year typically mirrors the calendar year, running from January 1st to December 31st. As for the tax return filing deadline, individuals usually have until March 15th of the following year to submit their returns. However, it’s important to note that extensions may be available under certain circumstances, providing individuals with additional time to file their taxes.

The cornerstone of Japan’s tax system is the “Final Income Tax Return” (Kakutei Shinkoku). This comprehensive form serves as the platform for taxpayers to report their income, claim deductions, and avail tax credits for the preceding tax year.

Tax Rates in Japan

Japan’s tax system is a comprehensive framework designed to support the country’s economic stability and growth. It encompasses various types of taxes, including income tax, corporate tax, consumption tax, and other local taxes.

Income Tax

Income tax in Japan is progressive, meaning that the tax rate increases as the taxable income increases. The tax rates for individual income tax are as follows:

Taxes Japan

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In addition to the national income tax, residents are also subject to local inhabitant taxes, which typically amount to around 10% of their income.

Corporate Tax

Japan’s corporate tax system is designed to be competitive while ensuring that businesses contribute fairly to the economy. The standard corporate tax rate is 23.2% on the taxable income of corporations.

Small and medium-sized enterprises (SMEs) benefit from a reduced tax rate of 15% on the first ¥8 million of taxable income, provided certain conditions are met.

Consumption Tax

Japan imposes a consumption tax, similar to a value-added tax (VAT), on goods and services. The standard consumption tax rate is 10% on most goods and services.

A reduced rate of 8% applies to certain items, such as food and non-alcoholic beverages, to alleviate the tax burden on essential goods.

Other Taxes

In addition to the primary taxes mentioned above, Japan’s tax system includes several other taxes:

  • Inheritance Tax: This tax is levied on the transfer of assets from a deceased person to their heirs. The rates range from 10% to 55%, depending on the value of the inheritance.
  • Gift Tax: Similar to the inheritance tax, the gift tax is imposed on the transfer of assets during a person’s lifetime. The rates also range from 10% to 55%
  • Property Tax: This is an annual tax on the ownership of land and buildings. The standard rate is 1.4% of the assessed value of the property, though it can be higher in certain municipalities.
  • Vehicle Tax: Owners of motor vehicles are required to pay an annual tax based on the type and size of the vehicle. The rates vary significantly depending on these factors.

Tax Credits and Deductions

Japan’s tax system offers various tax credits and deductions to alleviate the tax burden on certain individuals. These can include credits for dependent family members, deductions for medical expenses, and deductions for contributions to social insurance schemes, among others. By availing themselves of these credits and deductions, taxpayers can effectively reduce their taxable income, thereby lowering their overall tax liabilities.

Relief from Double Taxation

Japan has entered into numerous tax treaties with other countries to prevent double taxation of income. These treaties typically allow for tax credits or exemptions to ensure that income is not taxed twice by different jurisdictions. For example, under the Japan-U.S. tax treaty, residents of Japan can receive a credit for U.S. taxes paid on income derived from the United States, and vice versa.

Japanese Tax Submission

The tax authority in Japan is called the National Tax Agency (NTA), known in Japanese as Kokuzeichō. This agency oversees the administration of tax laws and the collection of taxes in Japan.

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Individuals in Japan typically submit their tax returns to their local tax office, known as the Tax Office (Zeimusho). Each region in Japan has a local tax office that handles tax filings and inquiries.

Here are the steps for submitting taxes in Japan:

Prepare Your Tax Return

Complete the “Final Income Tax Return” (Kakutei Shinkoku) form. This form can be obtained from the local tax office, downloaded from the NTA website, or completed online using the NTA’s e-Tax system.

Submit the Tax Return

  • In Person: Visit your local tax office to submit the completed tax return form. Tax office staff can assist with any questions you might have.
  • By Mail: Mail the completed tax return form to your local tax office. Ensure it is postmarked by the tax filing deadline (typically March 15th).
  • Online: Use the e-Tax system to file your tax return electronically. The e-Tax system is a secure online platform provided by the NTA, allowing taxpayers to submit their returns and make payments online.

Make Payments

Tax payments can be made via bank transfer, credit card, or at authorized financial institutions and convenience stores. Ensure that payments are made by the due date to avoid penalties and interest charges.

By submitting taxes through the appropriate channels and within the designated deadlines, American expatriates in Japan can ensure compliance with Japanese tax regulations, thereby avoiding penalties and ensuring a smooth tax filing experience.

Filing Japanese Taxes Before US Taxes

For American expatriates living in Japan, understanding the order of tax filing can significantly impact the accuracy and efficiency of their tax reporting. One strategic approach is to file Japanese taxes before U.S. taxes. This method offers several benefits and is supported by the practical consideration of differing tax deadlines between the two countries.

Different Tax Deadlines

Japan’s tax year runs from January 1st to December 31st, with tax returns due by March 15th of the following year. In contrast, the U.S. tax year also runs from January 1st to December 31st, but the filing deadline for Americans living abroad is until June 15. This staggered schedule naturally positions the Japanese tax return to be addressed first.

Avoiding Double Taxation

One of the primary advantages of filing Japanese taxes first is the avoidance of double taxation. The U.S. taxes its citizens on their worldwide income, regardless of where they live. However, Americans living abroad can claim the Foreign Tax Credit (FTC), which allows them to offset their U.S. tax liability with taxes paid to foreign governments.

By filing Japanese taxes first, expatriates can accurately determine their foreign tax liability and use the amounts paid to Japan as a credit on their U.S. tax return. This ensures that the income is not taxed twice and helps calculate the correct amount of tax credit to claim on the U.S. return.

Foreign Earned Income Exclusion

The Foreign Earned Income Exclusion (FEIE) allows American expatriates to exclude a certain amount of their foreign earned income from U.S. taxation. To claim this exclusion, it’s beneficial to have a clear record of foreign income and taxes paid. Filing Japanese taxes first provides the necessary documentation to support the FEIE claim on the U.S. tax return, ensuring compliance and accuracy.