Hello, this is Yamaguchi international tax accounting firm.
If a foreigner working for an overseas company is dispatched to a Japanese subsidiary and working in Japan, this foreigner may be called an Expats. The salary system of Expats may be different from the salary system of Japanese employees. The typical one is “economic profit,” that is, the existence of non-monetary salary.
As a rule, economic profits are also a salary, so they are subject to income tax. However, there are many cases where it is difficult to know whether or not your economic profits are taxed. So let’s check it.
Commuting expenses (commutation ticket and gasoline charges)
Regular commuting expenses are exempt from income taxes if that are economical and reasonable in light of various factors such as fare, time, distance (Article 9 (1), item 5 of the Income Tax Law, Article 20-2 of the Income Tax Law Enforcement Order). However, what about Shinkansen commuting, a limited express train, or use a private car? There are many situations where problems arise. Please refer to this site of national tax for details.
Travel expenses required for relocation are generally exempt from taxes (Article 9, Paragraph 1, Item 4 of the Income Tax Law). Expats will also be exempt from tax for relocation expenses when they arrive in Japan, as long as they are within the necessary range.
Income tax and resident tax assumed by the company
If the company bears the income tax and resident tax that should be borne by the individual, the amount taken by the company is subject to taxation as employment income. Increasing employment income will increase income taxes, and the company will bear this increase again, making it difficult to tell how much to pay employees after all. Therefore, a so-called gross-up calculation is required.
Home leave (homecoming travel expenses)
In general, if you are allowed by the office regulation to return to your country once in every year, and the company undertakes the travel expenses, you will be exempt from tax on it. For the company, under corporate tax law, the payment for the travel expenses is tax-deductible.
- Usually, the business class would be permitted not for the first class. (* 2)
- The payment of home leave expenses for spouses and relatives who have the same livelihood are also exempt.
- Instead of home leave expenses, travel expenses for bringing in spouses and dependent relatives from the home country would also be exempt. (* 3)
- This home leave notice is intended for those dispatched from the head office of a foreign corporation to Japan. Therefore this would not apply to foreigners who come to Japan for their convenience and directly employed in Japan. (* 1).
- It seems that one time a year would be exempt from tax, and the rest would be taxable if executives return to the country several times a year. (* 2)
- If Expat and his or her family members back home at different times, it seems that the tax audits have denied home leave exemption.
(* 1) Non-resident tax system and withholding question and answer collection Yasuhiro Yoshikawa p332
(* 2) Although there is no stipulation, it seems to be the business practice.
(* 3) Yoshikawa p333 above
If the employee uses the company house or dormitory as a residence, and the rent collected from the employee is equal to or greater than 50% of the rent equivalent, the economic benefits on the rent are non-taxable. If the employee makes the contract directly with the house owner, and the company gives cash to the employee as the housing allowance, the entire amount will be taxed as a salary income.
Rental of company-owned vehicles, leasing of leased vehicles (corporate contract)
If the car rented by the company is necessary for business operations and is used exclusively for business purposes, it is not required to tax on the economic benefit on the car lease and its parking fee. But for private use purposes would be taxable.
Child education expenses
The economic benefit on the child education expenses is taxable as a salary income. However, if the company is making a donation to an international school, and the child is exempt from tuition, the financial benefits of the tuition exemption are treated as non-taxable.
(*) Non-resident tax system and withholding question and answer collection Yoshikawa
In the corporation income tax law, the tax treatment of the company is a donation, so the portion exceeding the deductible limit is not deductible in calculating the company’s income.