The range of taxation for non-permanent residents (Japanese tax)

This time, we will check the taxation of “non-permanent residents,” which may apply to many foreign people in Japan. “Permanent residents”(such as Japanese) and non-permanent residents have different ranges of taxation.

Non-permanent resident

First, individuals subject to Japanese income tax are divided into resident and non-resident individuals.

A resident is an individual who has an address in Japan or has stayed in Japan for more than a year (Article 2, Paragraph 1, Item 3 of the Income Tax Law). It doesn’t matter if they are Japanese or foreign nationals. If an individual has an occupation that generally requires them to live in the country continuously for at least one year, it is presumed that the individual has an address in Japan (Article 14, Paragraph 1, Item 1 of the Enforcement Order of the Income Tax Law). Also, it is presumed that they will stay and live for at least one year unless the period of stay is apparently shorter than one year in advance due to contracts, etc. (Basic Notification of Income Tax Law 3-3).

A non-resident is an individual other than a resident.

Next, residents are further divided into permanent residents and non-permanent residents.

A non-permanent resident is a resident of Japan, but does not have Japanese nationality and has a total address of 5 years or less in Japan within the past ten years (Article 2, Paragraph 1, Item 4 of the Income Tax Law).

		Definition
resident	permanent resident	Other than non-permanent resident
	Non-permanent resident	A resident of Japan, who does not have Japanese nationality and has a total address of 5 years or less in Japan within the past ten years
non-resident		An individual other than a resident

Tax scope

Differences between non-residents, permanent residents, and non-permanent residents will determine the range of income subject to Japanese tax law.

If an individual is a permanent resident, he or she will be taxed in Japan on income earned worldwide, regardless of whether it is domestic source income or foreign source income (Article 7.1-1 of the Income Tax Law) ).

If an individual is a non-permanent resident, the scope of taxable income is as follows.

(1) income other than foreign source income (≒Domestic source income)

(2) foreign-source income paid in Japan or sent to Japan from abroad.

	Other than Foreign source income		Foreign source income
			Paid in Japan	Paid overseas
Permanent resident	Taxed
Non-permanent resident	Taxed				Taxed if remitted to Japan
					Non-taxed
Non-resident	Taxed	Non-taxed

Domestic source income (Article 161 of the Income Tax Law) and Other than foreign source income (Article 95, Paragraph 4 of the Income Tax Law) are not equal but are marked as ≒ here for convenience.

Regarding the employment income of non-permanent residents, employment income generated by working in Japan is taxed as domestic source income. The taxation method is the same as for Japanese residents. 　Non-permanent residents are subject to withholding taxes on wages, etc., paid in Japan, as determined by the withholding tax table (Article 183 of the same law), and pay taxes by making year-end adjustments (Article 190 of the same law). In certain cases, such as when the salary exceeds 20 million yen, it is necessary to file a final income tax return (Article 120 and Article 121 of the same law).

If a non-permanent resident receives a salary from a foreign parent company, etc., outside of Japan, it is subject to taxation in Japan as it is a domestic source of income if it is from work in Japan. If the salary is paid outside Japan, the salary payer is not required to withhold tax (Article 183 of the same law). Non-permanent residents are required to file their own tax returns and pay taxes (Article 121).

Refund of remittance from overseas

Non-permanent resident’s foreign-source income is taxed if it is remitted to Japan, therefore, it is better not to send remittances without necessity.

What happens if you transfer money from an overseas account to a Japanese private account but then immediately return it to an offshore account? If you send $ 100 to Japan and refund $ 80, will you be taxed only to the remaining $ 20, or will you be taxed to $ 100?

In this regard, according to Decision Casebook No76 H20.8.4, it is taxed on the first remittance of $ 100.

“Article 7, Paragraph 1, Item 2 of the Income Tax Act stipulates that payments made in Japan or remittances from abroad are the requirements for non-permanent residents to make foreign source income taxable. It should have been an opportunity to exercise the tax right because Article 7 (1) (ii) of the Income Tax Act and the Provisions do not impose any particular restrictions on the content of “remittance.” However, once there is the fact that foreign-paid income is remitted from abroad to the country, it should be said that there was remittance specified in Article 7, Paragraph 1, Item 2 of the Income Tax Law without any particular limitation. “