The range of taxation for non-permanent residents

Hello, This is Yoshio Yamaguchi. This time, we will check the taxation of “non-permanent residents,” which would 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).
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 resident
When the Japan assignment period is changed on the way For example, if a foreign national who was ordered to work in the Japan branch for two years and returned to the home county in about ten months for health reasons, how would his residency be? In the case of this question, he/she will initially be working for two years and will be treated as a resident from the day after entry. He/she will be treated as a non-resident the day after departure. In other words, even if there is a change in the assignment period on the way, the residency status will not change retroactively.

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 foreign source income is also taxed in foreign countries, it will be double-taxed, but there are measures such as foreign tax credits and tax treaties to ease double taxation. 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.
Domestic source income≒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-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.

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.  ”