Taxation and the Long Term Resident

As more and more foreigners elect to stay in Japan for longer periods of time, it is important to have an understanding of basic tax issues. One question that arises with some frequency is what it means to be a permanent resident in Japan.

For tax reasons and immigration purposes the term “Permanent Resident” are independent of one another. In other words, it is possible for a foreigner living in Japan to be a permanent resident for tax purposes, while maintaining an immigration or visa status other than Permanent Residency (eijyuuken).

For tax purposes, residency is divided in to Non-Permanent Resident and Permanent Resident. A Non-Permanent Resident is determined as someone with a domicile or residency in Japan lasting longer than 1 year. A Permanent Resident refers to a Resident who has been in Japan for a period of 5 years or longer, within the past 10 years.

The scope of taxable income differs slightly for Non-Permanent Residents and Permanent Residents. A Non-Permanent Resident is expected to pay tax in Japan on all income generated in Japan. They are also expected to pay tax on foreign income that is paid into Japan. Furthermore, a Non-Permanent Resident should pay taxes on foreign income that is paid abroad but remitted to Japan (only the capital gain portion remitted to Japan is taxable). Keep in mind that Japan has tax treaties with most countries to avoid double taxation.
For a Non-Permanent Resident world-wide income that is not remitted into Japan is not taxed.

A Permanent Resident, someone who has lived in Japan for more than 5 years aggregate over the past 10 years, is subject to taxation on all incomes world-wide.

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