FAQ: Tax if paid by a foreign employer while working in Japan?

Yes, you generally owe Japanese tax. Work physically performed in Japan generates Japanese-source income, regardless of where your employer is based or where your salary is paid.

If your foreign employer does not have a permanent establishment in Japan and is not withholding Japanese income tax, you are responsible for declaring this income and paying the appropriate Japanese taxes by filing a final tax return (Kakutei Shinkoku).

For non-residents who work in Japan (e.g., on a short-term assignment) and are paid by a foreign employer without a Japanese presence, the income earned for services performed in Japan is subject to Japanese tax. Often, this might be handled by filing a quasi-final return upon departure, potentially at a flat withholding rate of 20.42% on the gross salary attributable to work in Japan if no tax treaty specifies otherwise.

Tax treaties between Japan and your employer's country might affect this, for instance, if your stay in Japan is short and other conditions are met (often referred to as the "183-day rule"). However, these rules are complex and depend on the specific treaty.

It's crucial to understand these obligations to avoid issues with Japanese tax authorities.