Non-Resident vs. Non-Permanent Resident: Tax Implications
2024-07-15
Residency Status
Your tax status in Japan (resident vs. non-resident) is fundamental as it determines what income is subject to Japanese taxation.
Key Definitions:
- Resident (居住者 - Kyojusha): An individual who has a "domicile" (住所 - jusho) in Japan or who has resided in Japan for one year or more. Residents are generally taxed on their worldwide income (all income, regardless of where it's sourced).
- Non-Permanent Resident (非永住者 - Hi-eijusha): A sub-category of resident. This applies to a non-Japanese national who has been a resident in Japan for a total of five years or less within the preceding ten-year period.
- Non-permanent residents are taxed on their Japan-source income.
- Foreign-source income is taxed only if it is paid within Japan or remitted to Japan. Foreign-source income that is neither paid in Japan nor remitted to Japan is not subject to Japanese income tax.
- Non-Resident (非居住者 - Hikyojusha): An individual who does not qualify as a resident (i.e., no domicile and has resided in Japan for less than one year). Non-residents are taxed only on their Japanese-source income. This includes, for example, salary for work performed in Japan, rental income from Japanese property, or dividends from Japanese companies.
Tax Treatment Summary:
| Status | Japan-Source Income | Foreign-Source Income (Paid in/Remitted to Japan) | Foreign-Source Income (NOT Paid in/Remitted to Japan) |
|---|---|---|---|
| Permanent Resident | Taxable | Taxable | Taxable |
| Non-Permanent Resident | Taxable | Taxable | Not Taxable |
| Non-Resident | Taxable | Not Taxable | Not Taxable |
Important Considerations:
- Determining "domicile" can be complex and involves assessing your primary place of living based on objective facts like family location, occupation, and asset location.
- The 5-year rule for non-permanent residents is cumulative within the last 10 years.
- Tax treaties between Japan and your home country can also affect how certain types of income are taxed, potentially overriding domestic rules to prevent double taxation.
It's crucial to correctly determine your residency status each year as it has significant implications for your tax obligations. The NTA provides detailed guidelines and examples to help with this determination.