Foreign Pension Tax Ramifications

[Tkydon]

As a US Citizen you have to pay US Taxes on that US Pension Income.
You may be able to invoke the US-Japan Tax Treaty to reduce the tax in the US as a Resident of Japan... Not sure. I can't comment on US Tax law.
(I had cause to check the Tax Treaty. See Later Post)

As a Japanese Permanent Resident for Tax Purposes you have to file the Gross Amount of the US Pension as Pension Income as Miscellaneous Income, as it has not been subject to Japan Witholding Tax, As you did, in your Kakutei Shinkoku (14 Mar)

If you choose Aggregate Taxation, it will be subject to taxation at your Marginal Tax Rate after any deductions or credits.

Edited> You may be able to claim the Public Pension Deduction if your pension falls under the criteria for qualification. See my next Post for details of the Public Pension Deduction.

You will then receive your 1040 from the US (14 Apr)

After you receive your 1040, you can go back to your Kakutei Shinkoku and amend it.
Enter the Amount of Tax Paid in the US on your US Pension Income in Page 1 Item 46 - Foreign Tax Credit

This will reduce the National Income Tax liability, but will not reduce the 0.315% Reconstruction Tax and 10% Residential Tax liabilities.

Edited: Unfortunately, you are still liable for the Resident's Tax 10%, but it may be on the reduced amount after the Public Pension Deduction, if your pension qualifies. See my next post on the Public Pension Deduction.


Now, if you could, and if you chose to take the Pension as a Lump Sum, there are very advantageous Tax terms in Japan.

There is a Special Deduction for Retirement Income. i.e. Onetime Retirement Bonus 退職金

This is calculated as follows:
For less than 20 years' service; Y400,000 x No. of Years of Service
For greater than 20 years' service; Y8,000,000 + Y700,000 x No. of Years of Service in excess of 20 years

Amount minus Deduction calculated above.

The remaining amount after this deduction is then divided in Half.

The remaining amount is then taxable at Standard Marginal Tax Rates
Up to 1,950k --- 5%
1,950 to 3,300k --- 10%
3,300 to 6,950k --- 20%
6,950 to 9,000k --- 23%
9,000 to 18,000k --- 33%
18,000 to 40,000k --- 40%
Over 40,000k --- 45%

If you then invested the money any future gains would be taxed
Under the Aggregate Taxation Method at your Marginal Tax Rate (X% National, 0.315% Reconstruction, and 10% Residential Taxes) - This is beneficial if you overall income is less than about Y8M
or
Under the Separate Self Assessment Method as Capital Gains (15% National, 0.315% Reconstruction, and 5% Residential Taxes)

[Beaglehound]

‘Tis a pity that overseas state pensions don’t count for public pension income exemption here. Well a pity for me anyway since my U.K. state pension is likely to be much larger than my Japanese one. I guess the basic 480k exemption still applies to pensioners though?

[Tkydon]

Re-reading the section on 'Public Pension Deduction'. You may be able to claim this deduction.

'Public Pensions' means: public servant pensions, approved fund pensions, national pensions, or other pensions paid under social insurance schemes.

If your pension falls into one of these categories, then you should be able to claim the Public Pension Deduction.

The amount is calculated based on the total gross receipts of the public pension
off-set against the total amount of all other sources of income in the year.

Gross Annual Pension --- Other Income < Y10M --- Y10M to Y20M --- > Y20M

Under 65.
Less than 1,300k --- 600k --- 500k --- 400k
1,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k
4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k
7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k
Greater than 10M --- 1,955kh --- 1,855k --- 1,755k


Over 65.
Less than 3,300k --- 1,100k --- 1,000k --- 900k
3,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k
4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k
7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k
Greater than 10M --- 1,955k --- 1,855k --- 1,755k

You can go back an try to claim this on your Kakutei Shinkoku.


You can find this table reproduced here:

https://www.tax.metro.tokyo.lg.jp/book/ ... k2021e.pdf
Page 8

[Gulliver]

Gross Annual Pension --- Other Income < Y10M --- Y10M to Y20M --- > Y20M

Under 65.
Less than 1,300k --- 600k --- 500k --- 400k
1,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k
4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k
7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k
Greater than 10M --- 1,955kh --- 1,855k --- 1,755k


Over 65.
Less than 1,300k --- 1,100k --- 1,000k --- 900k
1,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k
4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k
7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k
Greater than 10M --- 1,955k --- 1,855k --- 1,755k

You can go back an try to claim this on your Kakutei Shinkoku.

Sorry, hard for me to interpret your example above. Could you work me through an example for, say, receiving a public foreign pension of ¥2 million. No other income and under 65.

Would that be 25% of 2M= ¥500,000+ ¥275,000= ¥775,000?
Leaving you with ¥1,225,000 taxable income in Japan?

Thanks for the help.

[Tkydon]

Yes.

See

https://www.nta.go.jp/english/taxes/ind ... 020/01.pdf

See Pages 22-23
STEP３ Computation of the amount of deduction from public pensions, etc.
and
STEP４ Computation of miscellaneous income from public pensions, etc.

These are the same tables I tried to reproduce here.

[Gulliver]

https://www.nta.go.jp/english/taxes/ind ... 020/01.pdf

See Pages 22-23

The disclaimer at the bottom of page 23 it’s very interesting/as clear as mud. It states:

“Non requirement of filing tax returns concerning pension recipients
You are not required to file a return for income tax etc. if (a) your amount of earnings from public pensions is 4,000,000 yen or less,
(b) all the pensions you received are subject to the Japanese withholding (excluding ones that are covered by the provision in Article 203-7 of the Income Tax Act (public pensions, etc. not subject to the Japanese withholding), and
(c) your amount of income (excluding miscellaneous income from public pensions, etc.) is 200,000 yen or less.
* Even if you are not required to file a return for income tax etc., you are required to file a return for income tax etc. in order to receive refunds of income tax etc.
* For the inhabitant tax, see page 65.”

Questions:

1. So for section (a) if you make, for example, only ¥2 million foreign pension you do not have to file a tax return?

2. Section (b): Which pensions are they talking about that are and aren’t subject to Japanese tax withholding? Isn’t everything “subject”?

3. Section (c): So if you make ¥2 million public pension and ¥100,000 add a side gig, you don’t have to file a tax return?

4 then it says “* Even if you are not required to file a return for income tax etc., you are required to file a return for income tax etc.” are they totally contradicting themselves or is that just a bad translation? What in the world does that mean?

Thanks again for your help.

[Tokyo]

Gulliver, I fully sympathize since I am in the same bind. My retirement income is mainly from overseas, I pay basically no national tax here but take a pretty big hit for local taxes and health insurance in Japan. I have tried to argue with the Japanese tax bureaucrats at both national and local levels but with little satisfaction. I don’t think there is a workaround, at least not the one you hoped for.

Recently I have come around to thinking that I had this all backwards. That it is indeed appropriate for me to be hit with these local taxes given that I reside here full time. If there is any double taxation issue - which I have argued elsewhere in this blog is a problem with local taxation - then fault lies with the other side, not the Japanese side.

Conclusion: foreign residents of Japan and everywhere else need to band together to seek tax breaks from our home governments which levy local taxes for facilities we do not utilize. There’s your workaround. But I fear that changing tax laws is not at all likely.

[Gulliver]

I was finally able to get this straightened out after some one on one consultations with a Japanese tax attorney that had in depth knowledge of the US/Japan tax treaty.

I appreciate all the help above. It helped me to be able to ask him the right kind of questions.

[picklerick]

I was finally able to get this straightened out after some one on one consultations with a Japanese tax attorney that had in depth knowledge of the US/Japan tax treaty.

Could you let me know the contact info for the Japanese attorney that had in depth knowledge of the US-Japan tax treaty? I need these services too, but haven't been able to find anyone yet.

[Gulliver]

Could you let me know the contact info

I don’t want this to be an advertisement so I rather not give contact info. A quick Google search in English, however, will provide you with several options.

I reckon an important criteria would be past work experience: Having worked as a tax accountant/attorney for a US company in Japan, for example.