Resident/Tax Resident?

[steford]

HI all,
I'm sure this has been asked before although I've searched and can't find anything specific. I've also checked all the guides I can find which I either don't fully understand or are US specific. It came up briefly in an old thread of mine on a different topic here viewtopic.php?t=1452

I came to Japan in April 2021 on a spouse visa from the UK. We sold our property there, did our quarantine and lived in temporary accommodation until we found a place to rent, so the place we are now renting since June 1st is my only property and therefore home although technically I guess we could get up and leave at any time. I am still working part-time for my UK employer - the contract will end September 2022. I also work for another UK employer every November and June for 2 weeks - they have employees globally and aware of my new address and asked if I wanted to be paid directly in Japan which I declined. I've also had some forms through from my private pension provider asking me to confirm where I am resident for tax purposes. I also intend to make some back payments to my wife's UK pension and there is a section there to conform residency so I feel it's about time to sort this out.

I'm happy to accept I'm a Japan resident currently and can inform the relevant institutions. The UK Pension Service makes clear that residency and tax residency can be different. I'm aware of the Japanese one year rule but am not sure if this applies. I have not remitted any income to Japan as yet - we are living off savings - and of course our current pension/health payments are based on last year's zero Japanese income. I have had no contact from the Japanese tax authorities with tax codes/ID numbers etc.

My question - am I already a Japan tax resident and, if so, what are the implications for letting my employer(s) and financial institutions (banks/pension) know this both in the UK and Japan?

Thanks for any help.

[Beaglehound]

My understanding is that you would be classed as a Japan resident as you have your home here, but non-permanent for tax purposes until you have spent five years of the previous ten here. This means that overseas sourced income is not taxable here unless you remit it to Japan. However, if you are doing your U.K. work while physically in Japan, this counts as Japan sourced income, regardless of where it is paid. I asked the tax folk about this as I do some teaching work online with U.K. students, who pay into my U.K. bank account, and according to them this is taxable in Japan. If your salary is being taxed in the U.K., that will complicate things, but I think it’s here that you should be paying tax if you do the work in Japan.

[steford]

Thanks for that.

It may be time then to get this sorted once and for all. Without PAYE via a Japanese employer I assume I need to submit a tax return at some point.

I think I saw a UK form that I can submit to my employer - presumably after that they pay me gross and I sort out the tax here. This may have been what my other employer was suggesting when they said they'd pay me directly in yen.

Thanks again.

[Tkydon]

HI all,
I'm sure this has been asked before although I've searched and can't find anything specific. I've also checked all the guides I can find which I either don't fully understand or are US specific. It came up briefly in an old thread of mine on a different topic here viewtopic.php?t=1452

I came to Japan in April 2021 on a spouse visa from the UK. We sold our property there, did our quarantine and lived in temporary accommodation until we found a place to rent, so the place we are now renting since June 1st is my only property and therefore home although technically I guess we could get up and leave at any time. I am still working part-time for my UK employer - the contract will end September 2022. I also work for another UK employer every November and June for 2 weeks - they have employees globally and aware of my new address and asked if I wanted to be paid directly in Japan which I declined. I've also had some forms through from my private pension provider asking me to confirm where I am resident for tax purposes. I also intend to make some back payments to my wife's UK pension and there is a section there to conform residency so I feel it's about time to sort this out.

I'm happy to accept I'm a Japan resident currently and can inform the relevant institutions. The UK Pension Service makes clear that residency and tax residency can be different. I'm aware of the Japanese one year rule but am not sure if this applies. I have not remitted any income to Japan as yet - we are living off savings - and of course our current pension/health payments are based on last year's zero Japanese income. I have had no contact from the Japanese tax authorities with tax codes/ID numbers etc.

My question - am I already a Japan tax resident and, if so, what are the implications for letting my employer(s) and financial institutions (banks/pension) know this both in the UK and Japan?

Thanks for any help.

For your Residential Status:

Immigration Status:
You have a Spouse Visa which gives you the right of abode in Japan. Therefore you a Resident (for Immigration Purposes)
After a number of years, you would be entitled to apply for Permanent Residency (for Immigration Purposes), and your resident status would no longer be dependent on your spouse.

For National Tax Purposes:
(Entirely separate and different from the above)
For the period of April/May 2021 you were Non-Resident (for Tax Purposes).
Since establishing residence and moving in to your Rented Accommodation on 1 June, you became a Resident (for Tax Purposes).
This would either be on the date you established a residence and moved in to 'permanent' accommodation, or after 365 days in country, which ever is sooner.

Until you have been in country for 1826 (5 years, not including days out of Japan), you are treated as a Non-Permanent Resident (for Tax Purposes).

After you have spent 1826 (5 years, not including days out of Japan) in Japan, you are treated as a (Permanent) Resident (for Tax Purposes).

As a Non-Resident (for Tax Purposes) (Apr/May), only income earned in Japan for work done / services performed in Japan is taxable, and the payer should have withheld tax.

As a Non-Permanent Resident (for Tax Purposes) (1 Jun 2021 to 30 Jun 2026, plus additional days for days spent out of Japan), only income earned in Japan for work done / services performed in Japan, or income earned overseas that has been remitted to Japan are subject to Japan Taxes (with certain caveats). If you are doing the work in Japan for your overseas employer(s), then that income is taxable.
Interest, Dividends, Capital Gains (certain caveats apply), or income earned overseas for work done / services performed overseas is not taxable so long as you do not remit it to Japan. If you remit it to Japan, it becomes taxable.

As a (Permanent) Resident (for Tax Purposes), after you have spent 1826 (not including days out of Japan) in country, your worldwide income of all kinds becomes taxable in Japan.

Not your case, but if you leave and come back, if you have spent more than 1826 days (5 Years) in Japan in the last 10 years, then you are a (Permanent) Resident (for Tax Purposes).

For the first Half Year (1 Jun 2021 to 31 Dec 2021), your income will be very low. Your allowances and deductions would bring your Taxable income down, so depending on the actual amount of your income in Japan or remitted to Japan, you may not even need to file a return. If you did need to file a return, the return is due by 14 Mar 2022, and the tax payable by 14 Apr 2022.

For the first full Tax Year (1 Jan 2022 to 31 Dec 2022), your income either earned in Japan, or remitted from overseas, after allowances and deductions would be taxable. If you are working for an employer in Japan, the employer should take care of taxes through withholding (PAYE). You may or may not need to file. If you did need to file a return, the return is due by 14 Mar following the end of the Tax Year every year, and the tax payable by 14 Apr.

For Residential Tax Purposes:
You are considered Resident in your Municipality ( Ku-Shi-Cho-Son) depending on your residential registration in that municipality on 1 Jan every year. Residential Taxes are assessed on the reported Taxable Income for the previous Tax Year, so for 2021, based on your residential Status on 1 Jan 2022, i.e. the fact that your are registered with the Ku-Shi-Cho-Son Yakusho as being resident at your address. Taxes are then payable on 2021 income between July 2022 and June 2023. But as 2021 Taxable Income was very low or zero, your Residential Tax bill will be very low or zero.

For 2022 and onwards, residential taxes are assessed based on your registered address on the 1 Jan following the end of the tax year, and then payable between July of the following year, and June of the year after that.

[captainspoke]

My understanding is that you would be classed as a Japan resident as you have your home here, but non-permanent for tax purposes until you have spent five years of the previous ten here. This means that overseas sourced income is not taxable here unless you remit it to Japan. However, if you are doing your U.K. work while physically in Japan, this counts as Japan sourced income, regardless of where it is paid. I asked the tax folk about this as I do some teaching work online with U.K. students, who pay into my U.K. bank account, and according to them this is taxable in Japan. If your salary is being taxed in the U.K., that will complicate things, but I think it’s here that you should be paying tax if you do the work in Japan.

This is all correct, but as for the bold part, if you remit anything to japan, then your overseas income becomes taxable--i.e., it is not possible to say that you made some money overseas but it's not that specific income you remitted. It's all lumped together, probably so that whether you specifically remitted what you made or not does not become a shell game.

Also, I think that for an investment account, sales of equities that you purchased before arriving in japan will not be taxed during those first five years, but if you purchased something after you arrived, and then sold that before the five year point, this would count as something you did from japan (like work), and you're supposed to declare and be taxed on that.

[steford]

For your Residential Status:

Immigration Status:
You have a Spouse Visa which gives you the right of abode in Japan. Therefore you a Resident (for Immigration Purposes)
After a number of years, you would be entitled to apply for Permanent Residency (for Immigration Purposes), and your resident status would no longer be dependent on your spouse.

For National Tax Purposes:
(Entirely separate and different from the above)
For the period of April/May 2021 you were Non-Resident (for Tax Purposes).
Since establishing residence and moving in to your Rented Accommodation on 1 June, you became a Resident (for Tax Purposes).
This would either be on the date you established a residence and moved in to 'permanent' accommodation, or after 365 days in country, which ever is sooner.

Until you have been in country for 1826 (5 years, not including days out of Japan), you are treated as a Non-Permanent Resident (for Tax Purposes).

After you have spent 1826 (5 years, not including days out of Japan) in Japan, you are treated as a (Permanent) Resident (for Tax Purposes).

As a Non-Resident (for Tax Purposes) (Apr/May), only income earned in Japan for work done / services performed in Japan is taxable, and the payer should have withheld tax.

As a Non-Permanent Resident (for Tax Purposes) (1 Jun 2021 to 30 Jun 2026, plus additional days for days spent out of Japan), (with certain caveats) only income earned in Japan for work done / services performed in Japan, or income earned overseas that has been remitted to Japan are subject to Japan Taxes. If you are doing the work in Japan for your overseas employer(s), then that income is taxable.
Interest, Dividends, Capital Gains (certain caveats apply), or income earned overseas for work done / services performed overseas is not taxable so long as you do not remit it to Japan. If you remit it to Japan, it becomes taxable.

As a (Permanent) Resident (for Tax Purposes), after you have spent 1826 (not including days out of Japan) in country, your worldwide income of all kinds becomes taxable in Japan.

For the first Half Year (1 Jun 2021 to 31 Dec 2021), your income will be very low. Your allowances and deductions would bring your Taxable income down, so depending on the actual amount of your income in Japan or remitted to Japan, you may not even need to file a return. If you did need to file a return, the return is due by 14 Mar 2022, and the tax payable by 14 Apr 2022.

For the first full Tax Year (1 Jan 2022 to 31 Dec 2022), your income either earned in Japan, or remitted from overseas, after allowances and deductions would be taxable. If you are working for an employer in Japan, the employer should take care of taxes through withholding (PAYE). You may or may not need to file. If you did need to file a return, the return is due by 14 Mar following the end of the Tax Year every year, and the tax payable by 14 Apr.

For Residential Tax Purposes:
You are considered Resident in your Municipality ( Ku-Shi-Cho-Son) depending on your residential registration in that municipality on 1 Jan every year. Residential Taxes are assessed on the reported Taxable Income for the previous Tax Year, so for 2021, based on your residential Status on 1 Jan 2022, i.e. the fact that your are registered with the Ku-Shi-Cho-Son Yakusho as being resident at your address. Taxes are then payable on 2021 income between July 2022 and June 2023. But as 2021 Taxable Income was very low or zero, your Residential Tax bill will be very low or zero.

For 2022 and onwards, residential taxes are assessed based on your registered address on the 1 Jan following the end of the tax year, and then payable between July of the following year, and June of the year after that.

Thanks for this. Very informative. I wish I'd read it earlier as we've just been to the tax office to have a chat and my wife is now panicking about everything.

The upshot is that, as you said, they say that tax is due on income earned since Jun 1st. As I'm still paying tax in the UK I assume I can arrange a refund there for being out of the country. The tax official also said that any tax paid there would offset the amount to be paid here. As I work part-time only my income for the year will be fairly low anyway and from June 1st - Dec 31st perhaps only £14,000. You mentioned that as I wasn't here for the first half of the Japanese tax year (I think you meant Jan 1st to May 31st) my taxable income will be low. We've been topping this up with savings of course and the tax official also said that any amount spent on credit cards would be taxable which I find hard to believe - I assume this is the "remitted to Japan" part. This is savings from 25 years of living and working in the UK. I also don't know how any of this could be reliably calculated. I'm also not entirely clear now on the tax implications for transferring say £150,000 in savings to buy a house next year - it seems that the income tax won't be paid twice on current income but will be if my savings face a tax when transferred.

I think I'm just about understanding this. Thanks for any further help.

[Tkydon]

The upshot is that, as you said, they say that tax is due on income earned since Jun 1st. As I'm still paying tax in the UK I assume I can arrange a refund there for being out of the country. The tax official also said that any tax paid there would offset the amount to be paid here. As I work part-time only my income for the year will be fairly low anyway and from June 1st - Dec 31st perhaps only £14,000. You mentioned that as I wasn't here for the first half of the Japanese tax year (I think you meant Jan 1st to May 31st) my taxable income will be low. We've been topping this up with savings of course and the tax official also said that any amount spent on credit cards would be taxable which I find hard to believe - I assume this is the "remitted to Japan" part. This is savings from 25 years of living and working in the UK. I also don't know how any of this could be reliably calculated. I'm also not entirely clear now on the tax implications for transferring say £150,000 in savings to buy a house next year - it seems that the income tax won't be paid twice on current income but will be if my savings face a tax when transferred.

I think I'm just about understanding this. Thanks for any further help.

For Tax in the UK, you would need to check, but you have to inform that HMRC that you have moved off shore and established residence in Japan, from April 2021, so as the Tax year runs from Apr to Mar, I don't think you would liable for tax in the UK, or you would only be liable for the small number of days spent in the UK in this tax year. As you have sold your house, I think it would be hard for them to claim that you are still domiciled in the UK for tax purposes.

For any income paid after the day you left the UK, there may still be a tax liability in the UK if the work done is for the UK, and paid in the UK, even though you are not physically in the UK. You would have to check with HMRC.

Yes, as you've only been here for half a year, you will only have a small total income from 1st. May to 31st. Dec.. You need to list up the Sterling payments received and the Exchange Rate on that day. Do you have other income of any kind?

I suggest you use the GBPJPY rates listed here (Down at the bottom you can download the sheet for entire 2021.)

http://www.murc-kawasesouba.jp/fx/past_3month.php

approx £14,000 = approx. 2,125,000

You can take deductions for you 480,000 and your wife of 380,000, and for student son between 19 and 23 of 630,000 = total 1,490,000

And another 380,000 for each child, if you have any...
In future years, if you son is still dependent, the allowance will drop to 380,000.

So your Taxable Income becomes approx 2,125,000 - 1,490,000 = 635,000

Taxable as

Over Not over
Under 1,950,000 ― 5% <<<===
1,950,001 ― 3,300,000 ― 10%
3,300,001 ― 6,950,000 ― 20%
6,950,001 ― 9,000,000 ― 23%
9,000,001 ― 18,000,000 ― 33%
18,000,001 ― 40,000,000 ― 40%
Over 40,000,001 ― 45%

So flat 5%.

approx 635,000 x 5% = 31,750

Payable in April 2022.

If you did have to pay any tax in the UK on that income earned between 1 Jun and 31 Dec, then you can claim that against this tax amount as a Foreign Tax Credit, to the max of 31,750.

Beacause of the difference in Tax Years, you would probably need to complete your Kakuteishinkoku and pay the 31,750 in April. Then, after completing the negotiations with HMRC and finalising any actual tax liability, revisit the Kakutei Shinkoku and add the Foreign Tax Credit amount, and they will provide any refund. You can do this for up to 3 years after filing the Kakutei Shinkoku in Mar. So, any time until Mar 2025...

As you were not in Japan on 1st. Jan, there will be no Residents' Taxes on that amount to be paid next year (July 2022 to Jun 2023).

If you are just sending savings to Japan that you had in the bank in the UK before you arrived, there is no tax liability. Savings are not taxable, only income on those savings... such as Interest, Capital Gains from Share or Mutual Fund Trading, Miscellaneous Income from Crypto Trading, and so on.

I would just generally limit transfers to 1,000,000 in one go (£6,000 per time) to stay below the radar... The Japan bank doesn't have to report any payment less than 1,000,000 (or at least they didn't... this might be changing with the strict money laundering measures, etc.)

"the tax implications for transferring say £150,000 in savings to buy a house next year"

If you sold the house before you came to Japan and the money is sitting in the Bank since before your arrival, not invested in shares or anything, then you can transfer it entirely tax free. Transfer it in one go...

If you invested it, then any gain may be taxable. That would be the difference between the value when you made the investment GBP x Exch Rate on that date and the value when you sold the investment GBP x Exch Rate on that date, minus certain allowances, and the tax rate will depend on the type of income...

You might get away with claiming the difference between the value when you on the 31 Mar. 2021 GBP x Exch Rate on that date and the value when you sold the investment GBP x Exch Rate on that date, minus certain allowances, and the tax rate will depend on the type of income...

If you received any interest on the money in the bank between 1 June and 31st Dec 2021, only the interest is taxable, ONLY if you transfer the money between now and 31. Dec., and Only if it is more than 200,000...

If you receive any interest on the money in the bank between 1 Jan and when you send the money in 2022, the interest will be taxable in 2022, if it amounts to more than 200,000...

They cannot tax you just because you send the money to Japan. They can only tax any income derived on that money or gain derived on sale of property in that tax year...

Get ready to pay about 70,000 in Tax in Apr.


You will have to pay National Income Tax on 2022 income at the rates above in Apr 2023, and Residents' Taxes 10% on 2022 income, payable between July 2023 and June 2024...

[Beaglehound]

As Don says, sending money from the U.K. to Japan is not a taxable event. In your situation as a non permanent resident for tax purposes, what matters is whether you have any U.K. income in the same year that you remit the money. In that case, the amount you send will be deemed to include said income, thus becoming liable for taxation.

In your specific case, ignoring the complexity of you having already been taxed on this year’s income in the U.K., your employment income is taxable in Japan in any case, as you do the work in Japan, so you have to declare that here anyway. However, as Don also points out, you may have other income in the U.K., certainly I would imagine some interest from your savings, and that income would become subject to Japanese tax on remitting, but only up to the amount of the income, i.e. if you send £150k in 2022 and have £2000 worth of interest income in 2022, that £2000 would be taxable.

Regarding credit card spending, I don’t know for sure, but I would think the same rules apply, i.e. if such spending counts as remitted money, which I suppose it would, the amount liable for tax would only be up to the amount of your U.K. income for that year. And that doesn’t include your employment income as that will be declared here anyway.

[steford]

Thanks both for the very clear and detailed responses. I've relayed the headlines to my wife who feels more at ease (my son's housemate - back in the UK - has gone down with Covid so she's now also worried about that).

Really appreciate your time and effort. I will read in more detail tomorrow and try and get my head around it all.

[Tkydon]

Thanks both for the very clear and detailed responses. I've relayed the headlines to my wife who feels more at ease (my son's housemate - back in the UK - has gone down with Covid so she's now also worried about that).

Really appreciate your time and effort. I will read in more detail tomorrow and try and get my head around it all.

The New Tax Guide for 2021 Kakutei Shinkoku will be available shortly, with the new allowances for 2021, but going off last year's tax guide

As your income is so low in the first year, you can claim 480,000 for yourself instead of 380,000

380,000 for your spouse

Is your son still your dependant? Student? If so, if he is between 19 and 23, then you can deduct 630,000, otherwise 380,000
If he's no longer supported by you, then zero, sorry.

You didn't say if you had other dependent children... between 19 and 23, then you can deduct another 630,000, otherwise 380,000

Do you have elderly parent dependents who are supporting by you? Guess not, but that would add additional allowances... You have to prove you are supporting them...

Have you initiated any insurance plans in Japan? You must be paying National Medical Insurance and National Pension ... If not, I strongly recommend pay it! They'll check your payment history if you apply for PR. It could be a show stopper... These are deductible. The Insurance companies should provide you with Year End Statement Postcards.

I can see your Taxable income declining...

I also assumed you have not been in Japan before / for more than 5 years in the last 10 years...

You can PM me if you want to share more detailed info...

I found the 2021 Income Tax And Special Income Tax For Reconstruction Guide PDF. It was buried here
https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
where no-one could possibly find it...

I'll go through it and confirm the latest details, and adjust the above.