RetireJapan

If you receive foreign currency as income, assuming income tax is withheld, I don’t see where there would be extra forex reporting?

If you convert some currency into another currency, and then do a further currency conversion, only then is there potentially tax due in my understanding.

But if you received dollars as income, and then just invest them or spend them, neither is a taxable event I believe?

sutebayashi wrote: ↑Wed Oct 30, 2024 11:43 am If you receive foreign currency as income, assuming income tax is withheld, I don’t see where there would be extra forex reporting?

Correct.

My understanding is that you'd need to keep a running average of the value of your USD (or other foreign currency) in JPY terms, and anytime you spend it you'd need to track your gains/losses. For example,

You receive 1000 USD as income, exchange rate is 150, your dollars are worth 150 JPY each.

Now you receive another 1000 USD, exchange rate is 160, your dollars are now worth 155 JPY each.

Then you buy a coke for 2 dollars when the exchange rate is 165. You've profited (165 - 155) x 2 = 20 yen on this transaction.

https://www.nta.go.jp/law/shitsugi/shotoku/02/40.htm

By the way I think this is insane.

YouMeWeThem wrote: ↑Wed Oct 30, 2024 10:54 pm My understanding is that you'd need to keep a running average of the value of your USD (or other foreign currency) in JPY terms, and anytime you spend it you'd need to track your gains/losses.

That’s an interesting link, and I’m not sure on the nitty gritty but it appears that there is some definition of stuff for which this would be the case, like a rental property, which can create further economic value. I knew about this for buying other currency, and yeah I guess it follows that it applies for investment vehicles.

So for cans of coke and pairs of blue jeans I think one should be able to spend that foreign currency freely and not worry about it being considered as a taxable transaction.

Come to think of it, in the example one might actually realize a forex loss too. Say you converted some yen to dollars, but the yen went up in value thereafter, and then you bought the property…

Thank you all for the responses so far! I’m still debating whether it’s worth the added complexity. My main objective here is to mitigate currency risk to some extent.

I’ve now received more details, and I’m even less sure about moving forward with this. If I were to receive part of my salary in EUR or USD, the payment would actually come from a separate company. From what I understand, there are two legally distinct entities: one in Japan that pays my primary salary and one in the U.S. that would pay me as a "freelancer." This means the Japanese company wouldn’t report my USD earnings, so it would be up to me to handle it on the tax side.

I’m considering whether I might need to register a 個人事業 (sole proprietorship) or declare it as a "side business" to keep everything legitimate.

It seems like visiting the tax office for advice might be the best next step.

The other posters are right in that it's a pretty annoying thing. And actually, there is very little real "benefit" for you anyways. I would only do that if I would have to often go to countries that use USD (or EUR) and/or pay things there.

But in any case - if you decide to do it, here's my advice:

1. Immediately convert any foreign currency into YEN if you don't need it to stay that currency.

2. Try to stay below the 200000 YEN limit under which you are not forced to do a tax declaration (as a company employee) unless there are other reasons that force you (since you seem to be paid as a freelancer, that is probably the case, so I advise against it).

3. If 1. and 2. don't already work, then purchase accumulating foreign securities (bonds or *whatever* it is) that have low buying/selling fees because your broker will usually do most of the work for you. Since they are also accumulating, they help you to stay under the limit of #2 and you can sell them when needed and get the foreign currency back. By doing so you should be avoiding the cost averaging problem.

4. You can do the same with securities denoted in YEN but that will incur currency conversion costs.

5. Make sure that your contract with the company (regarding the payment) is airtight. As others have said, your employer might try to argue that your salary already grew by the better FX rate. So I'd suggest to get it written (even if informally) that you want that to pay foreign expenses. Then at least you can say to your "next boss": hey look, the FX got better, but my expenses also grew in the same way. So give me a raise. Still, this might not work if your employer has their revenue mainly in YEN and the yen gets weaker. If that is the case, I'd definitely advice against getting paid in a foreign currency.

6. Don't forgot that your employer currently pays social/health insurance on their side as well. So your compensation in USD (or whatever) needs to be higher(!) than just the current YEN value. And yes, you will have to pay those things yourself.

7. Last: try to move around your foreign currencies as little as possible and that includes the media you use to move around money. E.g. only use a single credit card if possible. The more tools you use, the harder it will get for you in case of an audit.

Thank you very much for this great answer! This is really helpful and a lot of food for thought.