American expats Japan and US expatriate Tax Returns

By Expat News

Japan has always been an exotic place in the eyes of many expats. Japanese people have been praised for their kindness and friendliness. American expats Japan are attracted to this unique place for its culture and business opportunities. There are three levels of taxes levied on a foreign national: national income tax, local inhabitants tax and Japanese social security tax. The income taxes paid in Japan affect US expat taxes of Americans in Japan.

Do you offer US expatriate tax services to American expats Japan? What are tax filing requirements and income tax rates in Japan? Should expats Japan file US expatriate tax returns, although, they pay taxes in Japan?

These are some of the most popular expatriate tax questions from our clients in Japan.

Filing tax returns for expats Japan

The USA is one of the few countries in the world that taxes its citizens on the worldwide income whether they live in Tokyo or Virginia. However, US citizens and green card holders can take advantage of several IRS provisions to avoid double taxatation.

  • Foreign earned income exclusion. American expats Japan can exclude up to $101,300 in a tax year 2016 if they have foreign earned income and meet one of the tests.
  • Foreign housing exclusion. Additionally, expats Japan might deduct foreign housing expenses. Japan is famous for its extremely high housing costs.
  • Foreign tax credit. American expats Japan can take a foreign tax credit on US expatriate tax returns for taxes paid in Japan.

Moreover, expats Japan might be required to file FBAR as part of US expatriate tax preparation. To read more about FBARs, please review What is FBAR.

Tax system in Japan – FAQ

I am an American expat residing in Japan. Is my worldwide income taxed in Japan?

American expats Japan who are considered permanent residents are taxed on a worldwide income. Non-permanent resident is subject to Japanese national and local inhabitants tax on Japanese-source income. Non-resident taxpayer is subject to Japanese national tax only for services rendered in Japan. Paying taxes in Japan impacts US expatriate tax liability.

Who is considered a tax resident in Japan?

Non-permanent resident is an individual who is a resident of Japan and s/he has not maintained a domicile or residence (jusho or kyosho) for more than 5 years within the preceding 10 years.

Permanent resident is an individual who doesn’t meet the definition of non-permanent resident. A Japanese citizen is considered a permanent resident from the day after the arrival.

What is the tax year in Japan?

Japan has a calendar tax year. This is similar to the US tax system.

What is an income tax rate in Japan?

Income tax rate has a progressive scale with a maximum rate of 40% on income over 18,000,001 JPY. Local inhabitants tax is 4-6%. Non-resident is taxed at a flat rate 20% on salary and allowances.

Which income is considered a taxable income in Japan?

Generally, taxable income includes employment income, employer’s contribution to rent and cost of utilities, living away from home allowance, home leave, auto allowances, health insurance, certain interest subsidies. Cost of language lessons to an employee and transportation allowance are not taxable.

Can American expats Japan file a tax return on overseas taxes with a spouse?

Spouses must file separate and claim their own dependent exemptions.

Is it a requirement to file a tax return in Japan and pay overseas taxes every year?

A tax return must be filed by March 15. No extension is allowed.

Does Japan have a tax treaty or social security agreement with the USA?

The USA and Japan signed an updated double tax treaty agreement in 2003. Japan signed a totalizaiton (social security agreement) with the USA in 2004. It means that Americans working in Japan get social security retirement credit for working in Japan. Moreover, the USA reached an agreement with Japan to cooperate on FATCA issues. American expats in Japan are advised to consult an expatriate tax expert to review issues related to overseas taxes and social security.


American expats Japan must review expatriate tax issues before they decide to move to consider before moving to Japan and filing US expatriate tax returns on overseas taxes.

Americans in Japan who need additional help with Japanese taxes, US expatriate tax preparation, FBARs, FATCA or any other overseas tax issue, should seek help of an expatriate tax CPA. Expat tax experts at Artio Partners are pleased to offer international tax services.