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Tax question (foreign income)

ADHWGT

Kouhai
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First, a little context: I came to Japan in September 2012 on a student visa (with a work permit). While studying, I freelanced for a Swedish newspaper (with no presence in Japan – apart from myself, that is) on the side. I didn't file my taxes last year, as I didn't think I had to.

In October last year, I quit school and got a journalist visa instead (still working as a freelancer).

As the newspaper in question no presence in Japan, my "salary" is paid in Sweden, to my Swedish bank account. This means that Swedish income tax is automatically deducted. Every month, I transfer a sum to my Japanese bank account in order to pay my rent, utilities et cetera.

I'm having a really hard time wrapping my head around whether, and how, I should file my taxes in Japan this year. Specifically:

1. Do I have to pay tax only on the sum I transfer to my Japanese bank account every month (since, if my understanding is correct, apparently only foreign income that is remitted to Japan is taxable in Japan)?

2. At what point did (any part of) my income become taxable – when I got the visa in October, or all the way back in January of last year?

3. If the authorities decide that I owe them Japanese taxes for all the income I earned last year, will I have to pay the entire sum up front, or can it be divided into smaller payments?

Any advice would be greatly appreciated.
 

Glenski

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Ask your country's embassy or consulate for advice. Offhand, I would say that no money earned outside Japan and paid to you outside Japan should be taxed by Japan.
 

Majestic

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Hello

Take a look at the 2013 tax guide for foreigners. It might help clarify some things. Particularly pages 2-3 where it discusses Residents and Non-residents.

http://www.nta.go.jp/tetsuzuki/shinkoku/shotoku/tebiki2013/pdf/43.pdf

From what you have described, you are a non-permanent resident with income from sources abroad, of which some portion is deemed remitted to Japan.

1. Yes, your understanding is correct.

2. Your visa in this case is irrelevant. The fact of your residence is what triggers the tax obligation, not the date or the type of visa you have. Accordingly, your tax obligations started to come into effect when your residence was established (September 2012).

3. Tax obligations can usually be divided up into 4 payments. I have heard that the payment could even be extended in hardship cases.
 

ADHWGT

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Thanks for the replies!

From what you have described, you are a non-permanent resident with income from sources abroad, of which some portion is deemed remitted to Japan.

1. Yes, your understanding is correct.

I actually asked a Japanese tax consultant about all of this today, and she told me that all money earned from working in Japan is taxable in Japan... :( "Foreign source income" would mean that I'm BOTH working and receiving the money in another country.

I then asked her about the foreign tax credit system, hoping it would relieve me of my Japanese tax obligations (since I already paid a higher tax rate than Japan's on all income). No such luck, this is what she told me (and this is the part that drives me nuts):

"No, foreign tax system has a limitation. If you work in Japan all year in 2013, your income is Japanese income and you can take a small amount of foreign tax credit. We need a complicated calculation for accurate amount."

3. Tax obligations can usually be divided up into 4 payments. I have heard that the payment could even be extended in hardship cases.

At least this sounds reassuring... because right now it kind of looks like I'll have to bite the bullet and somehow cough up enough money to pay retroactive Japanese taxes for all oft 2013. About these payments, do you know how much time I would have to pay them? Would it be a matter of a couple of months, say, or until the end of the year?
 

Majestic

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Hello ADHWGT

I strongly urge you to get tax advice from someone who is familiar with foreign income and foreign tax issues. The tax advice you received from that consultant is suspicious. Your overseas income is not taxable in Japan unless you are deemed a permanent resident for tax purposes, or unless the income is actually considered "Japan Source Income" (for a definition of Japan Source Income, please see the link below). I don't believe freelance reporting for a foreign newspaper while in Japan as a student would be considered Japan Source Income, and there is nothing in the definition that sounds like it fits your situation. So that income would only be taxable as Japan income in the event that you are deemed a permanent resident. Note that a permanent resident for tax purposes is not necessarily the same thing as a permanent resident for immigration purposes. To say another way, even if your visa is limited, you can be considered a permanent resident for tax purposes. In your case, if your first visit to Japan was in September 2012, you have not met the 5-year requirement for permanent residency. Therefore you are considered a Resident who is a "Non-permanent Resident" (see the definition of Residents on page 3 of the tax guide). As a Non-permanent resident you are obligated to

"pay income tax and special income tax for reconstruction with respect to any income which has its sources in Japan, any income which has its sources abroad and is paid in this country and remitted from abroad."

For a definition of foreign source income you can see the file below.

http://japantax.org/wp-content/uploads/2010/03/Japan-source-income.xls

It could be that your consultant is considering you a permanent resident (?), which to me sounds odd since you only arrived in September of 2012. Or, it could be that she is considering your income Japan Source Income, which also seems odd to me. And finally, her advice regarding the foreign tax credit has to be looked at with suspicion. The calculations required are not particularly complicated, and for a tax professional they are very ordinary calculations. Lastly, I do not know how much you make, but Japan allows fairly generous deductions. Given the potential deductions, and the potential for foreign tax credit, even in the unlikely case that your Swedish income was taxable, I would bet that the sum of your deductions and credits would bring any taxable income down to a very low number, if not zero.

Again, this is an area for experts, and you shouldn't rely on information from friends or anonymous guys on the internet ;-). But I do think your situation is not strange, is not taxable, and even if you wanted to be very conservative and declare it as if it were Japan Source Income, your taxable income would be very small indeed.
 

Lucas

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Hello, I'm sorry to refloat the thread.
I'm exactly in the same situation as the original user with the exception of being in Japan for only 6 months, I already speak to some lawyers and officers with diverging answers and I already wasted more money that I can afford, I'm an student, in this matter so I'd appreciate what was the resolution for the user or a contact of a reliable tax consultant.

Thanks in advance.
 
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