Tricky (?) tax question

Hey guys,

I work as a freelancer in Japan for a couple of Swedish companies. Although my income is Swedish-source, I only pay taxes in Japan (as this is what the Swedish tax agency instructed me to do).

So far so good, but here comes the confusing part: when I filed my Japanese taxes this year (which was actually the first time I've done this), I was instructed by the staff at the temporary tax office here in Shinjuku to only report income I've actually earned IN Japan. So basically, I excluded all income I'd earned while on business trips or vacation in other countries.

I asked the Swedish tax agency about this point just to be sure, but they insisted that I should pay no Swedish taxes, not even on the income NOT taxed by Japan.

So my questions is this: can it really be the case that whenever I leave Japan for a certain period of time, any income I earn during that period is not taxable at all? Sounds too good to be true, which is why I doubt it actually is...

Any advice would be much appreciated!

It appears that for tax determination you are deemed resident and working in Japan.

1. Are you paid in Japanese yen?
2. Is your pay deposited into a Bank in Japan?
3. Is the work you are doing on the business trips abroad earning income from your primary work in Japan?
4. Is the work on vacations abroad also related to your Japan based work?

If the answers to these questions are all 'yes' ..... I think you may have been given bad advice by the Japanese tax office.

I would give them another call, and explain your work/income status in detail (make sure they understand what you said,rather than them confirming that they heard what you said!!)

Engaging a Tax agent experienced in this area would be the safest (but expensive) way forward!

Base on the above, my take on it is that you should be taxed on the income earned while outside Japan, but the usual tax deductions would apply to your business / work related travel and expenses while away.

Also, who exactly is paying you -- a Swedish office in Japan or an office in Sweden? If it's the one in Japan (and I suspect it is because you used the words "temp office"), you should pay Japanese taxes.

I agree that you might have been given inaccurate advice, but we need to determine by whom.

You are freelance, so what is your visa status?

I think its probably not such a tricky question, but maybe the advice given to hasn't been accurate. It could also be that the advice given to you was based on incomplete information. It could also be that the advice given to you at one point, is now no longer applicable to you due to a change in your status. At any rate, the rules are reasonably clear, and are primarily based on

1. your residence status (tax residence status differs from visa residence status)
2. how you get paid

Business trips and vacations should be irrelevant, unless you are a non-resident and your pay gets remitted to you outside of Japan. Since you say this is the first year you've filed taxes, it sounds like you've lived her for longer than a year? If so, you are now probably a resident for tax purposes. See page 3 of the tax guide. Note that your status and your tax treatment for your first year would probably change for your second year - as your status would change from "non-resident" to "resident", so this could also be a factor.

国税庁ホームページリニューアルのお知らせ｜国税庁

Thanks for the replies!

To clarify: I have journalist visa. The Swedish companies I do freelance work for have no offices in Japan, or any presence whatsoever apart from myself. My salary is paid in Sweden, in Swedish kronor (the local currency), to my Swedish bank account.

The income I earn while in other countries is from the same two Swedish companies, yes.

As for my obligations in Sweden, everything is absolutely clear: I'm not supposed to pay any taxes there at all, as long as I don't spend more than 72 days per year there. (This is what I've been told multiple times by the Swedish tax agency.)

The "advice" I got from the Japanese tax authorities was actually (unfortunately?) verbally, at the time of my filing, back in March of this year. I went to the temporary filing place in Shinjuku believing my Swedish-source income was not taxable in Japan, only to be sternly corrected by the tax agent assigned to me. However, he then asked me to deduct all income earned while I've been in other countries from my total taxable income for the year (2013). So I did all the calculations right there, in front of him, until he was satisfied with the result.

OK, so far so good. And when did you arrive in Japan?

So the temp tax office in Shinjuku is a Japanese government or private tax office, not a part of your Swedish company? Ok. You get paid in Swedish money, so don't pay Japanese taxes. Period.

As for not paying Swedish taxes on Swedish money paid to you in your Swedish bank...that sounds strange. But maybe it's a Swedish law or policy.

Majestic said:

OK, so far so good. And when did you arrive in Japan?

Click to expand...

Almost exactly two years ago, in September 2012. Thanks for the link to the tax guide PDF – it seems I would be classified as a non-permanent resident?

Yes, that sounds right. Non-permanent resident with salary paid abroad.

Majestic said:

Yes, that sounds right. Non-permanent resident with salary paid abroad.

Click to expand...

Okay, thanks. Am I correct in assuming this means that any income earned when I'm not in Japan is not taxable in Japan, as long as it is not remitted to Japan afterwards?

Hello ADHWGT,

Bearing in mind that I am just some dude on the internet, and am not a professional tax advisor: Yes that is my assumption as well based on everything you've said. Its consistent with the tax guide and consistent with the advice you were given by the Japanese tax consultant.