I occasionally get questions about how taxes work for foreigners living in Japan, and since April is tax season, I thought I’d write about that. Japan has a similar system of taxation as the rest of the world, taking a bite out of everyone’s bank account through income taxes, consumption taxes (VAT), property taxes and so on. (There’s also a “Tohoku Restoration Tax” that we have to pay for the next ten years, to aid in rebuilding northern Japan.) Most foreigners who come to live in Japan naturally pay taxes on the income they earn here, and don’t need to file tax returns in their home countries. Some countries (such as the U.S.) tax worldwide income of their citizens no matter where they live, which means we’re required to file tax forms, though most will pay no tax because of the “foreign earned income exclusion.” Still, there’s a lot of frustration when you’re subject to two tax systems. Americans as a group don’t save enough, so the government allows people to invest via 401(k) and IRA programs. But in Japan, where households actually save too much money, these types of programs don’t exist, and as a resident of Japan I’m not able to take advantage of them. Happily there are tax treaties that smooth out most of the issues, for example a treaty that allows me to contribute to my normal Social Security account rather than a pension in Japan, and treaties that remove dual taxation.
Taxes between countries can be a very confusing thing.
