How not to become a tax resident in Japan

[mariangel]

@felicitypenny The Japanese government has successfully gone after Australian residents who did not pay inhiertance taxes but it was an expensive multi year ordeal justified because the estate was >100$ million

 

[twhi]

@johnnyfred1 In case you didn't see it, there is an excellent writeup on tax residency in the JapanFinance wiki for income tax.

For a Japanese citizen, there may also be some considerations for when a Japanese person is required to register. I'm not the right person to comment on that, but perhaps someone else is and will explain.

 

[twhi]

I would add that some of the replies to your question may be applicable for a Japanese citizen. There are a few very knowledgable people in this subreddit such as @kristhuy who may be able to clarify. If not, you may want to get a consultation with a Japanese tax lawyer or accountant to get their advice.

 

[johnnyfred1]

@twhi Thank you for directing me to the resource. I've briefly reviewed it, but I wanted others to confirm that my understanding is correct.

 

[kristhuy]

@johnnyfred1

here are the key steps to avoid becoming a tax resident in Japan

It's misleading to suggest that there are any specific steps that can prevent someone from being a Japanese tax resident. Staying for less than three months doesn't necessarily mean you won't be a Japanese tax resident. Not working in Japan doesn't necessarily mean you won't be a Japanese tax resident. Maintaining a residence overseas doesn't necessarily mean you won't be a Japanese tax resident. These are all relevant factors, of course, but on their own (or even in combination) they do not constitute a one-size-fits-all solution. Some people who do all these things will still be Japanese tax residents. Some people who do none of these things will not be Japanese tax residents.

The trick to understanding tax residency (not just in Japan, but most residency-based taxation countries) is to understand that it is based on the entire facts and circumstances of each person's life. That is why there is not, and could never be, "one simple trick" to acquiring or avoiding tax residency. Whether you are a tax resident of country X or country Y could turn on a fact as personal as where you keep the majority of your underwear, or where you keep your most expensive home theater system. In most cases, tax residency isn't that complicated. But in the rare cases where a person's tax residency isn't obvious, the inquiry can become very complicated indeed, and professional advice is required.

As others have mentioned, the wiki has a lot of information about how Japanese tax residency is determined and the statutory provisions upon which that determination is based, as well as some explanations of past judicial decisions. I don't think the issue is amenable to a shorter summary, personally, without misleading people into thinking that the question is simpler than it actually is.

 

[johnnyfred1]

@kristhuy I appreciate your comment. The concept of Japanese tax residency is much more vague than I thought.

 

[harpgal]

@johnnyfred1 Be unemployed

 

[johnnyfred1]

@harpgal Very important.

 

[toonsense]

@johnnyfred1 Thanks everyone for the insightful discussion and the great wiki. I will just try to keep things simple, document everything, hope for the best, and hire a professional if needed.

 

[mauriciosr]

@johnnyfred1

1: During each visit, ensure your stay in Japan does not exceed three months. You can have up to two separate three-month visits.

It's more about total number of days spent in Japan within a year. I think you become a resident from the 183st day (Basically 6 months +1day)

You can come once a month for 5 days without issue.

https://www.nta.go.jp/english/taxes/individual/12006.htm

This can help you as there is the scope.

1. is basically the same as 1. Your residency cannot be Japan else you'll be a resident thus owe taxes.
   

Note, I am mainly talking about income tax. Land tax etc are different and I have no idea how it works for non resident.

 

[hark]

@mauriciosr

I think you become a resident from the 183st day (Basically 6 months +1day)

I could be wrong but I think you're misrepresenting how it works.

Resident status begins on day one if you move with the intent to reside in Japan.

If you didn't have that intent, then regardless of intent, you become resident if you've been in Japan 183 days of the year.

 

[mauriciosr]

@hark Ah true, not complete information.

 

[johnnyfred1]

@mauriciosr Thank you.

 

[toonsense]

@johnnyfred1 I love Japan and want to spend as much time as possible in Japan but I also don’t want to become a tax resident. I will not stay more than 183 days per year. I will not work in Japan or earn any income. However, I plan on buying a house in Japan as a “vacation home”. Will owning a residence in Japan automatically make me a tax resident of Japan? I still plan on maintaining my “primary residence “ in the US.
Edit: in the various guidelines I have read, there is some sentence about “maintaining a domicile continuously for 1 year or more “. I don’t know if domicile means owning the physical house, or the act of staying in Japan continuously for 1 year or more.

 

[kristhuy]

@toonsense

Will owning a residence in Japan automatically make me a tax resident of Japan?

Not necessarily. Tax residency is based on the entire facts and circumstances of your life. You also have to take into account the effect of tax treaties (which give you the right to avoid being treated as a tax resident of both countries simultaneously, at least with respect to income tax).

Normally, owning a "vacation home" does not make someone a tax resident of Japan, because a vacation home is not typically the "base of a person's life", as required by Article 22 of the Civil Code. But if you were to move most of your belongings to the property, for example, and spent more time there than at any other residential property, then it could start to be seen as the base of your life.

there is some sentence about “maintaining a domicile continuously for 1 year or more"

Be very, very wary about English translations of the laws around this topic. There are a lot of misleading translations out there. I strongly recommend the tax residency section of the wiki, which walks through the relevant statutory provisions in detail.

The sentence you are quoting is not an accurate reflection of the law. As explained in the wiki, the one-year rule is a failsafe that applies to people who live in Japan but do not have a "jūsho" in Japan. (Jūsho is often translated as "domicile", but that can be misleading.) Owning a property in Japan is not "living in Japan" in the context of the one-year rule. It requires actual physical presence in Japan.

 

[jlf1101]

@toonsense Also note that there is more than just income tax residency.

With that home, Japan will likely claim you for any inheritance, gift taxes, and other taxes not covered by the us-japan income tax treaty. Combined with a lack of treaty, would mean double taxation on these aspects.

 

[katechon]

@johnnyfred1 If you have substantial US based assets why not put them in a revocable living trust. They become property of the trust not you.

Also if your spouse is not a US citizen then they don’t benefit from US tax laws. Like exempting $250,000 on the sale of a house.

 

[kristhuy]

@katechon

They become property of the trust not you.

Not under Japanese tax law. Most types of trusts are transparent for Japanese tax purposes.

 

[katechon]

@kristhuy Even a US based trust?

 

[kristhuy]

@katechon Yes. Japan won't apply US tax law to US trusts. They will apply Japanese tax law. For this reason, the use of foreign trusts is generally not recommended for people who are subject to Japanese tax law.