Hi, for many years prior to moving to Japan I have been running a single-member LLC based in the US, taxed as a partnership with one US-based customer. My company’s bank account is based in the US in USD and I don’t remit any of that money to Japan. Since I’m on a non-permanent resident visa and work full time for a local company (engineer/international status), am I under any obligation to report this income?
Schedule C income
- Thread starter deryon
- Start date
@deryon In that case, the company's income is "Japan-source" (derived from activities performed in Japan), meaning that it is taxable in Japan regardless of where it is paid or whether you make any remittances to Japan.
But more importantly, Japan does not recognize pass-through taxation with respect to US LLCs, so you may need to file a corporate tax return in Japan for your LLC (because it will have operations based in Japan—i.e., the work you are performing), and there is the potential for double-taxation due to an inability to offset tax paid by the company against tax paid by you as an individual. For this reason, operating a pass-through entity from Japan is generally inadvisable (especially when the company's income is derived from your labor). It is typically preferable to operate as a sole proprietorship or as a company that is not subject to pass-through taxation (e.g., C-Corp).
The other thing is that your work visa restricts the type of work you can do while in Japan, including preventing you from working for foreign clients. So if you were to continue to work for your US-based client, you would need to ask for specific permission from Immigration. Immigration will only grant that permission if they are convinced that the work would not interfere with your obligations to your Japanese employer, and in many cases Immigration will directly ask your Japanese employer's opinion on the matter.
But more importantly, Japan does not recognize pass-through taxation with respect to US LLCs, so you may need to file a corporate tax return in Japan for your LLC (because it will have operations based in Japan—i.e., the work you are performing), and there is the potential for double-taxation due to an inability to offset tax paid by the company against tax paid by you as an individual. For this reason, operating a pass-through entity from Japan is generally inadvisable (especially when the company's income is derived from your labor). It is typically preferable to operate as a sole proprietorship or as a company that is not subject to pass-through taxation (e.g., C-Corp).
The other thing is that your work visa restricts the type of work you can do while in Japan, including preventing you from working for foreign clients. So if you were to continue to work for your US-based client, you would need to ask for specific permission from Immigration. Immigration will only grant that permission if they are convinced that the work would not interfere with your obligations to your Japanese employer, and in many cases Immigration will directly ask your Japanese employer's opinion on the matter.
@kristhuy Thought of one additional question. If I discuss this situation in detail with an accounting firm in Japan, is the information kept between us? Or are they obligated to report whatever I share with them (basically is there a client / attorney privilege equivalent in Japan). I was going to email a firm but don’t want to implicate myself or create trouble.
@deryon
Yes, more or less. They have a duty of confidentiality. But if the NTA audits you at some point in the future, your legal professionals are obliged to be honest with the NTA regarding their knowledge and advice. There's probably not much to be worried about in terms of sending an initial email, though.
Yes, more or less. They have a duty of confidentiality. But if the NTA audits you at some point in the future, your legal professionals are obliged to be honest with the NTA regarding their knowledge and advice. There's probably not much to be worried about in terms of sending an initial email, though.
@kristhuy Everything this person said is correct, but in case you're less risk averse: I just haven't mentioned my EU based company and it's been fine for quite a while. The money stays in the company account anyway so how is Japan gonna find it unless they're inside my VPN checking my activity, haha
@cechols Thanks for this additional perspective. I was of the same mind as you about not saying anything about it, but definitely don’t want to jeopardize my visa and wonder if the US shares more details than the EU about its citizen’s businesses…
The business itself is not earning a huge sum of money but I wanted to keep it going so I can continue to put cash into investments in the US to hedge against currency and have some savings to fall back on if I decide to move back to the US in the future.
I was planning to experiment with trying to generate some income via social media through this entity as well but it sounds like this might be a bad idea if it starts to actually earn income (not expecting anything but who knows…).
The business itself is not earning a huge sum of money but I wanted to keep it going so I can continue to put cash into investments in the US to hedge against currency and have some savings to fall back on if I decide to move back to the US in the future.
I was planning to experiment with trying to generate some income via social media through this entity as well but it sounds like this might be a bad idea if it starts to actually earn income (not expecting anything but who knows…).
@deryon Just to provide a supporting comment:
@cechols implied that if you’re risk averse then you should engage in tax evasion. This is totally the opposite of true. This will definitely jeopardize your status in Japan and is not something to thank the commenter for.
@kristhuy provided the correct information.
@cechols implied that if you’re risk averse then you should engage in tax evasion. This is totally the opposite of true. This will definitely jeopardize your status in Japan and is not something to thank the commenter for.
@kristhuy provided the correct information.
padraig2003
New member
@padraig2003 Right, this is the correct reading. Thanks
@padraig2003 Is it? I read:
Which sounds like “what the above person said is the correct answer. However, in case you are risk averse, my experience is that not mentioning anything is fine”. The “but” and the colon playing a big role…
Either way, it’s not too important, it’s still a bad take.
Which sounds like “what the above person said is the correct answer. However, in case you are risk averse, my experience is that not mentioning anything is fine”. The “but” and the colon playing a big role…
Either way, it’s not too important, it’s still a bad take.
padraig2003
New member
@phillev I guess I can see that interpretation as well but it didn't come naturally to me. Who knows though.
What I don't get is your removing the word "less" here leading to:
If you remove less it changes the meaning. If you make it positive "less risk averse" would become:
Just to explain what I read:
What I don't get is your removing the word "less" here leading to:
If you remove less it changes the meaning. If you make it positive "less risk averse" would become:
Just to explain what I read:
@padraig2003 You know what? I totally missed the word “less”. It has been nice analyzing bad takes with you 
@phillev Right, I'm not necessarily recommending it. I'm saying if they don't mind taking on more risk, it's an option for me. I guess I'm very chill about where I live and worst case scenario is not bad enough for me to worry too much.
Edit: I also don't consider it tax evasion, for various reasons.
Edit: I also don't consider it tax evasion, for various reasons.
@deryon One option might be to add a US based director? Your mum, wife, brother, etc.
That way as long as you're not drawing any funds into a personal account, taking permanent employment or doing government contracts, who's to say you're involved in the operations leading to income?
Honestly it's still risky so it's probably best to just go through the proper channels, but yeah
That way as long as you're not drawing any funds into a personal account, taking permanent employment or doing government contracts, who's to say you're involved in the operations leading to income?
Honestly it's still risky so it's probably best to just go through the proper channels, but yeah
@kristhuy Thank you so much for the thorough reply. I want to handle this the right way and I don’t mind having the conversation with the employer. It’s the same company I worked for while in the US and I had reported that business when I first started with them 7 years ago. It sounds like I need to speak with someone to get help with this… is there anyone you might recommend?
@kristhuy Could I ask you a follow up question? If the income is related to a banner ad on a hosted website that I own, would this be considered passive? Would it be considered an activity originating in Japan? I don’t actively develop the site any more, so traffic is fueled through existing content.
@kristhuy Not sure if this is what you would consider a primary source of information (NTA.co.jp), but I wanted to share this article:
https://www.nta.go.jp/english/taxes/individual/pdf/incometax_2020/04.pdf
Based on this document and the table on p7, it seems pretty clear that if my status is nonpermanent resident and I've earned Foreign Source Income that was paid abroad and NOT remitted into Japan, then its not taxable in Japan.
Additionally, I called the immigration office directly (0570013904) as well as another organization that helps foreigners with visa issues (0353256101), and in both instances, they informed me that NO special permission is required to accept payment from a US-based company. The key criteria was as long as the company is not paying the salary/wages IN Japan, then I'm permitted to perform work (part-time or otherwise) outside of Japan. On both calls, the person put me on hold and confirmed this with colleagues/coworkers. Both offices had English-speaking resources.
There may be shades of gray here, but just wanted to share in case this saves anyone else a good deal of stress. I ended up dissolving my LLC in the US based on the fear and concern about needing to file a separate corporate tax return in Japan, but it seems I would only need to worry about this once I became a permanent resident.
https://www.nta.go.jp/english/taxes/individual/pdf/incometax_2020/04.pdf
Based on this document and the table on p7, it seems pretty clear that if my status is nonpermanent resident and I've earned Foreign Source Income that was paid abroad and NOT remitted into Japan, then its not taxable in Japan.
Additionally, I called the immigration office directly (0570013904) as well as another organization that helps foreigners with visa issues (0353256101), and in both instances, they informed me that NO special permission is required to accept payment from a US-based company. The key criteria was as long as the company is not paying the salary/wages IN Japan, then I'm permitted to perform work (part-time or otherwise) outside of Japan. On both calls, the person put me on hold and confirmed this with colleagues/coworkers. Both offices had English-speaking resources.
There may be shades of gray here, but just wanted to share in case this saves anyone else a good deal of stress. I ended up dissolving my LLC in the US based on the fear and concern about needing to file a separate corporate tax return in Japan, but it seems I would only need to worry about this once I became a permanent resident.