Tax on US military retirement

[annieannie]

My apologies if this has been covered before, but I've searched the wiki and in general as best I can without any clear answers. I'm retired US military and now a PR (via spouse) for less than 5 years (5 years seems to be an important milestone in my reading or my misinterpretation).

Is Japanese income tax levied on military retirement I receive from the US government? If so, is there anyone/anyway who knows how to calculate the amount I can expect to pay?

For awareness, my wife has no income herself and we own no property at this time.

I've read US/Japan tax treaty and MoF/MoJ documents and the more I read the more I confuse myself. I can see clearly, in general, Japanese income tax is higher percentage-wise than US tax. I've found a few formula's also that result in significant tax liability here as compared to the US...2 to 3x's the payable amount.

Any firsthand knowledge or direction is appreciated. And, fear not, I am not going to take any friendly-advice from reddit and live my "tax life" solely on it. I will, I'm sure, at some point have a conversation with the local tax folks and a CPA if / when needed. Sincerely, thank you and yes I've got a lot to learn yet about the Japanese tax laws.

 

[kristhuy]

@annieannie The key treaty provision is Article 18(2). It prevents Japan from taxing "pensions and other similar remuneration" paid by the US government. The two exceptions to this rule are for social security-type pensions (over which Japan has primary taxation rights) and pensions paid to Japanese nationals living in Japan.

So as long as the payment you are receiving is a retirement pension, it shouldn't be taxable in Japan under Article 18(2). Things are more complicated if what you are receiving is a disability benefit, because there are reports of the NTA adopting the position that disability benefits are not "pensions" under the treaty. It appears the NTA expects a "pension" to be linked to retirement.

 

[annieannie]

@kristhuy Thank you, very helpful. It doesn't appear so, but do you know of any action that would negate this exclusion? For example, purchasing property, opening a bank or credit card account in Japan, becoming employed on the Japanese economy? I understand any Japanese income would be taxed but would I still retain exclusion of the military retirement? I hope they figure out the right path for VA benefits concerns, in other words make it clear that those are not taxable as well in Japan. I appreciate your time and educating me on this.

 

[kristhuy]

@annieannie

purchasing property, opening a bank or credit card account in Japan, becoming employed on the Japanese economy?

None of that type of thing affects the rule in Article 18(2). The pension would still be non-taxable.