Tax question (foreign income)

[ADHWGT]

First, a little context: I came to Japan in September 2012 on a student visa (with a work permit). While studying, I freelanced for a Swedish newspaper (with no presence in Japan – apart from myself, that is) on the side. I didn't file my taxes last year, as I didn't think I had to.

In October last year, I quit school and got a journalist visa instead (still working as a freelancer).

As the newspaper in question no presence in Japan, my "salary" is paid in Sweden, to my Swedish bank account. This means that Swedish income tax is automatically deducted. Every month, I transfer a sum to my Japanese bank account in order to pay my rent, utilities et cetera.

I'm having a really hard time wrapping my head around whether, and how, I should file my taxes in Japan this year. Specifically:

1. Do I have to pay tax only on the sum I transfer to my Japanese bank account every month (since, if my understanding is correct, apparently only foreign income that is remitted to Japan is taxable in Japan)?

2. At what point did (any part of) my income become taxable – when I got the visa in October, or all the way back in January of last year?

3. If the authorities decide that I owe them Japanese taxes for all the income I earned last year, will I have to pay the entire sum up front, or can it be divided into smaller payments?

Any advice would be greatly appreciated.

[IparryU]

First, a little context: I came to Japan in September 2012 on a student visa (with a work permit). While studying, I freelanced for a Swedish newspaper (with no presence in Japan – apart from myself, that is) on the side. I didn't file my taxes last year, as I didn't think I had to.

In October last year, I quit school and got a journalist visa instead (still working as a freelancer).

As the newspaper in question no presence in Japan, my "salary" is paid in Sweden, to my Swedish bank account. This means that Swedish income tax is automatically deducted. Every month, I transfer a sum to my Japanese bank account in order to pay my rent, utilities et cetera.

I'm having a really hard time wrapping my head around whether, and how, I should file my taxes in Japan this year. Specifically:

1. Do I have to pay tax only on the sum I transfer to my Japanese bank account every month (since, if my understanding is correct, apparently only foreign income that is remitted to Japan is taxable in Japan)?

2. At what point did (any part of) my income become taxable – when I got the visa in October, or all the way back in January of last year?

3. If the authorities decide that I owe them Japanese taxes for all the income I earned last year, will I have to pay the entire sum up front, or can it be divided into smaller payments?

Any advice would be greatly appreciated.

1. You have to pay tax on the amount you transferred in IF it was made in this tax year. If you are transferring in money that you made 2 years ago, then no tax on it. Also, you could just say that the money you are transferring over is just money in your savings account and you are only transferring what is required due to FX.

2. Your income is not taxable until you bring it onshore (meaning an account in Japan).

3. It can be in installments, but you want to pay it all off at once to save you some shitty interest.

Keep in mind that you do not have to declare your global income until you been here 5 years, starting from the day you landed in Japan. And this is also based on a revolving 10 year window.

If you are already taxed in Sweden on that income, you should only have to pay the difference between Sweden and Japan tax to Japan as there is a bilateral tax agreement. I am not sure what the tax is on the income you have received in Sweden, but if it is more than Japan's level of tax, you pay nothing.

[Wage Slave]

Just to say the above is exactly my understanding of the law and I haven't seen a clearer or more concise explanation of it anywhere.

[IparryU]

Just to say the above is exactly my understanding of the law and I haven't seen a clearer or more concise explanation of it anywhere.

I have to say this way more than I like to.... but thanks and I am glad I make sense from time to time.

[GomiGirl]

Just to say the above is exactly my understanding of the law and I haven't seen a clearer or more concise explanation of it anywhere.

I have to say this way more than I like to.... but thanks and I am glad I make sense from time to time.

snotted

[ADHWGT]

Thanks for the reply!

1. You have to pay tax on the amount you transferred in IF it was made in this tax year. If you are transferring in money that you made 2 years ago, then no tax on it. Also, you could just say that the money you are transferring over is just money in your savings account and you are only transferring what is required due to FX.

2. Your income is not taxable until you bring it onshore (meaning an account in Japan).

Keep in mind that you do not have to declare your global income until you been here 5 years, starting from the day you landed in Japan. And this is also based on a revolving 10 year window.

I actually asked a Japanese tax consultant about all of this today, and she told me that all money earned from working in Japan is taxable in Japan... "Foreign source income" would mean that I'm BOTH working and receiving the money in another country. Also, she claims that I need to pay full Japanese taxes for 2013, never mind the fact that I haven't been here for five years yet.

3. It can be in installments, but you want to pay it all off at once to save you some shitty interest.

Do you know how many installments, and how much time I would have to pay them? Would it be a matter of a couple of months, say, or until the end of the year?

If you are already taxed in Sweden on that income, you should only have to pay the difference between Sweden and Japan tax to Japan as there is a bilateral tax agreement. I am not sure what the tax is on the income you have received in Sweden, but if it is more than Japan's level of tax, you pay nothing.

Again, the consultant burst my bubble... this is what she told me (which sounds insane to me, but I guess she's the expert):

"No, foreign tax system has a limitation. If you work in Japan all year in 2013, your income is Japanese income and you can take a small amount of foreign tax credit. We need a complicated calculation for accurate amount."

[IparryU]

Thanks for the reply!

1. You have to pay tax on the amount you transferred in IF it was made in this tax year. If you are transferring in money that you made 2 years ago, then no tax on it. Also, you could just say that the money you are transferring over is just money in your savings account and you are only transferring what is required due to FX.

2. Your income is not taxable until you bring it onshore (meaning an account in Japan).

Keep in mind that you do not have to declare your global income until you been here 5 years, starting from the day you landed in Japan. And this is also based on a revolving 10 year window.

I actually asked a Japanese tax consultant about all of this today, and she told me that all money earned from working in Japan is taxable in Japan... "Foreign source income" would mean that I'm BOTH working and receiving the money in another country. Also, she claims that I need to pay full Japanese taxes for 2013, never mind the fact that I haven't been here for five years yet.

3. It can be in installments, but you want to pay it all off at once to save you some shitty interest.

Do you know how many installments, and how much time I would have to pay them? Would it be a matter of a couple of months, say, or until the end of the year?

If you are already taxed in Sweden on that income, you should only have to pay the difference between Sweden and Japan tax to Japan as there is a bilateral tax agreement. I am not sure what the tax is on the income you have received in Sweden, but if it is more than Japan's level of tax, you pay nothing.

Again, the consultant burst my bubble... this is what she told me (which sounds insane to me, but I guess she's the expert):

"No, foreign tax system has a limitation. If you work in Japan all year in 2013, your income is Japanese income and you can take a small amount of foreign tax credit. We need a complicated calculation for accurate amount."

that's bullshit cause i got this info from Deloitte, E&Y, PwC and Nagamine & Mishima.

They will tell you that it is taxable because of the situation that you explained to them.

I had 90% of my salary paid from Hong Kong to the UK for 2 tax years and I filed with no issue... never left japan and sent money here just as you did but in larger numbers. I had to stop doing it last year as I became a permanent resident (tax term not visa term) now.

The last one is absolute bullshit. There is a very large group of countries in the double taxation treaty. If money was paid, the company paying would usually pay tax on it just as any other employer and you would get a payslip with all the details of what was paid etc. Some employers may not do this, as did my old employer and you have to show the math on it.

But hey, if you want to listen to her, go ahead. I am just telling you what I did and had big 4 firms do for me.

[ADHWGT]

that's bullshit

Haha! I'll let her know Seriously though, this is confusing the hell out of me. I (naturally?) assumed that the "expert" would be right, but because of all the conflicting answers I've been getting, I went to the Shinjuku city office today to make sure. The translator lady called up the tax agency (I assume) and then told me that income transferred to Japan is taxable. She then told me to go to another building in Nishi-Shinjuku where they have some kind of temporary tax office set up for filing purposes. I asked the same questions there, and was told that in fact I only have to pay income tax on money transferred to my Japanese bank account (not what I withdraw from ATMs using my Swedish bank card – anyone know if this is correct?), AND only AFTER my first year in Japan (when I was apparently a "non-resident"). This would mean I only owe Japan taxes for three or four months (I came here in September 2012), not a full year. The woman I talked to seemed kind of confused about the whole thing, but in any case, I'm noticing a distinct trend here...

The last one is absolute bullshit. There is a very large group of countries in the double taxation treaty. If money was paid, the company paying would usually pay tax on it just as any other employer and you would get a payslip with all the details of what was paid etc. Some employers may not do this, as did my old employer and you have to show the math on it.

Music to my ears. So I guess this is what I'm going for. The tax woman asked me to come back with documentation from the Swedish tax agency as well as information about how much money I've transferred to Japan. Hopefully the foreign tax credit will reduce my Japanese income tax to zero.

Thanks again!

[IparryU]

that's bullshit

Haha! I'll let her know Seriously though, this is confusing the hell out of me. I (naturally?) assumed that the "expert" would be right, but because of all the conflicting answers I've been getting, I went to the Shinjuku city office today to make sure. The translator lady called up the tax agency (I assume) and then told me that income transferred to Japan is taxable. She then told me to go to another building in Nishi-Shinjuku where they have some kind of temporary tax office set up for filing purposes. I asked the same questions there, and was told that in fact I only have to pay income tax on money transferred to my Japanese bank account (not what I withdraw from ATMs using my Swedish bank card – anyone know if this is correct?), AND only AFTER my first year in Japan (when I was apparently a "non-resident"). This would mean I only owe Japan taxes for three or four months (I came here in September 2012), not a full year. The woman I talked to seemed kind of confused about the whole thing, but in any case, I'm noticing a distinct trend here...

The last one is absolute bullshit. There is a very large group of countries in the double taxation treaty. If money was paid, the company paying would usually pay tax on it just as any other employer and you would get a payslip with all the details of what was paid etc. Some employers may not do this, as did my old employer and you have to show the math on it.

Music to my ears. So I guess this is what I'm going for. The tax woman asked me to come back with documentation from the Swedish tax agency as well as information about how much money I've transferred to Japan. Hopefully the foreign tax credit will reduce my Japanese income tax to zero.

Thanks again!

So the bold is where you fucked up and an "expert" is in the eye of the beholder. Taxes aren't straightforward and are one of the three things in this world that were not meant to be understood and can be twisted, turned and are arbitrary (taxes, politics and women).

The way you presented your info was wrong and they are not working to save you money on taxes, but the opposite (their salary comes from where?). So if you want to talk to someone about taxes, go to someone who does not work for the NTA or ward office, but wants you to come back every year and pay them. Tax advisers have to charge everyone the same fee and want more people to file their taxes through them so they do their best to save you money. The NTA and ward office workers make money off the taxes you pay, which is a conflict of interest for you and they sure the fuck dont want to spend time saving you money.

I went to the same tax office to file my taxes and I lived in Shinjuku-ku before, so I know where you are talking about and what assholes you have to deal with.

So just fill the forms in yourself, put in what you transferred over to Japan and you are done.

Regarding the ATM, this is where there is a thin line. If JPY1M worth of JPY or another currency is moved, the banks automatically flag it. So some people get offshore accounts that have VISA or MasterCard logos and withdraw small sums to aviod taxes. Like a couple grand here and there to pay rent and bills using their domestic income that they earned for what left over stuff they need to do. But this is where you dig your hole and hope that you dont get caught. If for some reason you get flagged and they look into you, then if they are lucky with the data that they have, they can catch you. But that is hard and they would need to dig really deep to match some foreign ATM card withdrawal with a Japanese bank account and your info they have on file.

But from what you had posted, you are clear. And I did the same process and used filings to put my kids in public daycare which is a requirement to get them in.

good luck and if you need help let me know.

[ADHWGT]

The way you presented your info was wrong and they are not working to save you money on taxes, but the opposite (their salary comes from where?). So if you want to talk to someone about taxes, go to someone who does not work for the NTA or ward office, but wants you to come back every year and pay them. Tax advisers have to charge everyone the same fee and want more people to file their taxes through them so they do their best to save you money. The NTA and ward office workers make money off the taxes you pay, which is a conflict of interest for you and they sure the fuck dont want to spend time saving you money.

I went to the same tax office to file my taxes and I lived in Shinjuku-ku before, so I know where you are talking about and what assholes you have to deal with.

So just fill the forms in yourself, put in what you transferred over to Japan and you are done.

Hm, I'm not sure I follow you... What did I present that was wrong? To me, it seems like the tax agency people gave me pretty much the same advice as you did? Which is to only pay taxes on the money I've transferred (and only since September, at which point I'd lived in Japan for a year) – NOT my total income, and NOT what I've withdrawn from Japanese ATMs. The consultant, on the other hand, wanted me to pay taxes on my total income for the entire year. I don't understand how this means the NTA is trying to screw me over...?

Regarding the ATM, this is where there is a thin line. If JPY1M worth of JPY or another currency is moved, the banks automatically flag it.

Is this if you withdraw all that money at once, or during the course of a year, say?

[IparryU]

Maybe i read wrong. I had my boss next to me and I rushed through it. Ill reread abd post up later

Sent from my SC-03E using Tapatalk

[Wage Slave]

Regarding the ATM, this is where there is a thin line. If JPY1M worth of JPY or another currency is moved, the banks automatically flag it.

Is this if you withdraw all that money at once, or during the course of a year, say?

It is per transaction - or so I believe. Over 1 million in one go in either direction gets flagged. There is fairly decent anecdotal evidence to support this. I have to say though that I haven't seen any official confirmation of it. I assume that if you move less than a million too many times it would also get flagged. What that threshold is is anyone's guess.

Regarding the NTA vs Private Tax Advisers. My experience mirrors yours to some extent - The NTA round my way are categorically not out to inflate their take and give sound advice. However, they won't volunteer advice on ways to reduce your bill either - you have to either figure it out yourself or ask the right questions. I have heard from others that Tax Accountants and the like tend to take a view that their job is to maximise the NTA's take for them, especially when dealing with a non Japanese.

There is of course a new version of the ever popular "Income Tax Guide for Foreigners" available here and I see they now have "Credit for foreign taxes" available as well. I read through it last year and it isn't too bad as these kind of documents go.

[IparryU]

Regarding the ATM, this is where there is a thin line. If JPY1M worth of JPY or another currency is moved, the banks automatically flag it.

Is this if you withdraw all that money at once, or during the course of a year, say?

It is per transaction - or so I believe. Over 1 million in one go in either direction gets flagged. There is fairly decent anecdotal evidence to support this. I have to say though that I haven't seen any official confirmation of it. I assume that if you move less than a million too many times it would also get flagged. What that threshold is is anyone's guess.

Regarding the NTA vs Private Tax Advisers. My experience mirrors yours to some extent - The NTA round my way are categorically not out to inflate their take and give sound advice. However, they won't volunteer advice on ways to reduce your bill either - you have to either figure it out yourself or ask the right questions. I have heard from others that Tax Accountants and the like tend to take a view that their job is to maximise the NTA's take for them, especially when dealing with a non Japanese.

There is of course a new version of the ever popular "Income Tax Guide for Foreigners" available here and I see they now have "Credit for foreign taxes" available as well. I read through it last year and it isn't too bad as these kind of documents go.

Yes my previous post was really off. I misread it, so disregard it.

And Wage Slave, yes you are right about that. really depends on who, when and why and I was really generalizing... which is something I do way too much.

[matsuki]

If OP hasn't been in Japan 5+ years and that job is paying him outside of Japan, that's foreign income and doesn't need to be declared in Japan until he's here 5+ years.

[IparryU]

If OP hasn't been in Japan 5+ years and that job is paying him outside of Japan, that's foreign income and doesn't need to be declared in Japan until he's here 5+ years.

Not if he brings it on shore and tells the tax drone that he was paid that money while he was physically in Japan and IF he should declare it.... Fuck ya they will tell you to declare it as income...

But as I explained, i did that for 2 years and was good. I know you made damn good use of of that benefit too!

[Wage Slave]

I'm suspicious of that tax consultant's claim that any income that accrues as the result of work in Japan but sold abroad is considered Japanese income as a starting point for taxation from year 1 in Japan. I see nothing in the NTA's documentation to support that.

I also don't agree that calculation of relief for tax paid in Tax treaty countries is complex or surprisingly limited. It is brutally simple. They calculate how much you are liable for here. They deduct what you have already paid. You pay the outstanding balance if there is one. The only disappointing limitation is that that simple process completely eliminates personal allowances in your home country. So, although you have been assessed on income generated at home and you don't have to pay because of allowances, along comes the NTA and says we want a slice of it after all.

In the OP's case, Sweden has a high tax regime so he will already have paid a decent whack. There is no reason to suppose he is liable for tax on any earnings other than those remitted to Japan. His personal allowance under Japanese tax law will take care of much of that and the tax he has already paid in Sweden will likely easily account for the rest.

[IparryU]

Here is the thing, before you see someone at the tax office or ward/city office, do your research.

He doesn't have to declare his overseas income, and for the money he brings onshore is just money he had in his bank prior to arriving in Japan.

File Japan earnings and call it a day.

Wage, your first and second paragraph is right AFAIK.

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[ADHWGT]

Thanks again for the replies, guys.

So this story has taken a few strange turns since last time, but hopefully it will have a happy ending as both the Japanese and Swedish authorities seem to agree that my income is taxable in Japan (boo) but NOT Sweden (where the taxes are much higher, so yay!). Not the outcome I anticipated, but hey, if they want to save me a boatload of money without me even asking for it, they can go right ahead.

I do have one more question I thought I'd ask on here as well. On my Japanese tax forms, my total income is listed under 収入金額等, and then a smaller sum (about two million less) is listed under 所得金額. Does anyone know the difference? Why is the "income" sum lower than "revenue", even though I haven't made any particular deductions?

[wagyl]

Those are standard, automatic deductions which are made for everybody, as a way to ensure that low income earners pay little or no tax.
http://www.nta.go.jp/tetsuzuki/shinkoku ... pdf/43.pdf
This site http://gaijintax.com/ is also quite helpful for the self-employed or freelancer, although I think you maybe already have an advisor.

Congratulations on sorting out your tax issue, to the satisfaction of Sweden, Japan and yourself. It will probably mean that you have to send more money from Sweden to Japan than you would otherwise, just so that you can pay tax, though.

[Wage Slave]

Thanks again for the replies, guys.

So this story has taken a few strange turns since last time, but hopefully it will have a happy ending as both the Japanese and Swedish authorities seem to agree that my income is taxable in Japan (boo) but NOT Sweden (where the taxes are much higher, so yay!). Not the outcome I anticipated, but hey, if they want to save me a boatload of money without me even asking for it, they can go right ahead.

I do have one more question I thought I'd ask on here as well. On my Japanese tax forms, my total income is listed under 収入金額等, and then a smaller sum (about two million less) is listed under 所得金額. Does anyone know the difference? Why is the "income" sum lower than "revenue", even though I haven't made any particular deductions?

Personal allowance?

And wow - so much for my reading of their documentation. I would not have predicted that outcome but it's all good as you say. I am especially surprised that the Swedish side agreed to it but there you go.

[pjifwepijfsd]

Thanks again for the replies, guys.

So this story has taken a few strange turns since last time, but hopefully it will have a happy ending as both the Japanese and Swedish authorities seem to agree that my income is taxable in Japan (boo) but NOT Sweden (where the taxes are much higher, so yay!). Not the outcome I anticipated, but hey, if they want to save me a boatload of money without me even asking for it, they can go right ahead.

For those interested, this is in fact THE CORRECT ANSWER. It is a virtually universally accepted principle of international income tax law that employment income is taxed (first) at the source, and the source for employment income is where the services were performed (here, Japan). Whatever currency you are paid in, in whatever bank account, if it is in exchange for services you performed while in Japan, your Fukuzawas will be headed to Kasumigaseki 3-1-1.
And PwC, Deloitte and EY will all tell you this and do at every tax seminar for expats they hold, and when doing your taxes if you or your company hires them.