American working in Japan: What are tax considerations?

June 10, 2009 4:55 PM

My friend is a California resident who's considering whether to accept a job in the Tokyo office of a U.S. company. We'd like to know what income tax considerations he should take into account.

The position is for senior level in business development, and he would be paid in U.S. dollars. Would he pay local and/or U.S. taxes? The company is unlikely to pay for relocation costs, so we're assuming he could write them off. Thanks in advance for any feedback!

posted by lunachick to work & money (7 comments total)

I worked for various Japanese and US companies, in Japan, about 14 years ago. At the time, you had to file U.S. taxes, but there was a foreign-earned income exemption of $75K (back then), so your US taxable income was knocked way down. I don't think I owed any US taxes during those years. Also, the Japanese tax office wasn't very efficient, and I don't recall paying much in Japanese tax, either. (I used a Japanese accountant, and paid what he told me to pay, but IIRC, it wasn't much.)

Your friend may wish to arrange payment in local currency, though. It sucks to be getting what the US company regards as a princely sum, and have the exchange rate grind away at your standard of living. Better to be paid in yen, and if the rate goes down, the employer has to eat it. (If it goes up, you "lose," but it's not a loss that hurts as much as having to dip into your own savings just to pay your rent.)
posted by spacewrench at 5:16 PM on June 10

The Foreign Earned Income Exclusion is $87,600 now.

This exclusion is predicated on paying local taxes.

In Japan, these are city/ward taxes, around 15-20%, and the national tax, around 5-10%.

There are also pension and health insurance contributions but I don't know what these are now, you'd need to talk to a real information source and not the internet, unless said real source deigns to provide information in this thread.

Note that the Japanese city/ward taxes kick in the SECOND year, so if this is a multiple-year gig I'd negotiate a higher salary to kick in the 2nd year to cover the increased tax load of the 2nd and further years.
posted by @troy at 6:32 PM on June 10

oh, also, the Japanese tax year starts April 1.
posted by @troy at 6:33 PM on June 10

One thing to keep in mind is that income tax (所得税, shotokuzei) generally gets taken out at the source by the company, but resident's tax (住民税, juuminzei, also referred to as 区民税, kuminzei, etc.) is not. It can be a bit of a shock to get the notice from your local city or ward that demands a sizable chunk of your "after-tax" earnings THIS MONTH OR ELSE. (And yes, the "or else" bit is serious: local authorities have the right to garnish your bank account or any other sources of income they can track down to cover your taxes, so I would think twice about trying to evade them.)
posted by armage at 7:42 PM on June 10

Armage is right about the or else stuff (having received a yellow "we will seize your stuff to pay your loans notice" and proceeding to pay it all off as quickly as possible), but spacewrench is also right in that the tax folks are pretty slow-moving/incompetent. The city tax doesn't kick in for a year or two, and it took them 7 years to catch up to me. While I have paid off my taxes in full, many people who are only going to be here for a year or three never actually pay.

Yes, this is bad. It is, however, a truth, that people can, and do, get away without paying all the time. I'm not trying to justify it (though I have some arguments), I'm just saying that, according to an individual's moral settings, there are possibilities.

If the foreign income exclusion works for getting paid by an American company, in American currency, it will definitely help. You might also be able to deduct payments made due to moving/finding a new place to live, but IANATL. Also, Americans living abroad have until June 15th to file their taxes, which reminds me...
posted by Ghidorah at 8:08 PM on June 10

I'll just chime in (wonderful information so far) to suggest that your friend get his company to cover monthly national medical insurance premiums, as well as national pension insurance premiums.

Medical insurance is something that must be paid, but you can opt out of the national pension plan, especially if you only plan to remain in Japan. Opting out means basically not paying the monthly pension insurance deductions, and I think it may be illegal for a company to not collect this de facto tax each month. All non-resident foreigners who make payments into the national pension scheme can apply for reimbursement once they severe ties with Japan and return home, although the amount is capped at about $10K, even if you pay more into it.

Anyway, your friend should see if the company will pay the pension premiums, or if the company will refrain from arbitrarily enrolling him in the pension scheme. As I mentioned, companies are probably required to enroll employees in the pension plan, so it may not work out. All residents of Japan are required to pay into the system, but there is no penalty for not paying into it.
posted by KokuRyu at 9:59 PM on June 10

I think you as a non-Japanese can get health insurance through private carriers instead of the governmental single-payer plans.

(Government insurance has a 20-30% out-of-pocket deductible).
posted by @troy at 10:30 PM on June 10