Non-permanent resident

“Non-permanent resident” is a foreign national who has had a domicile or a residence in Japan for a total of five years or less within the past ten years. There are many non-permanent resident clients who come to our office because they have only recently arrived in Japan and do not fully understand the tax system in Japan.

In this article, we will delve into the details of the so-called “remittance tax” for non-permanent residents.

Relationship between foreign source income and remittance resources

It should be noted that there is no direct relationship between foreign source income and the source of remittance.

The Income Tax Act stipulates as follows:

所得税法施行令第十七条（非永住者の課税所得の範囲）
４　法第七条第一項第二号に規定する国外源泉所得（以下この項において「国外源泉所得」という。）で国内において支払われ、又は国外から送金されたものの範囲については、次に定めるところによる。
一　非永住者が各年において国外から送金を受領した場合には、その金額の範囲内でその非永住者のその年における国外源泉所得に係る所得で国外の支払に係るものについて送金があつたものとみなす。ただし、その非永住者がその年における国外源泉所得以外の所得（以下この項において「非国外源泉所得」という。）に係る所得で国外の支払に係るものを有する場合は、まずその非国外源泉所得に係る所得について送金があつたものとみなし、なお残余があるときに当該残余の金額の範囲内で国外源泉所得に係る所得について送金があつたものとみなす。

国税庁HP

Income Tax Law Enforcement Order Article 17 (Scope of Taxable Income of Non-Permanent Residents)
4 The scope of foreign source income prescribed in Article 7, Paragraph 1, Item 2 of the Act (hereinafter referred to as “Foreign Source Income” in this paragraph) paid within Japan or remitted from abroad is specified below.
(1) If a non-permanent resident receives remittances from abroad in each year, the remittances will be deemed to have been made from foreign source income paid abroad in that year. However, if the non-permanent resident has domestic source income that was paid abroad in that year, that domestic source income is considered to have been remitted first. If there is a remainder, foreign source income shall be deemed to have been remitted within the amount of the remainder.

[Translated by Yasuda] This is a paraphrased translation for general understanding.

Case study on remittance taxation issues

Example 1 : Alice’s case

• Alice, a UK national, was a resident of the UK until March 2024, and became a resident of Japan from April 2024.
• Alice has been earning salary income in the UK until March 2024, and has saved money in a UK bank account. She left this company before leaving the UK.
• In April 2024, Alice transferred worth 1,000,000 yen from her UK bank account to her Japanese bank account as living funds.
• Alice has not had any income during the year 2024 since coming to Japan.

In this case, there is no income after becoming a resident of Japan in April 2024, regardless of whether it is in Japan or abroad, so the remittance will not be taxed.

Example 2 : Bob’s case

• Bob, a UK national, was a resident of the UK until March 2024, and became a resident of Japan from April 2024.
• Bob has been earning salary income in the UK until March 2024, and has saved money in a UK bank account. He left the company before leaving the UK.
• In April 2024, Bob transferred worth 1,000,000 yen from his UK bank account to his Japanese bank account as living funds.
• Since Bob came to Japan, he has not had any income in Japan during the year 2024, but he has had real estate income in the US. That income for 2024 (after April) was worth 5,000,000 yen, which he has kept in his US bank account.

In this case, the worth 1,000,000 yen remitted from the UK will be subject to tax. In reality, UK savings and US property income are not related, but if you have foreign source income in the same year as the remittance, you will be considered to have remitted it.

Example 3 : Charlie’s case

• Charlie, a UK national, was a resident of the UK until March 2024, and became a resident of Japan from April 2024.
• Charlie has been earning salary income in the UK until March 2024, and has saved money in a UK bank account.
• Charlie has continued to work remotely from Japan for the same company in the UK since April 2024, and his salary continues to be paid to his UK bank account.
• Charlies’s total salary from April to December of 2024 was worth 15,000,000 yen.
• In April 2024, Charlie transferred worth 1,000,000 from his UK bank account to his Japanese bank account as living funds.
• Charlie has had real estate income in the US. That income for 2024 (after April) was worth 5,000,000 yen, which he has kept in his US bank account.

In this case, the worth 1,000,000 yen remitted from the UK will be considered domestic source income paid abroad and will be taxed whether or not it is remitted. Also, real estate rent (foreign source income) is not taxed unless the amount of remittance exceeds the amount of domestic source income paid abroad.

The above three cases all have many things in common, such as when they became residents in Japan, the timing and amount of overseas remittances, and the fact that they do not receive salary from a Japanese company, but each situation has different tax implications.

Please contact our experts for more information

While the above overview is useful enough, the actual calculation of the tax amount and filling out the tax return is much more complicated. We recommend that you consult with a specialist if necessary. YASUDA-Accounting has extensive experience in providing accounting and tax services to foreign companies and foreign nationals, as well as English-language services. Please feel free to contact us for more information.