11 Aug 2009

Will a foreigner ever be Japanese?

by Darren

The answer to this question under immigration law is.... almost impossible. However under tax law you can be treated the same as a Japanese national in just 5 years... Is that beneficial? Under Japanese tax law if you are a Japanese tax resident then you will be taxed on your worldwide income. This is not necessarily a good thing if you are earning in a low tax country such as Singapore of Hong Kong. So what makes you a Japanese tax resident? Firstly your are a resident if you maintain your home in Japan or have resided in Japan for a continuous period of 1 year or more. Next you are classified as a permanent or non-permanent resident. You are a non-permanent resident if you are not a Japanese national, and have lived in Japan for 5 years or less in the last 10 years. You are a permanent resident if you are a Japanese national, or have lived in Japan for greater than 5 years in the last 10 years. Generally, a permanent resident is subject to income tax and inhabitant tax on worldwide income while a non-permanent resident is subject to income tax and inhabitant tax on income sourced in Japan and foreign income paid in or remitted to Japan. Japan applies the concept of place of head office or main office to determine if your company is a Japanese tax resident or not. A foreign incorporated business that has a branch established in Japan will not be treated as a resident of Japan. This is important when applying the double tax agreements. Generally, there are no significant differences in calculating taxes for a branch (foreign) or a domestic Japanese company. However, some differences exist due the different legal nature of each. I will provide you with a detailed explanation over the next few months of the implications of tax residency in Japan for you as an individual and as an entrepreneur setting up a company

Next entry: Australian Tax Office Compliance Program
Previous entry: Uncle Sam’s Residency Rules

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