If I am a non-resident and receive an executive salary from a Japanese company, what taxes will I be subject to?

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As Japan's economy continues to grow at a rapid pace, the number of foreign companies entering the Japanese market and the exchange of human resources has become increasingly active. Many non-Japanese are increasingly taking on executive positions in Japan. Many of these non-residents may be wondering, "If I work for a Japanese company, what taxes will be imposed on my executive salary?" What kind of taxes will be imposed on the salary of executives when they work for a Japanese company?

In this blog, we would like to explain in an easy-to-understand manner for such non-residents what kind of taxes will be imposed on them if they receive executive salaries from a Japanese company, and what procedures are necessary.

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From the non-resident principle?

Many people are aware of the principle income taxation of non-residents, which is that they are not taxed. This is probably due to the idea that since they do not live in the country, they do not receive any services from the government and have no contact with it in the first place.

So, the first part of the taxation decision is weighted toward whether you are a resident or a nonresident. That is not wrong either.

In the case of a typical employee, i.e., working somewhere else, this in-between should come first. Regarding the VISA issue for remote work, I introduced the opposite idea. It says that if you live in Japan, you are caught by the income limit even if you work for an overseas company.

Note, however, that this concept is different in the case of company directors.

What income tax laws apply to directors and officers?

If you work overseas as a salaried employee and do not have a domicile in Japan, you are generally presumed to be a non-resident. In principle, salaried employees working overseas are not subject to Japanese income tax. However, this rule does not apply to executives.

If an officer of an overseas branch of a Japanese corporation works outside Japan as an officer of a domestic corporation (a corporation whose head office or principal office is in Japan), the salary is withheld at a rate of 20.42% (20% for income tax and 0.42% for special income tax for recovery) upon receipt of payment as if the salary had been earned in Japan (domestic source income). ) at the time of receipt of the payment.

This concept is related to the fact that the officer is not working with his or her body tied to the job. As we often imagine, an officer may not even be present at the office. It is like that. To be more specific about the law, Section 330 of the Companies Act (Companies Act 330) states that "the company and the directors and officers are in a contract of attorney".

So, we do not focus on the source of income = the address of the officer and do not tax the income according to the country where the company is located.

However, there are exceptions. For example, if a director of a domestic corporation works abroad as an employee of the domestic corporation, he/she is not required to withhold tax on his/her salary for such work. This is the case, for example, when a director of a domestic corporation works as an employee such as a branch manager of an overseas branch.

How do I pay taxes?

First, how are taxes paid? It is in the form of withholding tax. The monthly payment is made to the director residing abroad as director's salary with income tax deducted from the director's salary. The company pays the deducted income tax by the 10th of the following month. It is also possible to take advantage of special exceptions to payment deadlines.

Do I need to file a tax return?

Consider also the year-end adjustment. For a normal employee's salary, a year-end adjustment is made taking into account the entire salary. This is the process of recovering taxes that have been overpaid.

In contrast, the payment of executive salary to an overseas resident company is subject to separate taxation at source. In other words, 20.421 TP3T will be paid and no year-end adjustment will be required.

This means that you do not need to file a tax return in Japan.

Adjustment of double taxation

On the other hand, there is a possibility of double taxation adjustment. This is the case when income received in Japan is taxed in the country where you live. In this case, there is often a system whereby you can file a tax return in your home country to reduce the amount of tax due on the double taxation.

Checking tax treaties is a must.

And be sure to check tax treaties.

The content written above is the principle content. The above contents are in principle only, and tax treaties take precedence over them. It is important to confirm the contents of the tax treaties concluded between Japan and country A. If there are any arrangements that override the principle contents, the contents will be confirmed. If there is any arrangement that overrides the principle, it will be the content of the treaty. Also, please understand that the above is a general answer.

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