# Multiple Japan Tax Question



## Syaorandc (5 mo ago)

My Situation:

I work remotely doing IT support for a State Government Agency in the USA and I am paid in the US and taxes are deducted automatically and my pay goes into a US Bank.

The wife, a Japanese citizen, wants to move to Japan and I am able to do my work from there. I do not want to pay into the Japanese pension system if possible.
With the current exchange rate I would be making around 11,475,000yen($85,000 USD) before taxes. 

From what I've read, Government employees don't have to pay Japanese tax for 5 years until they are considered permanent residents. Is this true?
Even if it is true or not true, what taxes would I be paying in Japan? I'm guessing all the taxes I pay in the US would be refunded to me when I file my taxes and use the foreign earned income exclusion? I would also own a home in Japan so I would get the foreign housing exclusion?

Last but not least. I have VA Disability that I get. As long as that is not remitted to Japan, I don't have to pay taxes on it in Japan right? If I remit it, would I need to pay taxes on it?


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## Moulard (Feb 3, 2017)

Syaorandc said:


> Is this true?


No - or more correctly I do not believe so.

I am not terribly familiar with the US-Japan tax treaty and I note that its government services article deviates from the US model and is more aligned with the OECD model - so I am more than happy for someone to correct me if I am wrong. but here is my take on a very quick read...

You are right in that Article 18(1)(a) provides that remuneration paid from the public funds of one of the US or its political subdivisions or local authorities to any individual who is rendering services to that US, political subdivision or local authority is exempt from tax by Japan.

But (and it is a big but) you have to read the treaty in its whole, and under subparagraph (b), such payments are, however, taxable exclusively in the other Contracting State (i.e., Japan) if the services are rendered in Japan and the individual is a resident of Japan who is either a national of Japan or a person who did not become resident of Japan solely for purposes of rendering the services.

Its worth noting that this clause applies only to government employees and not to independent contractors engaged by governments to perform services for them.

So if you are a contractor rather than a W2 employee then it will be taxable by Japan,
If you are a W2 employee it will be taxable by Japan unless your Agency sent you to Japan on assignment.

The government services clause is really there to protect the taxation of diplomats and other government officials sent to Japan on assignment rather than those who choose to work there. So in essence you are treated like any other employee working in Japan - your income will be considered Japanese sourced and thus Japan will have the primary right to tax the income and you would be able to use either the Foreign Earned Income Exclusion of Foreign Tax Credits to reduce any US federal income tax

States are not party to the Income tax treaty, so you may will still owe State income tax (I know some states deem state employees as tax residents) whether you could deduct those State taxes from Japanese income taxes are a matter of Japanese tax law.

Japanese tax rates? Well you can google that as well as I can,

As to Social Security taxes...

The totalisation agreement between Japan and the US allows that if you are working in Japan for the US government you will be covered either by US social security or other federal retirement program. Given these treaties are between governments and not States I believe you would fall under the 5 year rule. (the nuance of totalisation agreements is not my thing) ie. so long as you supplied a Certificate of Coverage with your Japanese tax return each year you would not have to contribute to a Japanese social security type program. After 5 years, that would change and you would be required to contribute into the Japanese system

Finally VA Disability Pension

It is covered under Article 18(2) and will only be taxable by the US so long as you do not become a Japanese National. Where it is paid is inconsequential.


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## Syaorandc (5 mo ago)

Moulard said:


> No - or more correctly I do not believe so.
> 
> I am not terribly familiar with the US-Japan tax treaty and I note that its government services article deviates from the US model and is more aligned with the OECD model - so I am more than happy for someone to correct me if I am wrong. but here is my take on a very quick read...
> 
> ...


Thank you Moulard for the response!

I am a W2 employee and payroll might be determining it to be an assignment to Japan (yet all my work is done in the US). They are still processing it and determining the best way to do pay.


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