# Tax question (foreign income)



## ADHWGT

First, a little context: I came to Japan in September 2012 on a student visa (with a work permit). While studying, I freelanced for a Swedish newspaper (with no presence in Japan – apart from myself, that is) on the side. I didn't file my taxes last year, as I didn't think I had to.

In October last year, I quit school and got a journalist visa instead (still working as a freelancer).

As the newspaper in question no presence in Japan, my "salary" is paid in Sweden, to my Swedish bank account. This means that Swedish income tax is automatically deducted. Every month, I transfer a sum to my Japanese bank account in order to pay my rent, utilities et cetera.

I'm having a really hard time wrapping my head around whether, and how, I should file my taxes in Japan this year. Specifically:

1. Do I have to pay tax only on the sum I transfer to my Japanese bank account every month (since, if my understanding is correct, apparently only foreign income that is remitted to Japan is taxable in Japan)?

2. At what point did (any part of) my income become taxable – when I got the visa in October, or all the way back in January of last year?

3. If the authorities decide that I owe them Japanese taxes for all the income I earned last year, will I have to pay the entire sum up front, or can it be divided into smaller payments?

Any advice would be greatly appreciated.


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## larabell

ADHWGT said:


> 1. Do I have to pay tax only on the sum I transfer to my Japanese bank account every month (since, if my understanding is correct, apparently only foreign income that is remitted to Japan is taxable in Japan)?


If you were physically in Japan when you did the work for which you got paid, that's not foreign income -- what matters is not where the money went but where the work was done. Foreign income would be rent you receive from a property that's not in Japan or interest on money in a bank account that's not in Japan.

If the money was paid in exchange for work you did here, it's taxable in Japan. If you have a business in Sweden, you could claim that the newspaper paid your business and your business paid you (less than what the newspaper paid, of course) but that's likely to get tricky fast and you might want to talk to a tax expert first. If you personally were on the newspaper's payroll but doing the work here, it counts as Japan-based income.



> 2. At what point did (any part of) my income become taxable – when I got the visa in October, or all the way back in January of last year?


When you started working from Japan.



> 3. If the authorities decide that I owe them Japanese taxes for all the income I earned last year, will I have to pay the entire sum up front, or can it be divided into smaller payments?


In theory, it's due shortly after the return is filed. But if you don't have the money, it's not like they're going to lock you up. You would simply make some kind of arrangement with the tax office. Interest will probably accrue on the unpaid but if you're up-front with them, they should let you pay on a schedule.

Of course, we're assuming you made enough that year to owe taxes. Taxable income is generally some percentage of total income and, on top of that, you have a personal deduction that brings the taxable total down even more. Add to that the fact that your employer in Sweden most likely didn't report the money they paid you to the Japanese tax authorities and you might be better off waiting to see if they even notice.


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## ADHWGT

Thanks for the prompt and very informative reply! Not very uplifting, though 



larabell said:


> Of course, we're assuming you made enough that year to owe taxes. Taxable income is generally some percentage of total income and, on top of that, you have a personal deduction that brings the taxable total down even more.


I'm fairly certain I earn enough to be taxed – around 600 000 yen per month (pre-tax). Would you happen to know how much the Japanese income tax would be on that sum? (Sorry if that's a stupid question; I'm very bad at this sort of stuff.)



larabell said:


> Add to that the fact that your employer in Sweden most likely didn't report the money they paid you to the Japanese tax authorities and you might be better off waiting to see if they even notice


As for the "wait and see" option: are you suggesting that I simply skip filing my taxes in Japan, or that I do file them, but withhold the information about my Swedish income? I'm kind of scared this will come back to haunt me in the future if I decide to stay a few years longer (will probably try to extend my visa this summer) – I've read some pretty scary tales of people getting slammed with huge penalties for trying to deceive the NTA...

I guess my only other option is to use the "foreign tax credit" system since I already paid Swedish income taxes... Which is even MORE confusing to me, since it seems like that would only cover a portion of the Japanese taxes I owe?

I guess doing it the other way round, meaning paying full taxes in Japan and then asking the Swedish authorities for a refund, would be easier. But I just don't have the kind of money to pay a year's worth of Japanese taxes retroactively, even if it's only until I get the whole sum back from the Swedish tax agency


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## larabell

ADHWGT said:


> Would you happen to know how much the Japanese income tax would be on that sum?


The calculation isn't hard. You should be able to find the basic data online or, if you stop by your local tax office, you can get a copy of the instructions in English. I also know of a tax accountant who spent about an hour with me once just answering questions and the fee was pretty reasonable. I can sent contact info via PM if you're interested.



> As for the "wait and see" option: are you suggesting that I simply skip filing my taxes in Japan, or that I do file them, but withhold the information about my Swedish income?


I'm not necessarily suggesting anything. Whether to take that risk has got to be your choice, of course. But it would be fairly easy to claim that you didn't understand the rules or to make a case that the income really isn't related to your work in Japan and let them take a stab at shooting down your theory. The downside would obviously be the penalty if things don't go your way.



> I guess my only other option is to use the "foreign tax credit" system since I already paid Swedish income taxes... Which is even MORE confusing to me, since it seems like that would only cover a portion of the Japanese taxes I owe?


That depends on how Sweden's tax rate stacks up against Japan's. If you already paid Sweden more than you would have owed Japan, you might not have to pay anything here. I don't know the details of the tax treaty between Japan and Sweden but, in the case of the US, it's a one-for-one credit. Anything I pay to one country is subtracted from what I owe the other country. If you would normally owe Japan $1000 (just as an example) but you already paid $900 to Sweden, you'd only have to pay $100 here. But the details will depend on the specific tax treaty.



> I guess doing it the other way round, meaning paying full taxes in Japan and then asking the Swedish authorities for a refund, would be easier.


I wouldn't have guessed that. You've already paid tax in Sweden so claiming that as a credit on your Japanese return means only one set of forms instead of two. But claiming the tax credit here makes the Japanese form more complex so it might be a matter of which forms are easier to fill out (given that you might have better luck understanding the forms in Swedish).


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## ADHWGT

larabell said:


> That depends on how Sweden's tax rate stacks up against Japan's. If you already paid Sweden more than you would have owed Japan, you might not have to pay anything here. I don't know the details of the tax treaty between Japan and Sweden but, in the case of the US, it's a one-for-one credit. Anything I pay to one country is subtracted from what I owe the other country. If you would normally owe Japan $1000 (just as an example) but you already paid $900 to Sweden, you'd only have to pay $100 here. But the details will depend on the specific tax treaty.


I actually asked an accountant about this today, and this is the reply I got:

"No, foreign tax system has a limitation. If you work in Japan all year in 2013, your income is Japanese income and you can take a small amount of foreign tax credit. We need a complicated calculation for accurate amount."

This is driving me nuts 

If the accountant is right, it seems like my only (legal) option is to pay full Japanese taxes for 2013 retroactively and then have Sweden refund me... But that's a TON of money to cough up somehow.


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## larabell

Ok...

I do mine the other way around just because of the filing deadlines. That is, I file the Japanese return first and then claim the tax as a credit on my US return. The computation in that case is even more complicated because of the fact that I can exclude a portion of my income for US taxation and that portion isn't taxed at all in the US (and, therefore, is ineligible for dual-taxation credit). I've never gone through the tax credit calculations here so I don't know the exact rules.

You could go ahead and file then let the NTA bill you for the tax. Take the bill to the tax office and tell them you don't have that much money right now and see if they can work out a deal. That will give you time to file for a refund in Sweden, albeit the total might be more than if you paid straight away because, at the very least, they'll charge interest.

Also if, going forward, you intend to pay tax here and file for a tax credit in Sweden, you might look into having them not deduct the tax there at all rather than having to file for a refund every year. I don't know how that works in Sweden but, in the US, you simply file a form stating you're exempt by virtue of living outside the country and they don't do any up-front deduction.

Also, once you file with the NTA, they'll probably expect you to pay quarterly estimated payments toward the following year's taxes. There's a form to get the amount changed if you expect your income to be significantly less than the preceding year but keep in mind that if, at the end of the year, your estimated payments are way less than what you end up owing, there could be a penalty for that, too.

It's all quite a pain...


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