# Is this a good deal???



## autoguy

Hello all.

Can you please help me with some advice? This is what's going on:

Short story: Company in the U.S. wants to provide a training for me, and the choices are to either take the training by a set of tele-conferences, or to be given a one year assignment to Japan. The problem? Cost. So they're leaning towards the first option.

I really, really would like to move to Japan for a while for both professional and personal reasons, so I'm really willing to make some negotiations.

Knowing that the company's problem is "cost", I've been thinking to suggest to pay all living expenses with my base U.S. salary, and I want you to help me understand if this is even a realistic idea without me losing lots of money.

I know for a fact that U.S. salaries for engineers are usually higher than in Japan, and that the cost of living, at least for the two places that I'm comparing (Michigan and Kariya, Aichi), is very similar, if not slightly lower in Japan. I think that with my base salary in the U.S. I should be able to have a comfortable lifestyle in Japan without the need for any re-location/expat benefits package. 

Here's my current situation and approximate numbers:

- Single
- Base salary: 93k/year
- Expenses: Apt. rent ($1,300/mo, including services), car lease ($450/mo, including insurance), groceries ($350/mo), personal expenses and misc. ($400/mo). Total = $2,500/mo.

As part of my negotiation, I would probably just ask the company to pay the flight tickets, the penalty fee for breaking my apt. contract, and a storage space to keep my belongings. I would request the branch in Japan to get an apartment on my behalf and to have it ready by the time I get there (but I would pay the rent).

The car is not a concern. I'd probably transfer the lease, or buy it and sell it immediately.

So... what do you guys think? Is this a good deal or am I totally clueless?

Let me know if you need to know any other information.

Thanks in advance for any help!


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## BBCWatcher

You have missed the tax implications. Briefly, you'll almost certainly pay a higher rate of income tax in Japan. If your company does not provide assistance in preparing your Japanese and more complex U.S. tax returns then you'll have to figure that out. You'll probably want to take the Foreign Tax Credit instead of the Foreign Earned Income Exclusion (even if you qualify for the latter) on your U.S. tax return, and you may be able to use excess FTCs to U.S. income taxes -- in other words, you may be able to recover some or all of the difference between your U.S. and Japanese taxes. But that's not a given, and you'll probably have to "advance" the higher tax before you can get it back over time (and without interest).

You'll also have to check with your medical insurance will cover you in Japan. "Probably," but it's something to check.

For a one year temporary assignment you can continue making U.S. Social Security contributions (and not contributions to the Japanese system), so nothing should change there.

Food is probably more expensive in Japan. It depends on how you eat and what you eat, of course, but that's generally the case. You won't have a car costs, presumably, but you will have bus and train fares. So it doesn't quite zero out.

As for negotiation, why don't you ask them what costs they're estimating (and find too high) first? Ask for that list of expenses. Then ask what they'd find acceptable. Don't start with the offer you describe. It could be too low!


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## autoguy

BBCWatcher said:


> You have missed the tax implications. Briefly, you'll almost certainly pay a higher rate of income tax in Japan. If your company does not provide assistance in preparing your Japanese and more complex U.S. tax returns then you'll have to figure that out. You'll probably want to take the Foreign Tax Credit instead of the Foreign Earned Income Exclusion (even if you qualify for the latter) on your U.S. tax return, and you may be able to use excess FTCs to U.S. income taxes -- in other words, you may be able to recover some or all of the difference between your U.S. and Japanese taxes. But that's not a given, and you'll probably have to "advance" the higher tax before you can get it back over time (and without interest).
> 
> You'll also have to check with your medical insurance will cover you in Japan. "Probably," but it's something to check.
> 
> For a one year temporary assignment you can continue making U.S. Social Security contributions (and not contributions to the Japanese system), so nothing should change there.
> 
> Food is probably more expensive in Japan. It depends on how you eat and what you eat, of course, but that's generally the case. You won't have a car costs, presumably, but you will have bus and train fares. So it doesn't quite zero out.
> 
> As for negotiation, why don't you ask them what costs they're estimating (and find too high) first? Ask for that list of expenses. Then ask what they'd find acceptable. Don't start with the offer you describe. It could be too low!


Thank you so much for your insight.

About taxes, if I go to Japan and stay there for less than a year (say, 11 months) as a non-resident, and live only on non-japanese income, then I believe I would be exempt from Japanese taxes. Correct?

As for the medical insurance, that's something I'll definitely check.

And yes, you're right. I'll try to talk to the company first before I suggest my idea. In fact, I think I'd be slightly disappointed if they take my offer!

Thanks for the help!


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## larabell

If you're a company employee and your company is paying you while you're here, the income is taxable in Japan, no matter where it's actually paid. So-called "non-Japanese income" would be income from stocks or from renting out your home while you're here. Where your salary is earned for tax purposes is based on where you're doing the work (unless you're here for less than 90 days, of course).

It has always been my experience that the total tax burden in Japan is slightly less than in the States but that probably depends on your tax bracket. If you're from a State that taxes it's citizens on foreign income, you might want to make it appear that you've "moved" to another State first so you don't end up on the hook for State income tax while you're here.

For a single person making only a salary, the Japanese tax forms are brain-dead simple. You could prepare the return yourself if you were so inclined. The US forms will get harder for that year and probably the first year or two after you return but most of the tax software products can handle the FEIE and FTC forms and the various carry-overs.

As for having to "advance" the tax money up front... it might help to keep in mind that the Inhabitant's Tax on your salary isn't payable until the following year. Also, you can file a new W-9 with your employer claiming exemption from US tax withholding so you don't end up having to pay double and get half back a year later. The IRS instructions include a few tips on how to make the timing work out so you don't get screwed. It's probably worth reading through before-hand just to get an idea of the complexities involved.

I agree that you should ask the company for a list of the expenses. If they took the question to their accounting firm, they were probably given high-ball numbers. When I first came over, KPMG had given my company an estimated budget of $6000/month for housing and $2000/month for transportation (they assumed I'd be leasing a car and a parking space). The actual expenses didn't come to anywhere near that but KPMG's numbers are based on fat-cat executive assignments so the estimates were bloated. There's probably plenty of room for negotiation there.

Does your company have an office and employees in Japan? If so, they probably have a group health insurance policy and would be able to simply add you on for the time you're here. In fact, they might be required to add you on if you're going to be here for a year.

You should also ask the company to pay your commutation expense to and from work. Pretty much every salaried employee in Japan gets that paid by their employer. And if you do offer to pay some or all of your housing cost, see if you can get them to agree to cover the initial costs. That can end up being 5 or 6 months cash up-front, most of which doesn't come back when you move out. And if they don't actually prepare the apartment ahead of time, at least make sure they hook you up with a good realtor so you don't have to do the hunting yourself. If it's likely you'll actually go back after a year, you might want to lease some simple furniture since it's kinda hard to get rid of large stuff here without paying money to have someone haul it away (and you probably don't want to be moving a lot of large stuff back-and-forth across the ocean because that costs money as well).

You might want to check out some of the short-term housing solutions. Google up Sakura House for starters. Places like that have low up-front costs and come with furniture most of the time so that's one less thing for you or your company to think about. It might also be a good choice because you'd be surrounded by other non-Japanese who are going through a similar adventure so they can help you figure things out as you go.

Good luck...


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## BBCWatcher

larabell said:


> It has always been my experience that the total tax burden in Japan is slightly less than in the States but that probably depends on your tax bracket.


That wasn't my experience, and it does -- and also depends on your state and local (if any) income tax rates, as you point out.

Though it is _possible_ for someone to fill out their own Japanese and U.S. tax returns (and financial reports) in these circumstances, and I appreciate that you find it relatively easy, many people find it hopelessly confusing. My advice is to ask the company to pay for tax accounting assistance for a couple years. It's a reasonable request, not particularly expensive to the company, and one less thing to worry about. If they say no, cross that bridge if you get there. But they'll probably say yes!


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## larabell

One more thing I thought of that you might want to keep in mind. Suppose, for example, your employer agrees to pay $1000 per month toward your rent. If you're in a 30% tax bracket, that could mean $3600 in additional taxes each year because any benefits that your employer pays on your behalf are generally taxable (obviously it's not always that simple... I'm just giving a simple example).

In principle, you should be reimbursed for that amount. But a tricky way that some companies have to postpone payment of the tax is to withhold taxes from your income as though you were not on assignment and then pay the tax authorities as required in both countries when the taxes come due. The way that works out good for them is that the taxes you would have to pay on the rent subsidy, for example, doesn't come due until the following year and, in the case of Japanese Inhabitant's Tax, not until a year after that. So they get to postpone paying tax on the extra benefits even though they've already withheld the money from your salary.

The problem with that is that when they do get around to paying the tax on your housing benefit, that payment is also taxable. However, that tax isn't payable until the following year. What ends up happening is that your ultimate tax burden grows every year. If you're just coming over for a year or two and continue working for the same employer after you return then it doesn't really matter. The payments ultimately catch up and you don't pay a dime more than you would have if you never came to Japan. However... the rising tax burden puts pressure on the company to bring you back as soon as possible which is why some companies limit ex-pat contracts to five years maximum. Also, if you were to quit while you're over here, there are probably more ways for the company to leave you holding the tax bag, so to speak, although a solid contract should protect you there.

If you have a choice, I'd recommend negotiating for a simple gross-up. That's where they multiply every benefit you receive by one over one minus your marginal tax rate. You get a bit of extra money up-front, you use that to pay the extra tax in the year the benefits are accrued, and that's the end of that. You should make sure the tax on any extra benefits is covered in any event -- but if you want maximum flexibility for the future, try to do so with a simple gross-up and not by way of a tax equalization scheme.

Speaking from experience, of course...


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