# relocating from HK to Japan



## TWDB73

Hello
I am looking for advice. I am considering relocating from HK to Japan to open my company's office there. My wife is Japanese and our two children (8 and 10) are fully bilingual. We have lived in HK for a decade and I am keen to move (I love Japan) but my wife is less so because of the potential financial impact. Any advice you can give on the following would be much appreciated !

1. I have been told that it is possible to have a percentage of monthly salary paid by my HK office to my HK bank account in order to reduce my tax exposure in Japan (I will be spending a week a month in HK). Any thoughts on this?

2. We are planning to send our children to an international school -- YIS, Saint Maur or British -- and therefore want to live somewhere that is convenient for them but at the same time has some greenery (I could never live in central Tokyo even if I could afford it  and options for dog walking, running etc. My preference is Tamagawa but (we want to buy) prices are too high. Does anyone have any thoughts on Kikuna?

3. I would be interested to hear the experiences of others with Japanese wives who relocated back to Japan after many years away. Did they struggle to adjust back to the rigid 'Japan way' of life?

4. Has anyone made the HK to Japan move? Regrets or loving it?

Many thanks in advance for any advice/opinions you can offer!


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## BBCWatcher

TWDB73 said:


> I have been told that it is possible to have a percentage of monthly salary paid by my HK office to my HK bank account in order to reduce my tax exposure in Japan (I will be spending a week a month in HK). Any thoughts on this?


It sounds dodgy at best. Do you trust the source? Tax residency tends to be rather binary, and it tends to come with taxability of worldwide income.

Start with checking Japan's definition of tax residency and its scope of taxable income. It should be pretty simple to figure out those basic questions. You can take a look at the free English language tax guides for Japan available online from major accounting firms like Deloitte, KPMG, Ernst & Young, etc. Those guides should answer such questions rather quickly and easily.


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## larabell

In the case of a salary, where you're being paid for the work you do (or perhaps for the time you put in), the entire amount is taxable in Japan if the work was performed in Japan, regardless of where the money is actually deposited. So if you lived in Japan full time, 100% of your salary would be taxable here right from day one.

Passive income (for example, rental income on a house or stock income) which is not remitted to Japan is not taxable here until you've been living here for at least five years. At that point you become a "permanent resident" for tax purposes (which is not the same as for visa purposes, unfortunately) and only at that point are you taxed on your worldwide income. Of course, if you bring that money over here, then it's taxable. But that does not apply to your salary. Compensation for work you do here is considered Japanese income even if the money is deposited in your account back home.

Since you're going to be spending one week per month outside of Japan, you could conceivably exclude that income from Japanese taxation. You'd have to check the details. Your Japanese tax return will include a form where you indicate how many days you worked outside of Japan. As long as you haven't lived here for 5 years (actually, 5 out of the last 10 years, if I remember right), you can exclude a pro-rated portion of your salary income based on the number of days you _actually worked_ outside of Japan.

If you are subject to taxes in your home country based on your citizenship, as US citizens are, you may be able to claim a tax credit in one country for any taxes you pay on the same income in another country. The rules on that are complex so you should see if your employer can hook you up with a tax expert (hopefully at their expense).


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## TWDB73

Thank you larabell -- realistically I will be away from Japan for probably 6-8 working days per month, so paying a quarter of salary offshore would offer a sizeable relief, at least for the first five years.


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## BBCWatcher

TWDB73 said:


> ....so paying a quarter of salary offshore would offer a sizeable relief, at least for the first five years.


That's not how it works as far as I can tell.

I went and took a look at a Japanese tax return to refresh my memory. Yes, within the first 5 years it appears you can tally up the number of days spent working outside Japan (excluding "down" time, like vacations outside Japan). You then calculate the percentage that time represents and pull out that percentage of your worldwide earned income. But it does not matter where you are paid from what I can tell. Moreover, if I'm not mistaken it looks like you're taking income out starting from the lowest Japanese tax brackets.

Is that some relief? _A bit_. It's nothing to get too excited about, though, in my opinion.

So go look at a couple of the free tax guides I mentioned to see how it really works.


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## larabell

That's right... what counts is where you did the work for which you're being compensated. It doesn't matter where the money is paid. It's your physically working outside of Japan that lets you prorate your salary. That said... if you need money back home anyway (to save or to pay bills) go ahead and have them send some money over. It's cheaper than sending it over yourself.

I'm not sure how the reduction could come out of the lower tax brackets, though. In theory, the money you earn while working outside of Japan is simply non-taxable in Japan so your gross taxable income would be less, meaning you would use a smaller number when computing your tax for the year. I don't believe that difference would be reflected in the tax owed via the lowest tax rate -- that would essentially be taxing you more on your Japanese income because you happened to have non-Japanese income as well. I'd believe that from the IRS but I don't recall the forms here being nearly that complex. The total tax should simply be reduced by the reduction in income times whatever your marginal rate is for the year (ie: the highest bracket). If you're really talking about 1/4 of your income, that could be substantial. But before you file, talk to an expert -- neither the forum nor the free tax guides will be of any help if the Japanese Tax Office has you in their sights.

BTW... again... for the first five years, it's not worldwide income that is affected by time outside of Japan. Passive income on investments outside of Japan is 100% non-taxable in Japan unless you've been here for 5 years or remitted the money to Japan. What gets prorated is compensation for the labor you perform and nothing else... and that's because compensation for labor performed outside of Japan is not considered Japanese income and for the first five years you are _not_ taxed by Japan on income you earn outside of Japan. So-called "worldwide income" only counts once you've become "permanent" for tax purposes. Once you're considered "permanent", you're taxed on worldwide income, in which case it no longer matters where you actually performed the work.

Also, I'd double-check the tax law regarding vacations. I'm not sure how Japan words it but in the States, I believe time spent outside the country on vacation doesn't count. I know the US tax forms require a break-down of working days versus vacation days but I'm too busy to pull out my old Japanese tax forms to check right now.

Anyway... if it matters, you should be talking to an expert. If your employer is sending you over on assignment, I would think they'd be willing to front up enough to pay for a few hours with a tax expert... and possibly someone to do your tax returns while you're over here. If not, I can refer you to a tax guy who speaks English and doesn't charge all that much for consultations, though you might need to actually be in Japan to visit him (PM, please, if you're interested).


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## TWDB73

So let me see if I have understood properly: there is no point in having a % of my salary paid by my HK office to my HK account (and therefore making myself liable for HK tax) as, theoretically, I can claim deductions on the 70+ days a year I am out of the country for work travel even if 100% of my salary is paid by our Japan office into my Japan account -- for the first 5 years at any rate! 

If this is the case then it makes the decision making much simpler. The next issue is to work out how to buy a property without incurring remittance taxes on money used from sale of property in HK to fund the purchase!

Does anyone have any thoughts on living in Kikuna?!


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## BBCWatcher

Just check a couple of those tax guides.  KMPG, Ernst & Young, Deloitte, and other such firms are likely to know how Japanese tax regulations work. Their guides are free -- you can find them using your favorite Internet search engine.

It's extremely rare that where your salary is deposited makes any difference for tax purposes. If my well prepared Japanese tax return is any guide, it did not matter, so that's one anecdote for you. But especially since some amount of expert advice on these questions is free, I'd read that advice.


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## larabell

By the way, technically it's not a deduction, what's happening is that some percent of your income is simply not subject to Japanese income tax because it was not earned in Japan. I know that sounds like a nitpick but, believe me, if you ever have to talk to someone at the Tax Office to justify your calculations, you'll want to assign the correct significance to each value on your return.


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## BBCWatcher

larabell said:


> ....what's happening is that some percent of your income is simply not subject to Japanese income tax because it was not earned in Japan.


Yes, exactly, and regardless of how or where the income was paid.

Which makes sense when you think about it for a few seconds. Imagine a situation where you work for Honda in an office in Tokyo, but Honda Malaysia pays you in Malaysian ringgit in a bank account in Kuala Lumpur. You work every day in your office in Tokyo. Is your salary Japanese tax free or even Japanese tax favored simply because it was payed via a Malaysian payroll system to your Malaysian bank account? Heck no! Otherwise everybody would do that and pay no (or less) Japanese tax.

Note also that Japan doesn't care that you "landed the big deal" in Uganda on a 3 day trip and were less successful selling in Nagoya the other 362 days of the year, for example. You don't get to decide that you want to allocate income according to where you or your employer think you "earned" it. Japan just counts days (when they do), and days are equal. That'd be nice if you could do that, but that's not how it works either (if my understanding is correct, and it probably is, but check with the pros).


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## TWDB73

All very good points. Many thanks for your patience!


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