Digital nomad in 2024: what are the advantages and disadvantages of tax in Japan?
Japan's demand for digital nomads has increased since 2020 as a result of the COVID-19 pandemic and, consequently, the increase in remote working. According to Japan's Ministry of Labor, there are more than 2 million foreigners in the country.[1]
Due to this high demand, Japan, following the global trend, created a visa for digital nomads in 2024, which can be applied for from March 2024.
The reasons for choosing Japan as a destination are diverse: education, health, safety, language, ancestral connection, lovers of Japanese culture, etc.
However, when choosing Japan as their destination, in addition to paying attention to migration issues, digital nomads will also have to pay attention to tax issues, especially if they intend to stay in Japan for more than a year.
Before going into the subject, it is worth giving a brief explanation of tax residency.
What is Tax Residency?
Tax residence is nothing more than the place where an individual carries out their vital economic activities. This place can be their fixed residence or their habitual residence.
Digital nomads do not have a fixed residence, but they do have a habitual residence. Therefore, the assertion that, because they have no fixed abode, they don't have to declare their taxes anywhere is false.
It doesn't matter if the digital nomad travels every 3 months, every month or every week, everyone in the world will have a tax residence somewhere.
If you declare taxes for two countries at the same time, you will have double tax residence, i.e. you will be subject to declaring and paying taxes for two countries at the same time.
Taxes in Japan
Japan has two types of taxes: national taxes and local taxes.
Some examples of national taxes:
a) Income tax;
b) Corporate tax;
c) Inheritance Tax;
d) Donation Tax;
e) Consumption tax.
Some examples of local taxes:
a) Residents' Tax;
b) Corporate Tax;
c) Tax on Fixed Assets;
d) Local Consumption Tax;
e) Car Tax.
Therefore, as well as worrying about national taxes, digital nomads will have to pay attention to the choice of city in which they will live. Residents' tax, for example, is a local income tax.
In this article, I talk about Tokyo's Resident Tax.
In this article, I talk about Inheritance Tax.
The focus of this article is on the main tax levied in Japan: income tax.
Japan levies income tax progressively and universally, following the general rule of almost all countries around the world.
Let's take a look at the income tax table in Japan (updated for the year 2024):
Value of taxable profit | Tax rate | Deduction amount |
From 1.000 yen to 1.949.000 yen | 5% | 0 yen |
From 1.950.000 yen to 3.299.000 yen | 10% | 97.500 yen |
From 3.300.000 yen to 6.949.000 yen | 20% | 427.500 yen |
From 6.950.000 yen to 8.999.000 yen | 23% | 636.000 yen |
From 9.000.000 yen to 17.999.000 yen | 33% | 1.536.000 yen |
From 18.000.000 yen to 39.999.000 yen | 40% | 2.796.000 yen |
40.000.000 yen or more | 45% | 4.796.000 yen |
According to the table above, if there is an annual income of more than 1,950,000 yen, there is a deduction of amounts when calculating.
Example:
Suppose so-and-so earned 18,500,000 yen in income in the year 2023. The calculation would therefore be as follows:
18,500,000 x 0.40 - 2,796,000 yen
Total = 4,604,000 yen.
It should be noted that those considered by Japanese law to be tax residents have the duty to declare income tax annually, in a universal and progressive manner.
In other words, they must declare all of their income, and those who earn more will contribute more.
According to Article 2 of Law No. 33 of 1965 (the Income Tax Law), a person who stays in Japan for more than one year is considered a tax resident in Japan.
Remember: it's not because you only have to pay income tax after one year that this applies to other taxes, as each tax has its own legislation.
In view of this scenario, before immigrating to Japan, it is essential to carry out tax planning in order to avoid double taxation and tax evasion.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. All you need to do is contact us via WhatsApp or by e-mail: thyanipuppio@gmail.com
Digital Nomad Visa
From March 2024, Japan will provide a 6-month visa for digital nomads. Some of the requirements to apply for the digital nomad visa are:
a) Annual income equivalent to 10 million yen (equivalent to R$340,00.00);
b) Be a citizen of one of the 50 countries that have visa exemption agreements with Japan (such as Brazil);
c) Have health insurance.
NOTE: The digital nomad visa can only be renewed six months after leaving Japan.
Alert for Double Tax Residency
Even if you immigrate to Japan, you don't automatically leave your country of origin. In other words, they will remain tax resident in their country of origin.
The mistake that many people make, mainly because they are unfamiliar with tax legislation, is to declare in their country of origin only the income earned in their country of origin, and to declare in Japan only the income earned in Japan.
But what many people don't know is that this is not just a mistake, it is a crime of tax evasion.
The big headache of having a criminal conviction is a criminal record. If you have a criminal record, your passport will be invalidated. They will not be able to leave the country.
In addition, Japan requires you to present a valid passport in order to obtain a visa. In other words, no valid passport, no visa.
What's more, in addition to a possible criminal conviction, the tax authorities may demand the amounts withheld retroactively, plus interest and monetary correction.
Remember that Japan has cooperation agreements with various countries around the world to exchange information on its taxpayers in order to detect fraud and tax evasion, as well as criminal cooperation treaties.
It is therefore extremely important to carry out tax planning, as in addition to optimizing tax payments, it avoids various problems, such as tax evasion and double taxation.
Remember: tax evasion is not just a crime in Japan.
If you are interested in hiring professional legal services to carry out tax planning, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or by e-mail: thyanipuppio@gmail.com
