Tax payments for Digital Nomads in Japan: how do digital nomads pay taxes in Japan?
Japan has become a popular destination for digital nomads around the world. Whether it's because of the culture, safety, climate, language or even ancestral connections, many immigrants, whether nomads or not, look for Japan as a place of habitual or fixed residence.
In 2024, Japan was added to the list of countries that provide visas for digital nomads, along with several countries in Europe and Asia, such as Thailand.
However, in addition to the migration issue, the digital nomad will have to worry about the tax issue. That is, how they will pay taxes in Japan and what their tax residence will look like.
Before we get into taxation in Japan itself, it's worth explaining what tax residency is.
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.
In this article we will focus on Income Tax, as it is the most important and of greatest concern to taxpayers.
Japan levies income tax on its taxpayers on a progressive annual basis, observing the rates contained in a table that is updated periodically.
Let's take a look at the income tax table in Japan (updated up to the date of publication of this article):
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 someone earned 9,000,000 yen in income in 2023. Therefore, the calculation will be made as follows:
9,000,000 x 0.33 - 1,536,000 yen
Total = 1,434,000 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.
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 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 $68,000);
b) Be a citizen of one of the 50 countries that have visa waiver agreements with Japan;
c) Have health insurance.
Double Tax Residency Alert
Even if you immigrate to Japan, you do not automatically leave your country of origin. In other words, they will remain tax resident in their country of origin.
The mistake 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 will be able to demand the amounts withheld retroactively, plus interest and monetary correction.
Japan has cooperation agreements to exchange information on its taxpayers in order to detect fraud and tax evasion, as well as criminal cooperation treaties with various countries around the world.
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
