Nomae Expats
Wealth

Wealth — 4.1

Tax Optimization

Japan's tax system has real advantages for the right person at the right stage. It also has real traps. This is the honest picture.

5 years

Non-permanent resident window

55.945%

Top income tax rate

~30–34%

Corporate tax (effective)

55%

Inheritance tax (top rate)

Disclaimer

Not professional advice

This page provides general information for orientation purposes only. Japan tax law is complex and fact-specific. Nothing here constitutes professional tax, legal, or financial advice. Consult a qualified Japanese tax accountant (税理士) with cross-border experience before making any decisions based on this content.

Residency and Tax Status

Your tax obligations in Japan are determined by your residency status, which is separate from your visa status. Understanding this distinction is the foundation of any Japan tax strategy.

StatusDurationWhat's taxed
Non-residentLess than 1 yearJapan-source income only
Non-permanent resident1–5 years (no domicile)Japan-source income + foreign income remitted to Japan
Permanent resident (tax)5+ years OR domicile in JapanWorldwide income

The non-permanent resident (NPR) period — the first five years of residency without a domicile intention in Japan — is the window where Japan can be genuinely tax-efficient for people with significant foreign-source income.

The remittance rule

During NPR status, your foreign-source income is only taxed if it is remitted to Japan. Income that stays offshore is not taxed. This is a legal structure, not a grey area — but it requires careful management. Any transfer to Japan during a tax year can be deemed a remittance of foreign-source income regardless of intent. The ordering and characterization of remittances matters. Work with a CPA experienced in cross-border taxation before structuring this.

Income Tax: The Real Numbers

Japan's income tax is progressive and includes both national tax and residence tax (住民税). The combined effective rate is what matters.

Taxable incomeNational rateResidence taxCombined
Up to ¥1,950,0005%10%~15%
¥1,950,001–3,300,00010%10%~20%
¥3,300,001–6,950,00020%10%~30%
¥6,950,001–9,000,00023%10%~33%
¥9,000,001–18,000,00033%10%~43%
¥18,000,001–40,000,00040%10%~50%
Over ¥40,000,00045%10%~55%

The residence tax (住民税) is paid the following year based on the previous year's income. This creates a cash flow lag — in your first year you pay no residence tax, then it hits from April the following year. Plan for this.

When Japan Is Tax-Efficient

  • You are an NPR (under 5 years) with substantial foreign-source income that you keep offshore
  • You are running a Japanese corporation and can optimize the salary vs dividend split with a CPA

Members only

The strategy, sequencing, and optimization details below are available to members.

Get access

When Japan Is Tax-Efficient

  • You are an NPR (under 5 years) with substantial foreign-source income that you keep offshore
  • You are running a Japanese corporation and can optimize the salary vs dividend split with a CPA
  • Your income is below ¥9,000,000/year — the effective rate is competitive with most Western countries at these levels
  • You hold significant unrealized capital gains on assets not yet sold — Japan does not tax unrealized gains
  • You are building toward an asset sale: Japan has no capital gains tax on pre-residency assets sold to non-Japan buyers under certain structures
  • Your spouse has minimal income — Japan allows income splitting through tax credits and dependent deductions

When Japan Is Not Tax-Efficient

  • You have been resident for over 5 years and have high foreign-source income — worldwide taxation applies with limited credits
  • Your income is primarily salary above ¥18,000,000 — the 50%+ effective rate is among the highest in the OECD
  • You are planning a major liquidity event (company sale, large investment exit) after becoming a permanent tax resident
  • You have substantial assets outside Japan that you plan to inherit or pass on — Japan's inheritance tax has among the broadest scope globally
  • You hold significant offshore investments — the controlled foreign corporation (CFC) rules can sweep in foreign entity income

Important

Japan's inheritance and gift tax applies to assets received by Japan tax residents regardless of where the assets are located or where the deceased lived. This catches many long-term residents by surprise. Get estate planning advice early if you have significant assets.

Corporate Tax Structure

Operating through a Japanese corporation has several advantages over sole proprietorship, particularly for higher earners.

Effective corporate tax rates

  • National corporate tax: 23.2% on income above ¥8,000,000
  • Small company rate: 15% on first ¥8,000,000 for companies with capital under ¥100,000,000
  • Local corporate tax and business tax: additional 6–9% depending on prefecture
  • Total effective rate: approximately 30–34% for most small to mid-size companies

Salary optimization

  • Paying yourself a salary from your corporation: the salary is deductible for corporate tax purposes
  • Optimal salary level depends on your personal tax bracket and the corporate rate — typically somewhere between ¥10,000,000–20,000,000 for high earners
  • Social insurance (health + pension) is roughly 30% on top of salary — a significant factor in the optimization calculation
  • Your CPA should model the specific numbers for your situation annually

Consumption Tax (VAT)

Japan's consumption tax (消費税) is 10% (8% for food and non-alcoholic beverages). New companies with capital under ¥10,000,000 are exempt for their first 2 years — this is a meaningful cash flow advantage early on.

  • After 2 years or ¥10,000,000 in annual revenue: you must register as a consumption tax payer
  • Simplified taxation method: pay consumption tax at a fixed rate based on your industry (40–80% of consumption tax collected). Simpler accounting, sometimes better outcome.
  • Standard method: pay the actual difference between consumption tax collected and paid. Better when you have significant business expenses.
  • This election is made at incorporation — revisit with your CPA before the election window closes.

Important

The Invoice System (インボイス制度), launched October 2023, significantly affects the value of the consumption tax exemption. If your clients are registered businesses, they cannot claim consumption tax credits on your invoices unless you register as a qualified invoice issuer (登録事業者). For B2B businesses, declining to register as a consumption tax payer effectively means your clients pay 10% more to work with you. Get CPA advice on whether to register from day one.

Consulting

If your situation is complex or you want a second opinion on strategy, we can help directly.

Apply for a consultation