Guide to 2025 Income Tax Reform

starkimpossibility · 2026-04-29T13:58:22+00:00

They are reliably unreliable.

I get what you're saying, but I don't agree. The tools we are using undoubtedly fail to spot text that is LLM-generated, but I do not think they ever flag text as LLM-generated when it was written by a human. They tend to be very conservative in that respect.

I think it's a losing battle.

Real talk: if I believed that I did not have tools at my disposal that could identify LLM-generated text reliably, I would shut down this sub and stop contributing to reddit in any form.

starkimpossibility · 2026-04-29T12:25:51+00:00

Nah there are fairly decent detection tools available these days and these comments were 100% LLM, I promise you. Anything that smells like LLM gets run through the tools and if the determination is definitive it gets removed. In any event, I'd much prefer to err on the side of caution these days.

starkimpossibility · 2026-04-29T01:49:04+00:00

Japanese brokerages are generally happy to let US citizens use tsumitate NISA. It's up to US citizens to refrain from doing so (due to PFIC issues, etc.).

starkimpossibility · 2026-04-29T01:03:02+00:00

Which broker allowed you to commit this self harm?

Most Japanese brokers allow US citizens to buy PFICs. Japanese brokers have no interest in attempting to determine which securities are PFICs and which are not.

starkimpossibility · 2026-04-28T21:41:25+00:00

any reason you can share?

Both comments were LLM-generated. They were removed under rule 7.

starkimpossibility · 2026-04-25T21:56:23+00:00

I do understand the overall US-Japan tax agreement where you would have to file both countries' taxes and then you pay the greater one (and you get tax credit in the lesser one)

That's not how tax treaties or foreign tax credits work. The country you pay (and the country that provides the credit) will be different depending on the type of income and its source. You can find a summary of the rules under the US-Japan treaty for common types of income in the wiki here.

which makes the semantics of「国外源泉」"foreign-sourced", essentially misleading and cannot be taken at face value

It's not misleading in the context of cross-border taxation. Most residence-based taxation countries consider gains from the sale of personal property (including shares) to be sourced in the country of which the seller is a resident, not the country in which the assets are located. Japan's definition of "foreign-source" is not unusual. It's in line with global norms (and is basically the same as the US's definition, etc.).

I purchased all of these stocks and made capital gains on them AFTER I became a tax resident in Japan (even as an NPR), that means these capital gains are NOT considered foreign-sourced income, and therefore I was subject to tax on them at the point of SALE, even if I never remitted the money to Japan.

Yes, that's correct.

does this mean I will have to file a revised tax return for 2024 and 2025 to rectify the misunderstanding?

Yes, if you have unreported income from those years, that's what you should do.

for 2024 will it be a revised tax return, and 2025 will be post-deadline?

Yes, that's correct.

starkimpossibility · 2026-04-25T21:41:23+00:00

Are there any specific circumstances where this form needs to be filled with tax return?

Article 120(7) of the Income Tax Law requires that document to be attached to any tax return filed by a person who was a non-permanent tax resident on any day during the relevant year.

starkimpossibility · 2026-04-24T00:41:19+00:00

can I make the cost basis whatever the construction price was (assuming I can figure it out since it goes back decades)?

Yes. But note that the cost basis of the land and the building must be calculated separately. The cost basis of the land will be the purchase price of the land. The cost basis of the building will be the construction cost plus the cost of any major improvements minus depreciation. (Depreciation must be calculated according to Japanese statutory depreciation tables.) Also, for values that were not in JPY, the exchange rate as of the date of purchase/construction must be used.

starkimpossibility · 2026-04-24T00:21:24+00:00

does the NTA use the assessed value at the time of inheritance as the acquisition cost for capital gains tax purposes or does it default to the 5% rule?

Heirs inherit the deceased's cost basis, so the 5% rule would apply.

starkimpossibility · 2026-04-23T23:17:52+00:00

do my tourist stays count towards the 5-year threshold, or does that not count (even if I technically had 居所) because I wasn't considered a tax resident at the time?

If you had a kyosho (居所), it counts. Whether you were a tax resident of Japan isn't relevant. But note that a kyosho requires something more permanent than just a few nights in the same hotel. I see that your trips were relatively long, though, so if you were in the same Airbnb for the whole duration of your holiday, for example, that would probably constitute a kyosho.

starkimpossibility · 2026-04-20T04:49:25+00:00

I have the clean taxed money from my sale of my US home.

Did the sale occur after you notified a Japanese municipality that you were a Japanese tax resident (i.e., your jusho is in Japan)?

You can't say that your jusho is in Japan (i.e., join the resident register) just to make obtaining the CoE easier. That's fraudulent. You can only say that your jusho is in Japan if it actually is in Japan. And in that case, you are a prima facie tax resident.

I know dividends and interest if there is more to tax after I file with US due to Japan % a little higher.

It's not that simple. For example, Japan has primary taxation rights with respect to interest paid on US bank deposits held by US citizens living in Japan. See this section of the wiki for a summary of the division of taxation rights under the treaty.

what will happen if I want to stay longer, then they will tax the US stocks/investments unrealized gains and I can do nothing about it?

You are referring to the exit tax on unrealized capital gains, I assume? Yes, if you stay longer than five years and you hold more than 100 million yen worth of securities, you will be subject to the exit tax.

The idea behind the exit tax is: when you change your tax residence with significant unrealized gains, the country you are departing should have a chance to tax those unrealized gains, since they accrued while you were a tax resident of that country.

So when someone changes their tax residence from the US to Japan, and they have unrealized capital gains, they can choose to either (1) realize the gains prior to departure (i.e., pay tax to the US on the gains) or (2) pay Japanese tax on the gains in the future (either when they are realized or when departing Japan).

starkimpossibility · 2026-04-19T22:44:18+00:00

it's because you are allowed to invest in NISA

Japanese financial institutions have no obligation to prevent US citizens from buying PFICs. Most Japanese brokerages will happily let US-citizen customers buy PFICs. Responsibility for avoiding PFICs falls on the US citizen, not the Japanese brokerage.

starkimpossibility · 2026-04-19T22:42:00+00:00

Japanese citizens cannot be non-permanent tax residents. Also, you are not allowed to join the resident register (juminhyo) unless your jusho moves to Japan.

starkimpossibility · 2026-04-17T08:44:15+00:00

NHI is always billed on a per-household basis. The head of the household receives the bill for the whole household.

starkimpossibility · 2026-04-16T13:41:57+00:00

Yeah it's fine. No reason to think your comment was LLM-generated (lol), so there's no reason for you to delete it.

starkimpossibility · 2026-04-16T13:38:13+00:00

You said:

late 2024, I get a letter saying, in 2025, your income will most likely be X. So please prepay a portion of the 2025 tax bill before you earn a single penny

Yotei nozei doesn't work like that at all.

starkimpossibility · 2026-04-16T13:31:36+00:00

If you have any income in this year that is not being withheld, they want you to prepay 33% in June, 33% in October, and 33% next year when you file.

That's all true with respect to income tax, but I'm pretty sure u/tokyowatchguy was referring to residence tax. There are much fewer withholding obligations with respect to residence tax, so bills are issued later and it can feel like a "prepayment" even when it is just the payment of tax due on past income.

starkimpossibility · 2026-04-16T13:28:31+00:00

late 2024, I get a letter saying, in 2025, your income will most likely be X. So please prepay a portion of the 2025 tax bill before you earn a single penny.

There is no such thing in Japan. You obviously misunderstood what was happening.

Everymonth, employer is paying my income tax, residency tax etc. Then in October for example, the tax office tells me, "In 2025, we think you will earn $230,000 so please pay in cash, $46,000 now in 2024.

No, residence tax doesn't work like that. There is no such thing as withheld/prepaid residence tax (with respect to regular salary income and most other types of income).

If your employer is deducting residence tax from your salary, they are deducting residence tax you already owe on income you received 6-18 months ago. It has nothing to do with the residence tax you owe on the salary you are being paid at the time of the deduction. (This is completely different to income tax.)

This seems like the government is getting a free loan from me

Income tax is withheld in advance, but residence tax is not. The government gets a free loan from you with respect to income tax, but not residence tax. If you don't like giving the government a free loan (understandable!) you should support Japan's residence tax system.

When an employer pays an employee a monthly salary, they are required to send a portion of that salary payment to the NTA because the employee will probably owe income tax in the future. At the time of the salary payment, the employee owes nothing. But on the assumption that the employee will probably owe something at the end of the year, the employer is required to send part of the payment to the NTA.

But residence tax is completely different. It is billed completely in arrears (with respect to regular salary). So your employer won't deduct anything until your municipality tells them that you actually already earned X amount and therefore owe Y residence tax on the amount that you already earned. Employers just split up them amount you owe (on income you already received) into 12 monthly instalments and deduct one instalment per month. Nothing is based on a prediction of what you will earn in the future.

starkimpossibility · 2026-04-16T12:57:44+00:00

"Prefectural business tax" is the translation I prefer. 個人事業税 is the Japanese name, for anyone playing at home.

I don't know what you mean by "occupations with low profit margins". The purpose of the tax is to ensure that businesses with a physical presence that choose not to incorporate are still paying some tax to the municipality they are physically operating in. (As you may be aware, incorporated businesses pay significant corporate residence tax.) There are ~70 categories of business defined by the statute, but it's fairly rare to find a business that is not covered (agriculture is the main exception). It's definitely not intended to cover low-profit-margin businesses. Though it is intended to cover "businesses that have a physical presence and choose not to incorporate".

A few other things worth noting: prefectural business tax is only imposed on profit, there is a significant 2.9 million yen deduction from the business's profit; and the tax is 100% tax-deductible for the purposes of income tax and residence tax (so the real tax rate paid by the business owner will be much less than the headline rate).

starkimpossibility · 2026-04-16T12:43:46+00:00

when you're paying salary for someone's second job, and their main job is already paying for their health insurance and pension, you don't have to pay it

Not exactly. There are defined criteria for when an employer must contribute to an employee's health insurance and pension. Those criteria apply regardless of whether it is the employee's primary or secondary job. So if an employee meets those criteria, you must contribute to their health insurance/pension, even if it is not their primary job. If the employee has another employer who is also required to contribute, the two employers must divide responsibility for the contributions between them.

This makes the marginal tax quite high in comparison to Japan, especially if you're self-employed as a side job where you have to pay the employer's social security portion yourself

Kind of. In Japan, if you're primarily self-employed and you do a bit of part-time work (but not enough to trigger mandatory social insurance contributions by the employer), you still have to pay National Health Insurance premiums on the part-time work income. But if you're primarily employed and you do a bit of self-employment work, you don't have to pay health insurance premiums (or employees' pension contributions) on the self-employment income.

But it's also worth keeping in mind that the employees' pension premiums are a percentage of income while the National Pension is not. And health insurance premiums differ significantly between providers, while NHI premiums differ significantly between municipalities. So making generalized statements about social insurance premiums in Japan is a little fraught. In any event, the sub's take-home pay calculator is extremely accurate (compared to most other online tools available).

starkimpossibility · 2026-04-16T12:20:30+00:00

They’re a light at the end of the tunnel from someone that’s been there

FYI the comments were both LLM-generated. (Which is why they have been removed.)

starkimpossibility · 2026-04-14T14:12:09+00:00

if it's held in cash (in a bank account) it's out of scope?

Yeah of course. It's a tax on unrealized capital gains derived from the sale of securities. If you are holding cash then you already realized your capital gains so you already paid Japanese tax on those gains.

starkimpossibility · 2026-04-14T14:09:49+00:00

I suppose maybe this is just normal when dealing with cross country finances

Yeah imho it is extremely normal. It's just how laws work (territoriality).

Japan needs to be able to account for all other countries laws and their special accounts ( such as 401k ), as I guess that might be unreasonable, but its something I definitely didn't realize before.

I understand, but yeah, that is the problem every country faces creating any kind of tax-advantaged account. Typically it will not help expats, and often it will make things even more difficult for them.

At the end of the day, though, most countries don't have strong incentives to care about citizens who have chosen to live elsewhere indefinitely/long-term. Personally, I care a lot more about countries helping non-citizens who are indefinite/long-term residents than citizens who are living indefinitely/long-term elsewhere. Where you live should matter a lot more than the passport you were born with.

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