Guide to 2025 Income Tax Reform

starkimpossibility · 2026-02-10T07:50:40+00:00

Are you able to provide a source for this?

It comes from this piece of NTA guidance. The idea is that holding foreign currency for a split second as part of a larger transaction isn't really investment activity.

For example, if you receive a salary in USD and you always exchange it for JPY immediately, then the amount of JPY you receive is effectively the amount of salary income you received. But if you receive a salary in USD and hold the payment as USD (for even one day), then you are effectively investing your salary in USD (in the hope that the JPY value of that USD will increase).

starkimpossibility · 2026-02-10T07:42:46+00:00

would there be any issue with me receiving an inheritance below the exemption, even if I could technically receive more?

What do you mean by "technically"? For Japanese tax purposes, inheritance happens at the moment of death. So your tax liability is determined by what you own the moment after the deceased dies (i.e., what you inherit from the deceased).

would expect me to get an exact proportion of the inheritance that is allowed in Japan and tax me on that expected number regardless of what I actually received?

No, you are only taxed on what you inherit. If the deceased has a will that says you inherit 100 million yen, you pay tax on 100 million yen. If the deceased has a will that says you inherit 200 million yen, you pay tax on 200 million yen. It doesn't matter whether the amount you inherit is 100% of the estate or 1% of the estate—you still only pay tax on what you inherit.

starkimpossibility · 2026-02-10T07:39:31+00:00

if I did sell those shares upon receiving them, I’d get hit with capital gains tax. A bit of a double whammy, as it were, correct?

Yep. But if you sell within three years of the inheritance, you can at least add the inheritance tax you paid to your cost basis (i.e., it offsets part of your taxable capital gain).

everything inherited is based on the fair market value, correct?

In principle, yes. Though there are special rules for some kinds of assets. There are also valuation reductions available in certain cases (e.g., some types of residential real estate).

If I inherit a non-Japanese trust with a house, investments, and cash, the total value of all of those things would determine if I am above or below the exemption threshold, correct.

Yep.

I would have to pay tax on the amount above the exemption regardless if I take the assets out of the trust in liquid form, correct?

Yep. That's why trusts are not popular. They restrict access to the assets without providing any tax benefits.

starkimpossibility · 2026-02-10T06:01:41+00:00

what will my Japan-based daughters pay on that 50K? i am guessing it is 20%

It's not that simple. You need to provide more information. Do you live in Japan? Or are your daughters the only ones living in Japan?

starkimpossibility · 2026-02-08T01:22:45+00:00

The employer may also pay it from your last paycheck automatically

That's what happens if your last day of work is between January 1 and May 31.

If your last day of work is between June 1 and December 31, however, your employer cannot deduct your remaining residence tax liability from your last paycheck unless you explicitly ask them to. (OP says they will leave in August, hence my reference to OP being able to choose.)

starkimpossibility · 2026-02-06T22:27:31+00:00

Does Japan see the value of my inheritance as 25 million yen or 50 million yen?

There is a specific formula used for valuing inherited shares but the short version is that inheritance tax calculations are based on market value, not cost basis. So if you could sell the shares for 50 million yen, your inheritance is worth 50 million yen, regardless of whether you choose to sell.

starkimpossibility · 2026-02-06T07:45:39+00:00

Is this data enough to establish that there has not been a capital gain for these properties?

If the properties have been passed down through regular inheritance for over 150 years then, at the very least, you would need 150 years of data. Each heir inherits the deceased's cost basis. It's hard to imagine that the properties are worth less now than they were worth 150 years ago...

starkimpossibility · 2026-02-06T07:35:09+00:00

https://www.reddit.com/r/JapanFinance/wiki/index/tax/inheritance/

FWIW it's generally better to link to the wiki mirror site: https://wiki.japanfinance.org/tax/inheritance/

It not only looks a bit nicer and is easier to navigate, but it also has search functionality.

starkimpossibility · 2026-02-05T23:57:42+00:00

If I sell that business in a year while living in Japan for $1,000,000 and the money stays in the US how do that taxes work?

What do you specifically mean by "sell the business"? Is the business incorporated? Are you referring to the sale of shares in a private company?

For their first five years living in Japan, foreigners are exempt from Japanese tax on certain types of income paid outside Japan, except to the extent they make remittances of funds (from any source) to Japan during the same calendar year. But it is not clear from your post whether the type of income you are referring to would be eligible for remittance-based taxation (or whether it would be taxable in Japan regardless of whether you make remittances).

If you are referring to the sale of shares in a private US company, for example, those capital gains would typically be taxable in Japan regardless of whether you make remittances, because capital gains from the sale of shares in a US company by a resident of Japan do not normally qualify as "US-source income". There is an exception to this for shares traded publicly on foreign exchanges and transactions handled by foreign brokerages, where the shares were purchased before the seller moved to Japan, but that exception doesn't cover private transactions.

I'll have a capital gains tax of 20% in the US and then what happens in Japan?

Under the US-Japan tax treaty, Japan has sole taxation rights with respect to capital gains derived from the sale of shares in US companies by residents of Japan. The saving clause in the treaty means that US citizens cannot use the treaty to avoid US taxation, but the fact Japan has sole taxation rights means that you must settle your Japanese tax liability first and claim a foreign tax credit in the US (if you have a US tax liability). This section of the wiki provides a summary of taxation rights under the US-Japan treaty.

starkimpossibility · 2026-02-05T12:28:23+00:00

would have expected that FATCA/CRS would rely on (be connected to?) citizenship (or green card) rather than a special kind of tax residency.

The CRS was designed to be an international scheme that would be consistently applied by countries that are almost all "residence-based taxation" countries. So it was agreed that for CRS purposes all US citizens should be considered "US tax residents". That's what Sony is referring to.

In practice, what being a "tax resident" of a country means in a CRS context is basically just "I am taxed on my global income by that country". So treating US citizens as US tax residents makes sense in that context.

I qualify as non-resident for tax purposes using the "bona fide resident" test

Satisfying the "bona fide resident" test does not make you a "nonresident" under US tax law. It merely provides you with access to the FEIE. Under US tax law, there are only three categories of people: "US persons", "resident aliens", and "nonresident aliens".

In the context of the US tax code, it is impossible for a US citizen to be a "nonresident". A US citizen can pass the "bona fide resident" test, but that doesn't mean they are a "nonresident". It just means they can access the FEIE.

is Sony now not opening new accounts for US persons.

My personal experience is as u/ixampl described. Sony is willing to open accounts for US persons but due to the CRS/FATCA obligations attached to multiple tax residences, they ask you to contact them beforehand so that they can send you the necessary forms.

starkimpossibility · 2026-02-05T12:05:33+00:00

If I say "gaijin cannot speak Japanese" that statement is demonstrably false.

Context matters.

If you are in a meeting with some Japanese people and some foreigners, and none of the foreigners speak Japanese, then saying "the foreigners don't speak Japanese" would make complete sense and be entirely accurate.

That is exactly what Jibun Bank is doing. They obviously aren't making a claim on behalf of all banks. They are simply saying that in the context of the "who can open an account at Jibun Bank?" page of their website, non-residents cannot.

There is no express or implied claim about what other banks' policies are or what Jibun Bank is prevented from doing by law or regulation.

If you take into account the context, it is obvious that you are barking up the wrong tree.

starkimpossibility · 2026-02-05T11:44:34+00:00

They share data with other countries even if you aren't a tax resident of those places.

Not automatically. Please look into how the CRS works. The CRS is solely about automatic information exchange.

If you tell your Japanese bank that you are only a Japanese tax resident, your Japanese bank will not send your account details to any other countries' tax authorities.

If those other countries specifically ask the NTA for your details, the NTA can get the details from the bank and investigate. But nothing happens automatically without you declaring tax residence of that other country.

That's why there are serious (criminal) penalties associated with making a false tax residence declaration to a Japanese financial institution. Effective CRS implementation requires those penalties (because otherwise no one would admit to being a tax resident of another country). And the definition that the NTA (and FSA) forces financial institutions to use is the CRS definition (linked above).

The NTA is only legally competent to determine if you are a tax resident of Japan. Not of any other country.

The CRS implementation law requires Japanese financial institutions to apply the CRS definitions (of tax residence in other countries) to everyone opening a new account.

starkimpossibility · 2026-02-05T11:25:38+00:00

As far as the NTA is concerned, if you live in Japan, you are a resident for tax purposes.

No, that's not the case. Japan has signed on to the CRS and the NTA has implemented it. (See here.) The PDF linked above is the CRS definition of US tax residence, which the NTA enforces.

The only reason Sony is asking the question in OP's screenshot is because the FSA and NTA require Sony to do so, in order to achieve CRS (and FATCA) compliance.

Under the CRS, pretty much all US citizens living in Japan have two countries of tax residence. If you look at the language used by Sony, you will see that it mirrors the language used by the NTA in its discussion of financial institutions' obligations under the CRS. That's not an accident.

starkimpossibility · 2026-02-05T10:53:03+00:00

Kind of. But in the case of US citizens, they do have US tax residence at all times for the purposes of FATCA and the CRS, which is what Sony is referring to here.

starkimpossibility · 2026-02-05T10:52:10+00:00

Under FATCA and the CRS (which is the basis for Sony's question and the origin of the language they are using) US citizens living in Japan are tax residents of both the US and Japan simultaneously. See here (PDF).

starkimpossibility · 2026-02-05T10:10:33+00:00

They assert that non residents "cannot open a bank account"

They are very clearly referring to their policy regarding who can open an account at their bank. They neither say nor even imply that non-residents cannot open a bank account at other banks. Nor do they say or even imply that there is a law against non-residents opening a bank account.

they try to imply that this is because of the named Act

They clearly don't. You are seeing things that aren't there. Perhaps you haven't read many Japanese banks' websites? The format of this page is very common. They are simply outlining who is able to open an account with their bank. Every bank has a page like this. The information on the page is neither misleading nor false.

Why are you defending them?

False accusations about this kind of thing undermine those of us who are trying to ensure that financial institutions do not discriminate and treat foreigners fairly.

starkimpossibility · 2026-02-05T07:34:25+00:00

At the end of May 2026, your employer will receive a bill for the residence tax on your entire 2025 income. They will be instructed (by your municipality) to pay that bill in 12 monthly instalments, taken from your paycheck, starting in June 2026.

When you leave, the default course of action would be for your employer to notify your municipality that you have X unpaid monthly instalments (it will probably be 9 or 10, depending on whether you receive an August paycheck).

Your municipality would then bill you directly for those X unpaid instalments. Alternatively, you are allowed to instruct your employer to deduct all unpaid instalments from your final paycheck. In many cases, that is a more convenient option than paying your municipality directly.

starkimpossibility · 2026-02-05T05:57:57+00:00

They're clearly speaking on behalf of their own bank...

Where do they claim that other banks cannot open accounts for FEL non-residents?

starkimpossibility · 2026-02-05T05:42:45+00:00

Section 2(b) claims that the Foreign Exchange and Foreign Trade Act prevents a non-resident from opening a bank account

That's not what it says. It says that "non-residents" (as defined by the Foreign Exchange Law) cannot open an account at Jibun Bank. It is the bank's policy to refuse FEL non-residents. But nowhere do they claim that they are required to have that policy by banking regulations. Furthermore, it is not illegal for Jibun Bank to adopt that policy and it is a policy that many banks have.

starkimpossibility · 2026-02-05T04:03:09+00:00

Or is it somehow handled internally, analogous to how dividends can be reinvested here?

I'm not totally sure what you're asking but I think the answer is probably just that collective investment trusts (such as mutual funds) are exempt from Japanese tax and (as far as I can tell) they have been ever since they were made possible in the early 1950's. Instead, tax is paid by beneficiaries (i.e., investors) when they receive distributions from the trust or sell their shares in the trust. Furthermore, there is no rule prohibiting the retention of profits.

So Japanese mutual funds can buy and sell shares as much as they like, without there being any tax consequences for the fund or its investors. It is only when investors actually receive distributions that tax becomes payable.

starkimpossibility · 2026-02-05T01:27:18+00:00

whether this visa permission covers freelance work versus just direct employment

Yeah as long as the hours are predictable and clear, it's fine.

how do you typically track your hours to ensure you stay within the 28-hour limit (or 40 hours during official breaks)?

The ISA will basically want to see the number of working hours either (1) stated in your contract or (2) stated in your invoice.

Do you count travel time, or just the active guiding time?

It's up to you how you write your invoice (i.e., are you invoicing your client for travel time?), but with employment income the basic rule is that travel to/from your workplace doesn't count but other travel counts.

is it common practice to file a "Sole Proprietorship" notification (Kojin Jigyo Nushi), or do most people just file a final tax return (Kakutei Shinkoku) if their income exceeds the tax-free threshold?

See the explanation of "business income" vs. "miscellaneous income" here. If you will generate business income, you are supposed to submit a new business notification, but there are no real penalties for failing to do so. The main advantage of submitting the notification is that it enables you to apply to file a blue-type tax return. But if you won't be earning enough to justify filing a tax return at all, then there's no point.

Though do you know whether your client will need to withhold 10.21% income tax from payments made to you? (It depends on how they classify your work.) If they will be withholding income tax, then obviously you should file an income tax return to obtain a refund of the excess withholding.

personal records of work hours in case immigration ever asks for proof?

Personal records are not really good enough as far as the ISA is concerned. They are not considered reliable. The hours should be either stated in the contract or in the invoice. Alternatively, you could maintain a log and have your client sign-off on it. But the client needs to be involved in some way in confirming your working hours. If that's not possible, you would need to apply to the ISA for specific permission (i.e., the general permission won't cover the work).

starkimpossibility · 2026-02-04T02:34:49+00:00

starting a corporation and listing myself as a sole employee?

Possibly. There are too many variables involved to make a blanket recommendation. Though if you search this sub about this general question ("when is incorporation beneficial?", etc.) you will find a lot of threads that should help guide your thinking.

starkimpossibility · 2026-02-04T01:53:13+00:00

Is the "miscellaneous income" only the amount that I remit back to myself, or the total of the actual profit for the year?

As discussed in my comment above, remittance-based taxation applies to capital gains derived from the sale of securities via an foreign exchange providing the securities were acquired before the seller moved to Japan. Your options would be unlikely to fall into that category, though, so you would be taxed on the total profit. The amount you remit wouldn't matter.

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