This is NS from Sayu Certified Public Accountants Office. Thank you for visiting our website. We frequently receive inquiries from individuals working for foreign-affiliated companies who receive their salary and bonus directly from overseas headquarters, expressing concerns such as, “I don’t know how I should file my tax return in Japan,” or “I’m worried if the taxes are being calculated correctly.” Unlike salaries paid by Japanese companies, salaries received from overseas headquarters often are not subject to Japanese withholding tax. In such cases, you may be required to file your own final tax return and pay income tax. This guide is intended for those receiving salary and bonus from overseas headquarters, providing an organized overview of the basic concepts of taxation and key points for filing a final tax return.

Step 1: Confirm Your “Residency Status”

The first and most important point to confirm is your status under Japanese tax law: 1
• Whether you are a “Resident” or a “Non-Resident”
• If a Resident, whether you are a “Non-Permanent Resident” or a “Permanent Resident” This distinction significantly affects the scope of income subject to taxation in Japan.
1. Overview of Residency Status
• Resident (居住者 – Kyojūsha): An individual who has an address in Japan, or is deemed to reside in Japan continuously for one year or more.
o Permanent Resident (永住者 – Eijūsha): An individual who has an address or residence in Japan for more than five years within the past ten years, or who has Japanese nationality.
o Non-Permanent Resident (非永住者 – Hieijūsha): An individual who does not have Japanese nationality and whose address or residence in Japan is five years or less within the past ten years.
• Non-Resident (非居住者 – Hikyoūjūsha): An individual who does not have an address or residence in Japan and whose period of stay is expected to be less than one year (determined by the base of livelihood).
2. Scope of Taxation by Residency Status

Status	Japan Domestic Income	Japan Foreign Income	Scope of Taxation
Resident (Permanent Resident)	Taxable	Taxable	Worldwide income taxation applies, and all income from Japan and the rest of the world is subject to taxation.
Resident (Non-Permanent Resident)	Taxable	Only income paid in Japan or remitted to Japan is taxable	Foreign income is non-taxable if not remitted.
Non-Resident	Taxable	Non-taxable	Only income sourced in Japan is subject to taxation.

3. Specific Examples
• Individuals expected to be posted overseas for one year or more on an overseas assignment: Generally presumed to be a Non-Resident. However, exceptions exist depending on the family’s residence, etc.
• Individuals residing in Japan but working remotely for overseas headquarters: Usually treated as a Resident.

Step 2: Determine the “Source” of the Salary/Bonus

The source of employment income is, in principle, determined by the location where the work was performed (place of work).
1. Guideline for Source by Place of Work

Place of Work	Income Category	Basis for Determination
Japan Domestic	Domestic Source Income	Even if paid by overseas headquarters, the portion corresponding to work performed in Japan is taxed in Japan.
Overseas	Foreign Source Income	Salary corresponding to work performed overseas is foreign source income.

2. Handling by Residency Status
• Resident (Permanent Resident): Subject to worldwide income taxation, so the portion for overseas work is also taxable.
• Resident (Non-Permanent Resident): The portion for overseas work is taxable only if paid or remitted to Japan.
• Non-Resident: The portion for overseas work is non-taxable (only domestic source income is taxable).
3. Specific Examples
• Overseas Assignee: If the work is mainly performed overseas, it is Foreign Source Income.
• Remote worker for overseas headquarters residing in Japan: Work is performed in Japan → Domestic Source Income.

Step 3: Conversion of Foreign Currency Salary to Japanese Yen

When salary from overseas headquarters is paid in foreign currency, conversion to Japanese yen is necessary for the final tax return.
• Principle: Use the exchange rate (TTM) on each receipt date.
• Supplement: Annual average rate may be used, provided it is applied consistently.

Step 4: “Foreign Tax Credit” to Prevent Double Taxation

The Foreign Tax Credit (Gaikoku Zeigaku Kōjo) is used to prevent double taxation when foreign withholding tax and Japanese taxation overlap.
• Eligible: Residents (Permanent Residents and Non-Permanent Residents).
• There is an upper limit to the credit amount.
• Attachment of the “Statement on Foreign Tax Credit” (Gaikoku Zeigaku Kōjo ni Kansuru Meisaisho) is required.

Key Points Requiring Special Attention in the Final Tax Return

1. Failure to Report Stock Options / RSU
RSUs and Stock Options are often not subject to withholding tax, and failure to report them is a very common oversight. Please note that the timing of taxation varies depending on the scheme.
2. Cases of Assuming “No Return Required Due to Year-End Adjustment”
If you receive salary and bonus from overseas headquarters, you are receiving salary from two or more places, and a final tax return will be almost certainly required.

Summary

Filing a tax return for salary and bonus from overseas headquarters involves many issues, including residency status, source determination, foreign currency conversion, and foreign tax credit. If you have any unclear points, please feel free to consult our office.