Dividends, rent or salary from abroad are often taxed first in the country where they arise and then again in Japan. The foreign tax credit and tax treaties are the tools that deal with this double taxation.
We can help if you
- receive dividends from foreign shares or funds with tax withheld abroad
- file and pay tax abroad on overseas rental income
- are paid by a foreign company with tax withheld at source
- need to know about treaty forms or a certificate of residence
How the foreign tax credit works
Foreign income tax you have paid can be deducted from your Japanese income tax. It is claimed on your Japanese tax return.
There is a limit
You can only credit up to the portion of Japanese tax that relates to your foreign income.
Credit limit = Japanese income tax × foreign income ÷ total income
Any amount not used against income tax is applied to the special reconstruction income tax and then to local inhabitant tax. Excess foreign tax and unused credit capacity can be carried forward for three years.
Taxes that cannot be credited
Tax withheld abroad above the rate allowed by the tax treaty cannot be credited in Japan. You need to reclaim the excess from the other country, for example where tax was withheld at a higher rate because a form was missing.
How tax treaties work
Japan has tax treaties with many countries. They mainly set:
- the maximum rates the other country can withhold on dividends, interest and royalties,
- which country may tax salaries and business profits, and
- tie-breaker rules for people who are residents of both countries.
Each treaty is different. To claim treaty benefits you usually need to submit the other country's forms and a certificate of residence issued by the Japanese tax office.
How we help
- Review foreign taxesWe check your foreign returns and withholding statements to identify creditable taxes.
- Check the treatyWe review the treaty rates and taxing rights between Japan and the other country.
- File your returnWe recalculate your foreign income under Japanese rules, claim the credit and keep track of carryforwards.
- Guide you through proceduresWe explain the Japanese side of procedures such as obtaining a certificate of residence.
We do not prepare foreign tax returns or give advice on foreign tax law, including US returns (Form 1040, FBAR). Where needed, we work alongside professionals in the other country.
FAQ
Can I claim the credit if my only salary is from a Japanese employer?
Yes. Even if your employer handles your year-end adjustment, you can claim the credit by filing a tax return when you have foreign income and foreign tax paid.
Does the credit apply to local inhabitant tax?
Yes. Any amount not used against income tax and reconstruction tax is credited against inhabitant tax, which is reflected automatically when you file a return.
This page provides general information only. The actual treatment depends on your individual circumstances. Please consult a professional before making decisions.