Skip to main content

US-specific information

Passive foreign investment company (PFIC)​

If you are a US taxpayer, you should be aware of the IRS concept of PFICs, and in general, avoid investing in them. See the instructions for form 8621, which describes the punitive filing requirements and taxation. Japan-domiciled investment funds are all PFICs, including but not limited to:

  • Japanese mutual funds
  • Japanese ETFs
  • Japan Real Estate Investment Trusts (J-REIT)

An individual company may also meet the definition of a PFIC, so care needs to be taken when investing in Japanese companies.

Accounts tax-favored in Japan such as NISA and iDeCo do not shield US taxpayers from PFIC filing requirements or taxation imposed by the US. Therefore, US taxpayers can generally only park cash in iDeCo or buy individual (non-PFIC) Japanese company stock in a regular NISA account to get any tax benefit while avoiding PFICs. For NISA, this is because most financial institutions that offer NISA restrict US taxpayers trading to Japanese securities, preventing you from investing in US-domiciled ETFs, which are not PFICs. This is due to the QI agreement mentioned in the following section titled "Opening a US Brokerage Account". A notable exception to this was reported in this post talking about purchasing an S&P 500 ETF in NISA at Nomura Securities as a US citizen.

US-Japan tax treaty​

All the treaty documentation is available in English from the IRS's website here.

Note that the "technical explanations" bring a lot of clarity to the practical meaning of the text. Note also that articles 10, 11, 13, 15, 20, 23, and 25–27 of the current treaty (2003) were amended by the 2013 protocol, which took effect in 2019.

Documents relating to the US's other tax treaties are available here.

IRS resources​

The key document for nonresidents is Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.

Many US nationals are also required to file an FBAR annually. The IRS's FBAR information page is here. This page, comparing Form 8938 to the FBAR, also provides a useful summary of US taxpayers' obligations.

Pension and social security​

The SSA's information page about the US's pension totalization agreement with Japan is here. The US embassy in Japan also has a page here describing how to claim US benefits under the agreement.

See also the Tax-treaty treatment of US 401(k) and IRAs for information about gains in retirement accounts.

US tax professionals​

The IRS provides a search tool for finding US tax professionals in specific areas. You can use this to search for US tax professionals in Japan.

Opening a US Brokerage Account​

Most Japanese brokerages will not allow US taxpayers to trade US securities due to the presence of a Qualified Intermediary (QI) agreement between the brokerage and the IRS that stipulates they must treat all of their customers as if they are NOT US taxpayers, for the purposes of withholding US taxes correctly. See, for example, Rakuten and SBI's statement on the matter.

Due to the above restriction and the PFIC issue with buying Japan domiciled securities like Japanese mutual funds, many US taxpayers opt for investing in a US brokerage if possible. Interactive Broker's Japan branch has also been reported as allowing US taxpayers to trade US securities.

How to file a US Tax Return as a resident of Japan​

This guide of How to file a US Tax Return as a tax resident of Japan was kindly initiated by the MovingToJapan Discord, and we will further maintain it here.

Summary by u/univworker for future reference:​

You have to file federal taxes every year. You probably won't pay taxes though, because you can either use the Foreign Earned Income Exclusion (FEIE) or Foreign Tax Credit (FTC).

If you are using FEIE, you can exclude $107,600 (filing by yourself) but you are not eligible to contribute to an IRA or roth IRA, because your income is subtracted from your AGI.

If you elect to use the FTC, then you cannot easily return to using FEIE. In this case, you deduct the taxes you paid to Japan from your us tax bill.

You really don't want to deal with FORM 8621 for PFIC, because it's onerous, taxes you punitively, and leaves your taxes unfiled if you screw up (meaning no SOL).

IDECO for Americans is PFIC except for the park it in cash option

Japanese wrapper funds are PFIC.