Summary of taxation rights under the US-Japan tax treaty
US citizens living in Japan are generally subject to both Japanese and US tax on their global income. There are a few mechanisms available for alleviating double-taxation (primarily foreign tax credits, but also the FEIE, the standard deduction, and—for non-permanent tax residents—remittance-based taxation). But these mechanisms are limited by the terms of US-Japan tax treaty (PDF). Accordingly, the following table provides a summary of the treaty rules for some common types of income.
Explanation of the table
The information in this table only applies to people who are tax residents of Japan and who are subject to US taxation as a result of having US citizenship (i.e., people who are subject to the saving clause in Article 1(4) of the US-Japan tax treaty).
The term "RBT" is a reference to "remittance-based taxation", which is a method of taxation that applies to foreigners who have lived in Japan for less than 5 of the past 10 years. If income is subject to RBT, it will only be taxable in Japan to the extent the recipient of the income makes remittances of funds to Japan in the same calendar year as the income is received. For income to be eligible for RBT, it must be "foreign-source" and paid outside Japan.
Disclaimer: the following information is intended as a summary. The treaty contains a multitude of exceptions and the table should not be used as a substitute for reading the treaty itself. The table was prepared in May 2024.
Summary table
| Income | Where taxable? | Who will provide FTC? | Eligible for RBT? | Treaty Article |
|---|---|---|---|---|
| Employment | Both | US (FEIE also possible) | No | 14 |
| Capital gains (shares, etc.) | Both | US | No1 | 13 |
| Dividends (including CG distributions) | Both | Japan up to 10%, then US | Yes | 10 |
| Capital gains (real estate) | Both | Japan | Yes | 13 |
| Interest on US bank deposits | Both | US | Yes | 11 |
| Royalties | Both | US | Yes | 12 |
| Director's fees (US company) | Both | Japan | Yes | 15 |
| US Social Security Benefits | Both | US | Yes | 17 |
| Annuities (US payer) | Both | US | Yes | 17 |
| Japanese Pension | Both | US | No | 17 |
| US Government Pension | US2 | n/a | n/a | 18 |
| US Retirement Scheme (IRA, 401(k), etc.) | Both | US | Yes | 173 |
Footnotes
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Capital gains derived from the sale of shares are not typically "foreign-source" under Japan's conventional definition, unless the shares are in a real-estate holding company. However, capital gains derived from the sale of shares are allowed to be treated as if they were foreign-source for RBT purposes if the sale is executed by an overseas brokerage and the shares were purchased before the seller moved to Japan. ↩
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The US has sole taxation rights with respect to US government pensions (excluding social security) unless the recipient holds Japanese citizenship. Thus, people who hold both US and Japanese citizenship will be subject to tax in both countries and must claim a FTC in the US. ↩
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The Japanese tax treatment of US tax-advantaged retirement schemes is somewhat unresolved, as discussed here and here. But at this stage Article 17 seems the most likely to apply. ↩