Japan Retains Tax Break For Foreign Workers

by Mary Swire, Tax-news.com, Hong Kong

09 April 2001

According to local publication the Mainichi Daily News, the Japanese Finance Ministry is not planning - at least not yet - to adjust a law that allows foreigners temporarily residing in Japan and working for foreign businesses to avoid taxes on their income. It's a loophole which came to light after an investigation of the Tokyo Regional Tax Bureau and it could be addressed should the government so desire.

Foreigners residing in Japan on a temporary basis are normally taxed on Japanese-source income. However, non-permanent residents working for a foreign company's Japanese office or affiliate are not taxed in Japan on the condition that payment is made outside of Japan.

The law stems from the time of the Second World War, when the US decreed that occupation troops should not be taxed in Japan if they received payment in a currency other than the yen. Although the tax break was taken away in 1950, it was reintroduced in the late 1950's.

It might be that the Japanese Finance Ministry will look at eliminating the tax break once and for all, but if it does, it is likely to be as part of a wider tax reform package.

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