Is the embassy staff exempt from income tax returns?
We often receive enquiries from foreign embassy and consulate staff in Japan regarding income tax returns. Although they are not subject to withholding tax, you may need to file tax returns depending on whether you are Japanese national or non-Japanese.
To determine whether your case qualifies as nontaxable, you need to look at the provisions of the following Act/Conventions and the most favourable clause will prevail over any other less favourable clause:
- Japanese Income Tax Act
- Bilateral Tax Treaties
- Vienna Convention on Diplomatic Relations (hereinafter referred to as “Vienna Convention”)
Let’s look at how income tax for embassy staff is stipulated in each Act/Conventions.
[Japanese Income Tax Act]
Article 9(1)(viii) of Income Tax Act provides income tax for employees of foreign governments as follows:
“(viii) salary, compensation, wages, annual allowances, bonuses, and any other pay of a similar nature that a person as prescribed by Cabinet Order who works for a foreign government, for the local government of a foreign state, or for an international organization as prescribed by Cabinet Order, and who satisfies the requirements prescribed by Cabinet Order receives for work (pay received by a person working for a foreign government or for the local government of a foreign state is only nontaxable if the foreign state refrains from imposing any taxes equivalent to income taxes on the pay received by a Japanese national or local public officer who works in that state and satisfies requirements equivalent to the aforementioned requirements prescribed by Cabinet Order)”
In short, if you meet certain requirements, your salary is nontaxable in Japan.
What are those requirements?
Article 24 of the Order for Enforcement of the Income Tax Act further provides the details of requirements prescribed in the Cabinet Order as follows:
“In the case of an employee who works for a foreign government or for the local government of a foreign state, the requirements specified by a Cabinet Order prescribed in Article 9(1)(viii) (Nontaxable income) of the Act shall be the requirements listed in each of the following items and in the case of an employee who works for the international organization prescribed in paragraph (1) of the preceding Article shall be the requirements listed in item (i):
(i) the employee who does not have Japanese nationality and is not specified by an Ordinance of the Ministry of Finance as being a person who has obtained a permission which allows residence in Japan (including the employee who is permitted to stay in Japan for a long period)
(ii) the work performed by the employee for the foreign government or for the local government of a foreign state is equivalent to the work performed by the Japanese government or a local government thereof and it is not for the purpose of profit making”
To qualify as nontaxable, you must meet both of the following requirements:
- you are not a Japanese national, and
- you have not obtained a permission for permanent residence in Japan
Based on the Japanese Income Tax Act, therefore, for those who are Japanese or permanent residents in Japan are subject to income tax filing with exception.
This exception is stipulated in the Commissioner’s Directive on Interpretation of the Income Tax Act as follows:
“Ambassadors, Ministers and diplomatic staff of the embassies and their spouses who are residing in Japan are exempt from income tax.”
Is there any other law applicable to Japanese nationals and/or permanent residents in Japan which has more favourable clause than Income Tax Act?
[Bilateral Tax Treaties] (cf. Japan-Singapore Double Taxation Treaty)
As an example of bilateral tax treaty, let’s look at how Japan-Singapore Double Taxation Treaty provides income tax for embassy/consulate staff :
(a) Remuneration, other than a pension, paid by a Contracting State or a local authority thereof to an individual in respect of services rendered to that Contracting State or local authority thereof, in the discharge of functions of a governmental nature, shall be taxable only in that Contracting State.
(b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other Contracting State and the individual is a resident of that other Contracting State who:
(i) is a national of that other Contracting State (i.e. Japan), or
(ii) did not become a resident of that other Contracting State (i.e. Japan) solely for the purpose of rendering the services.”
The Vienna Convention provides taxation in two categories: for diplomatic staff and non-diplomatic staff.
A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except:
- Indirect taxes of a kind which are normally incorporated in the price of goods or services;
- Dues and taxes on private immovable property situated in the territory of the receiving State, unless he holds it on behalf of the sending State for the purposes of the mission;
- Estate, succession or inheritance duties levied by the receiving State, subject to the provisions of paragraph 4 of article 39;
- Dues and taxes on private income having its source in the receiving State and capital taxes on investments made in commercial undertakings in the receiving State;
- Charges levied for specific services rendered;
- Registration, court or record fees, mortgage dues and stamp duty, with respect to immovable property, subject to the provisions of article 23
- Members of the administrative and technical staff of the mission, together with members of their families forming part of their respective households, shall, if they are not nationals of or permanently resident in the receiving State, enjoy the privileges and immunities specified in articles 29 to 35,except that the immunity from civil and administrative jurisdiction of the receiving State specified in paragraph 1 of article 31 shall not extend to acts performed outside the course of their duties. They shall also enjoy the privileges specified in article 36, paragraph 1, in respect of articles imported at the time of first installation.
- Members of the service staff of the mission who are not nationals of or permanently resident in the receiving State shall enjoy immunity in respect of acts performed in the course of their duties, exemption from dues and taxes on the emoluments they receive by reason of their employment and the exemption contained in article 33.”
If you are working as diplomatic staff of embassy/consulate:
⇒Your salary is non-taxable in Japan.
If you are a Japanese national working as non-diplomatic staff of embassy/consulate:
⇒Your salary is taxable in Japan. Since the income tax has not been deducted at the source, your must file a tax return.
If you are non-Japanese working as non-diplomatic staff of embassy/consulate:
⇒To determine whether your salary is nontaxable, you need to look at the provisions of the Japanese Income Tax Act, Bilateral Tax Treaty and the Vienna Convention. Please consult with your tax advisors if you think your case qualifies as nontaxable.
We can prepare and file your tax return for foreign embassy/consulate staff.
If you are a Japanese national ・・・JPY70,000 ～ for preparing and filing tax return
If you are a non-Japanese ・・・ JPY30,000 ～ for organizing tax matters
・・・ JPY75,000 ～ for applying for refund of income tax