Foreign tax credit for residents
目次
- 1Whatisforeigntaxcreditforresidents?
- 2Scopeofdeductibleforeignincometaxforresidents
- 3Calculationofforeigntaxcreditforresidents
- 4Whatisthetotalamountofincomefromsourcesabroad?
- 5Carry-overofforeigntaxcreditforresidents
- 6Adjustmentforchangesinforeignincometax
- 7Procedureforapplyingforeigntaxcreditforresidents
1 What is foreign tax credit for residents?
Residents have an obligation to pay income tax in Japan on incomes derived from sources both in and outside Japan. If a resident pays foreign income tax in accordance with foreign laws and ordinances on the same income derived from sources abroad, there will be double taxation.
To address this double taxation, a resident who pays foreign income tax is allowed to credit a certain amount of the foreign income tax (hereinafter referred to as the "credit limit for income tax") against his/her Japanese income tax for the year. This system is known as the foreign tax credit for residents.
| (Note 1) | If the amount of foreign income tax exceeds the credit limit for income tax, as long as the excess is within a certain amount (hereinafter referred to as the "credit limit for special income tax for reconstruction"), it can be credited against the special income tax for reconstruction for the year. |
| (Note 2) | If a resident pays foreign income tax (limited to those imposed as residents, etc., in countries or regions other than Japan) relating to income arising from the transfer of assets, etc., that are subject to the special treatment of income from the transfer of assets, etc., when leaving Japan (hereinafter referred to as "exit tax"), there is a system where foreign income tax shall be deemed to be paid in the year to which the exit date belongs when calculating the foreign tax credit, provided that certain conditions are satisfied. See No. 1478 "Special Treatment of Income from the Transfer of Assets, etc., when Leaving Japan" for details. |
2 Scope of deductible foreign income tax for residents
Tax items included in foreign income tax
Foreign income tax is imposed on individual income as a tax base by foreign governments or foreign local authorities in accordance with foreign laws and ordinances, and includes the following tax items:
- (1) Excess income tax or other taxes imposed on a specific part of individual income as a tax base.
- (2) Surtax imposed on individual income or its specific part as a tax base.
- (3) Tax that belongs to the same tax item as the tax imposed on individual income as a tax base, but is imposed on the amount of earnings or its equivalent instead of a specific part of individual income as a tax base for the convenience of tax collection.
- (4) Tax imposed on the amount of individual earnings or its equivalent as a tax base instead of a specific part of individual income.
Tax items excluded from foreign income tax
Taxes that are imposed by foreign governments or foreign local authorities but fall under any of the following are not included as foreign income tax:
- (1) Tax that the taxpayer can voluntarily claim a refund for all or part of the amount after the tax was paid.
- (2) Tax for which a grace period for payment can be decided voluntarily by the taxpayer.
- (3) A certain amount of tax for which the rate is determined from among multiple tax rates based on an agreement between foreign governments, foreign local authorities or those authorized to agree on the tax rate, and the taxpayer.
- (4) Tax that is equivalent to additions to foreign income taxes, and other similar taxes.
Non-deductible foreign income tax for residents
Foreign income tax that falls under any of the following is not deductible for residents. The amount of foreign income tax that is deductible for residents is hereinafter referred to as "deductible foreign income tax."
- (1) The amount of foreign income tax imposed on incomes derived from certain transactions that cannot be considered as normal.
- (2) The amount of foreign income tax imposed on money to be delivered for the reasons listed in each item of Article 25, paragraph 1 of the Income Tax Act (such as return of the capital) as well as on the value of assets other than money (excluding the portion imposed on the excess money from the acquisition price of the shares of the corporation or contributions that resulted in the delivery).
- (3) With respect to internal transactions between an overseas business establishment, etc., and a workplace, etc., the amount of foreign income tax imposed on the country or region where the overseas business establishment, etc., is located.
- (4) The amount of foreign income tax imposed on dividends, etc., of listed shares, etc., within a tax-exempt account prescribed in Article 9-8 of the Act on Special Measures Concerning Taxation.
- (5) The amount of foreign income tax imposed on income derived by the resident while he/she was a non-resident taxpayer in the previous year.
- (6) A certain amount of foreign income tax imposed on the amount of dividend of surplus, etc., received from a specified foreign subsidiary company, etc., (limited to those subject to the provisions of Article 40-5, paragraph 1 or 2 of the Act on Special Measures Concerning Taxation) as a tax base.
- (7) A certain amount of foreign income tax imposed on the amount of dividend of surplus, etc., received from a specified foreign corporation, etc., (limited to those subject to the provisions of Article 40-8, paragraph 1 or 2 of the Act on Special Measures Concerning Taxation) as a tax base.
- (8) The amount of foreign income tax imposed on the income of residents and not to be taken into consideration when calculating the amount to be deducted for foreign tax under the provision of a tax treaty.
- (9) Among foreign income tax imposed in a partner country, etc., where Japan has a tax treaty, the amount equivalent to the portion exceeding the amount that can be imposed by the partner country, etc., under the provision of the tax treaty or the amount equivalent to the exempted amount.
3 Calculation of foreign tax credit for residents
(1) Foreign income tax for residents is calculated as follows, depending on the case:
| () | If the amount of deductible foreign income tax does not exceed the credit limit for income tax, the foreign tax credit is equal to the amount of deductible foreign income tax. |
| () | If the amount of foreign income tax exceeds the credit limit for income tax, the foreign tax credit is the sum of the credit limit for income tax and the value of (a) or (b) below, whichever is smaller.
(a) The amount of deductible foreign income tax minus the credit limit for income tax (b) Credit limit for special income tax for reconstruction. |
(2) The credit limit for income tax and credit limit for special income tax for reconstruction are calculated using the following formula:
| () | Credit limit for income tax = Amount of Japanese income tax for the year × (Total amount of income from sources abroad for the year (after adjustment) / Total amount of income for the year) |
| () | Credit limit for special income tax for reconstruction = Amount of special income tax for reconstruction for the year × (Total amount of income from sources abroad for the year (after adjustment) / Total amount of income for the year) |
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| (Note 1) | The "Amount of Japanese income tax for the year" is the amount after applying tax credits such as credit for dividends, special credit for loans relating to a dwelling, and credit for officially proclaimed natural disasters. |
| (Note 2) | The "Total amount of income for the year" is the sum of the total income for the year, when calculated without applying provisions such as carry-over of net losses, carry-over of casualty losses or carry-over deduction of transfer loss in case of replacing residential property. |
| (Note 3) | The "Total amount of income from sources abroad for the year (after adjustment)" is the total income from sources abroad for the year (or the foreign source income which is paid in Japan or remitted to Japan from abroad, in the case of non-permanent residents), when calculated without applying provisions such as carry-over of net losses, carry-over of casualty losses or carry-over deduction of transfer loss in case of replacing residential property. However, if the foreign source income for the year exceeds the amount equivalent to the total income for the year, it shall be the amount until the amount equivalent to the total income for the year is reached. |
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4 What is the total amount of income from sources abroad?
The total amount of income from sources abroad, which is the basis of the credit limit for foreign taxes for residents, is the sum of income pertaining to foreign source income listed below (zero if the total amount is less than zero):
(1) Income attributable to an overseas business establishment, etc.
This refers to an income that is attributed to an overseas business establishment, etc., where a resident conducts business through the overseas business establishments, etc., which conducts business independently from the resident as a business operator. The amount of income attributable to an overseas business establishment, etc., is the gross income amount, etc., for the year, derived in accordance with the provisions of laws and regulations concerning the calculation of income for residents each year.
| (Note) | "A foreign business establishment, etc.," refers to a permanent establishment specified by a tax treaty signed with a partner country, etc., by Japan, or the following with regard to other countries or regions.
() Branches, factories or any other fixed locations outside Japan for conducting business. () Construction work, etc., carried out outside Japan for more than one year. () Those that are equivalent to agents or the like and are located outside Japan. |
(2) Other foreign source income
Other foreign source income refers to the following (excluding items that fall under income attributable to an overseas business establishment, etc., mentioned in (1) above), and is the amount equal to the total income for the year that serves as a tax base where income tax is imposed only on incomes related to the foreign source income. In cases where there is a different provision in the tax treaty for a resident who is subject to the tax treaty, the foreign source income is stipulated in the tax treaty as long as there are different provisions.
| () | Income from the utilization or holding of assets located outside Japan. |
| () | Certain income from the transfer of assets located outside Japan. |
| () | Consideration received by a person who conducts a certain part of business that is mainly intended to provide personal services outside Japan, for the provision of the said personal services. |
| () | Consideration for the lending of real estate located outside Japan, any right on real estate located outside Japan or quarrying right; the establishment of a mining lease outside Japan; or the lending of a vessel or aircraft to a non-resident or foreign corporation. |
| () | Interest, etc., prescribed in Article 23, paragraph 1 of the Income Tax Act (Interest Income) or its equivalent as listed below:
(a) Interest on foreign government bonds or foreign local government bonds or bonds issued by a foreign corporation. (b) Interest on deposits or savings that have been deposited with a business office or establishment, or any other business facility equivalent thereto, located outside Japan. (c) Distribution of profit from a jointly managed money trust or an equivalent trust, bond investment trust or publicly offered bond investment trust or an equivalent trust, which has been entrusted with a business office or establishment, or any other business facility equivalent thereto, located outside Japan. |
| () | Dividend, etc., prescribed in Article 24, paragraph 1 of the Income Tax Act (Dividend Income) or its equivalent as listed below:
(a) Dividend of surplus, dividend of profit, distribution of surplus or money, or interest on funds prescribed in Article 24, paragraph 1 of the Income Tax Act, which is received from a foreign corporation. (b) Distribution of profit from an investment trust (excluding a bond investment trust, and a publicly offered bond investment trust or an equivalent trust) or a specified trust issuing a beneficiary certificate or an equivalent trust, which has been entrusted with a business office located outside Japan. |
| () | Interest on a loan provided for a person who performs operations outside Japan (including money equivalent thereto), which pertains to the said operations (excluding certain interests and including certain gains arising from certain bond transactions with a repurchase or resale agreement). |
| () | Any of the following royalties or considerations received from a person who performs operations outside Japan, which pertain to the said operations:
(a) Royalty for industrial property rights or any other rights concerning technology, production methods involving special technology or any other equivalent rights or methods, or consideration for the transfer thereof. (b) Royalty for a copyright (including right of publication, neighboring right, and any other equivalent right), or consideration for the transfer thereof. (c) Royalty for machinery, equipment or any other tool. |
| () | Any of the following pay, remuneration or pension:
(a) Salary, compensation, wage, annual allowance, bonus or any other pay or remuneration for the provision of personal services of a similar nature, which arises from work or the provision of personal services carried outside Japan (excluding work performed outside Japan by a person acting as an officer of a domestic corporation and other provision of certain personal services. (b) The public pension, etc., paid under insurance or a mutual aid system based on foreign laws and ordinances, which is similar to a social insurance or mutual aid system prescribed in the provisions of Article 31, item 1 and 2 of the Income Tax Act (Lump Sum Payment regarded as an Retirement Allowance, etc.) (c) Retirement allowance, etc., prescribed in Article 30, paragraph 1 of the Income Tax Act (Retirement Allowance), which arises from work or the provision of personal services carried out by a person who is entitled to receive it during the period when he/she has been a non-resident (excluding work that has been carried out by a person acting as an officer of a domestic corporation during the period when he/she has been a non-resident and other provision of certain personal services). |
| () | Certain monetary award for the advertisement of business conducted outside Japan. |
| () | Pension received under a certain insurance contract or any other contract for pension, which is concluded by a foreign insurer prescribed in Article 2, paragraph 6 of the Insurance Business Act via a business office located outside Japan or via a person who acts as an agent for concluding contracts outside Japan (including surplus distributed or refund paid under the relevant contract for pension on or after the date of commencement of the pension payment, and a lump sum payment given in lieu of pension under the said contract). |
| () | Any of the following compensation money for benefits, interest, profit or margin profit:
(a) Compensation money for benefits listed in Article 174, item 3 of the Income Tax Act (Tax Base of Income Tax in the case of Domestic Corporations), which pertains to installment deposits that have been accepted by a business office located outside Japan. (b) Compensation money for benefits listed in Article 174, item 4 of the Income Tax Act, which pertains to installments prescribed in the said item that have been accepted by a business office located outside Japan. (c) Interest listed in Article 174, item 5 of the Income Tax Act, which pertains to a contract prescribed in the said item that have been concluded via a business office located outside Japan. (d) Profit listed in Article 174, item 6, which pertains to a contract prescribed in the said item that has been concluded via a business office located outside Japan. (e) Margin profit listed in Article 174, item 7, which pertains to deposits or savings that have been accepted by a business office located outside Japan. (f) Margin profit listed in Article 174, item 8, which pertains to a contract prescribed in the said item that has been concluded via a business office located outside Japan or via a person who acts as an agent for concluding contracts outside Japan. |
| () | Distribution of profit received under a silent partnership contract (including certain contracts that are the equivalent thereto) with respect to capital contributions to a person who conducts business outside Japan. |
| () | A certain amount of income arising from a transportation business consisting of operations both in and outside Japan by using vessels or aircrafts, which should be determined as that arising from foreign operations. |
| () | A certain amount of income on which taxes may be imposed in a partner country, etc., where Japan has a tax treaty pursuant to the provision of the tax treaty. |
| () | In addition to those listed in () to () above, a certain amount of income tax from sources abroad. |
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5 Carry-over of foreign tax credit for residents
Foreign tax credit for residents allows a resident to apply foreign tax credit to the income tax to be imposed pursuant to the Japanese tax laws for the year in which foreign income tax is to be paid, to the extent of the amount corresponding to the income from sources abroad adjusted for the total amount of income for the year.
However, the year in which income from sources abroad arises and the year in which foreign income tax on foreign source income is paid are not always the same. To address this, a certain amount of the difference between deductible foreign income tax and the credit limit for income tax can be carried over for the next three years.
(1) If the amount of deductible foreign income tax exceeds the credit limit for income tax
If the deductible foreign income tax to be paid for the year exceeds the sum of the credit limit for income tax, the credit limit for special income tax for reconstruction and the credit limit for local tax (30% of the credit limit for income tax for the year) for the year, and a certain amount has been carried over as credit limit for income tax within the preceding three years (hereinafter referred to as a "credit limit carried over"), the excess amount can be credited against Japanese income tax within the credit limit carried over.
(2) If the amount of deductible foreign income tax exceeds the credit limit for income tax
If the deductible foreign income tax to be paid for the year is less than the credit limit for income tax for the year and there is deductible foreign income tax to be paid within the preceding three years which is carried over to the current year (hereinafter referred to as a "deductible foreign income tax carried over"), the deductible foreign income tax carried over can be credited against the Japanese income tax to the extent of the remaining credit limit for income tax after deducting the deductible foreign income tax to be paid for the year.
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6 Adjustment for changes in foreign income tax
(1) When foreign income tax is reduced
If foreign income tax is reduced in and following the year in which foreign tax credit for residents was applied to the foreign income tax, the following adjustments are necessary in applying the foreign tax credit in the year in which the foreign income tax is to be reduced:
| () | The reduced amount of foreign income tax is deducted from the foreign income tax to be paid in the year to which the day of reduction belongs, and the foreign tax credit is applied to the deducted amount. |
| () | If there is no foreign income tax to be paid in the year of reduction or the foreign income tax to be paid in the year is less than the reduced amount of foreign income tax, all the reduced amount of foreign income tax or the excess amount of foreign income tax over the foreign income tax to be paid in the year is deducted from the excess over credit limits within three years preceding the year of reduction, and the foreign tax credit is applied to the deducted amount. |
| () | The unadjusted amount in the reduced amount of foreign income tax after applying (i) and (ii) above will be included in the gross income of miscellaneous income for the year of reduction. |
(2) When foreign income tax is increased
If foreign tax credit for residents is applied to the foreign income tax of a resident and there is an increase in the amount of foreign income tax in the following year after the foreign tax credit is applied, when receiving foreign tax credit for residents, the amount of increased foreign income tax will be calculated as foreign tax credit for residents and considered to be new in the year in which the increase is made.
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7 Procedure for applying foreign tax credit for residents
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In order to apply foreign tax credit for residents, it is necessary to attach the following documents to the final tax return, the amended return or the request for a correction to the tax return (hereinafter referred to as "returns, etc."). In this case, the amount of deductible foreign income tax used in calculating the amount of foreign tax credit is limited to the amount stated in the document, unless otherwise stated.
| (1) | Detailed statement for foreign tax credit (for residents). |
| (2) | Documents to certify that foreign tax was imposed. |
| (3) | Documents describing the name and amount of tax imposed by foreign laws and regulations, the date on which the tax is to be paid and the actual or expected date of payment, the name of foreign governments or foreign local authorities that impose the tax, and an explanation that the tax falls under foreign income tax that qualify for foreign tax credit. |
| (4) |
A copy of the return for the tax that proves that the tax mentioned in (3) above was imposed, or alternative documents concerning the tax, as well as documents to prove that the tax has already been paid (including certificate of tax payment, notice of determination of correction, notice of determination of assessment, notification of tax payment and withholding record). In addition, in order to carry over foreign tax credit when there is credit limit carried over or foreign income tax carried over as mentioned in Section 5 above, it is required to file the "Detailed Statement for Foreign Tax Credit" and the returns, etc., which state the credit limit and foreign income tax to be paid each year, for every year from the first year in which they were carried over. It is also required to state the amount to be credited by the carry-over in the returns, etc., for the year in which the foreign tax credit for residents is carried over, and attach the "Detailed Statement for Foreign Tax Credit." Except for certain cases, the amount of deductible foreign income tax, which is the basis for calculating the foreign tax credit for residents, is limited to the amount stated in the above documents attached to the returns, etc., for each year. |
(Articles 44-3, 95 and 95-2 of the Income Tax Act, Articles 93-2 and 221 through 226-2 of the Order for Enforcement of the Income Tax Act, Articles 41 and 42 of the Ordinance for Enforcement of the Income Tax Act, Articles 95-6, 95-7, 95-14 and 95-15 of the Fundamental Directives of Income Tax, Articles 13 and 14 of the Act on Special Measures for Securing Financial Resources Necessary for Reconstruction from the Great East Japan Earthquake, and Article 3 of the Ministerial Ordinance concerning Special Income Tax for Reconstruction)
- Consultation service for national tax is available at the Phone Consultation Center, etc., of the National Tax Agency. Please take a look at the Tax Consultation Desks and try the phone consultation service.
出典：国税庁ホームページ（http://www.nta.go.jp/english/taxes/individual/12007.htm）
