-2 Foreign tax credit for non-residents
目次
- 1Whatisforeigntaxcreditfornon-residents?
- 2Scopeofdeductibleforeignincometaxfornon-residents
- 3Calculationofforeigntaxcreditfornon-residents
- 4Whatisthetotalamountofincomefromsourcesabroad?
- 5Carry-overofforeigntaxcreditfornon-residents
- 6Adjustmentforchangesinforeignincometax
- 7Procedureforapplyingforeigntaxcreditfornon-residents
1 What is foreign tax credit for non-residents?
Non-residents have an obligation to pay income tax on income derived from sources in Japan. If a non-resident who has a permanent establishment in Japan pays foreign income tax in accordance with foreign laws and ordinances on the income attributable to the permanent establishment, there will be double taxation.
To address this double taxation, a non-resident who has a permanent establishment in Japan and pays foreign income tax on the income attributable to the permanent establishment 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 non-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) | "Permanent establishment" refers to the following:
However, if otherwise provided by the tax treaty that Japan has concluded, properties that are specified as Permanent establishment in that treaty (limited to those that are situated in Japan) shall apply to non-residents who are subject to that treaty. <2018 Japan tax reform: This applies to income tax for 2019 and after and corporation tax from business years that start after January 1, 2019> (1) A non-resident's branches, factories or any other fixed locations within Japan. (2) A non-resident's construction workshop within Japan, where the non-resident performs construction work, etc. (i.e., construction, installation, assembly and other work, or providing instruction and supervision for said work for more than one year), including the domestic construction workplace, etc., of the non-resident. Locations in Japan of a non-resident’s construction or installation work or those where instruction and supervision for said work is provided, and other certain locations <2018 Japan tax reform: This applies to income tax for 2019 and after and corporation tax from business years that start after January 1, 2019> (3) A person who is authorized to enter into a contract for a non-resident in Japan, or other equivalent person. |
2 Scope of deductible foreign income tax for non-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
Foreign income tax that falls under any of the following is not deductible for non-residents. The amount of foreign income tax that is deductible for non-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 in the country of residence of the non-resident (excluding the amount of foreign income tax imposed by withholding tax, where the tax base is the interest or dividend to be received by the non-resident or others equivalent thereto, which shall not qualify for tax credit, etc., in the country of residence under the provisions of laws and regulations of said country or a tax treaty.
- (3) Among foreign income tax imposed in a country other than the country of residence of the non-resident, the amount equivalent to the portion exceeding the limit rate (or the amount to be exempted) under the provision of a treaty if the tax treaty is applied to the income that is the tax base of such foreign income taxes.
3 Calculation of foreign tax credit for non-residents
(1) Foreign income tax for non-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 on the income attributable to the permanent establishment for the year × (Total amount of income from sources abroad for the year (after adjustment) / Total amount of income attributable to the permanent establishment for the year) |
| () | Credit limit for special income tax for reconstruction = Amount of special income tax for reconstruction on the income attributable to the permanent establishment for the year × (Total amount of income from sources abroad for the year (after adjustment) / Total amount of income attributable to the permanent establishment for the year) |
| (Note 1) | The "Amount of Japanese income tax on the income attributable to the permanent establishment for the year" is the amount of Japanese income tax on the income attributable to the permanent establishment after applying tax credits such as credit for dividends, special credit for loans relating to a dwelling (such as specified extension and reconstruction), and credit for officially proclaimed natural disasters. |
| (Note 2) | The "Total amount of income attributable to the permanent establishment for the year" is the amount of income attributable to the permanent establishment for the year when calculated without applying provisions such as carry-over of net losses or carry-over of casualty losses. |
| (Note 3) | The "Total amount of income from sources abroad for the year (after adjustment)" is the total income attributable to the permanent establishment from sources abroad for the year, when calculated without applying provisions such as carry-over of net losses or carry-over of casualty losses. However, if the foreign source income for the year exceeds the amount equivalent to the total income attributable to the permanent establishment for the year, it shall be the amount until the amount equivalent to the total income attributable to the permanent establishment 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 non-residents, refers to the amount of income attributable to the permanent establishment of a non-resident, which falls under either of the following. 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.
| (1) | Income from the utilization or holding of assets located outside Japan. |
| (2) | Certain income from the transfer of assets located outside Japan. |
| (3) | 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. |
| (4) | Consideration for the lending of real estate located outside Japan, any right on real estate located outside Japan or quarrying right (including the establishment of superficies, quarrying right, or any other act carried out so that another person can use the real estate, any right on real estate 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. |
| (5) | Interest, etc., prescribed in Article 23, paragraph 1 of the Income Tax Act (Interest Income) or its equivalent as listed below:
() Interest on foreign government bonds or foreign local government bonds or bonds issued by a foreign corporation. () Interest on deposits or savings that have been deposited with a business office outside Japan (including specified deposits or savings prescribed in Article 2, paragraph 1, item 10 of the Income Tax Act). () 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 outside Japan. |
| (6) | Dividend, etc., prescribed in Article 24, paragraph 1 of the Income Tax Act (Dividend Income) or its equivalent as listed below:
() Dividend of surplus, dividend of profit, distribution of surplus or money, or interest on funds, which is received from a foreign corporation. () 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. |
| (7) | 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). |
| (8) | 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. |
| (9) | Certain monetary award for the advertisement of business conducted outside Japan. |
| (10) | Pension received under a certain insurance contract or any other contract for pension, which is concluded by a foreign insurer 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). |
| (11) | 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, 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 conclusion of contracts outside Japan. |
| (12) | 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. |
| (13) | In addition to those listed in (1) to (13) above, a certain amount of income from sources abroad. |
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5 Carry-over of foreign tax credit for non-residents
Foreign tax credit for non-residents allows a non-resident to apply foreign tax credit to the income tax on income attributable to the permanent establishment, which is 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 attributable to the permanent establishment 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 is less than 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 non-residents was applied to the foreign income tax, the following adjustments are necessary in applying the foreign tax credit for non-residents 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 for non-residents 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 taxes, 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 for non-residents is applied to the deducted amount. |
| () | The unadjusted amount in the reduced amount of foreign income tax after applying () and () 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 non-residents is applied to the foreign income tax of a non-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 non-residents, the amount of increased foreign income tax will be calculated as foreign tax credit for non-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 non-residents
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In order to apply the foreign tax credit for non-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 non-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 non-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 non-residents, is limited to the amount stated in the above documents attached to the returns, etc., for each year. |
(Articles 165-4 and 165-6 of the Income Tax Act, Articles 292-7 through 292-9 of the Order for Enforcement of the Income Tax Act, Articles 165-4-1 and 165-6-1 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/12007-2.htm）
