Important points to note when receiving retirement benefits as a non-resident [Selective taxation of retirement income]

When receiving a retirement benefit as a non-resident,

tax is levied on the portion of the benefit working in Japan,
(Note that overseas income for directors of domestic corporations is generally considered domestic income.)

and taxation is completed by the deduction of 20.42% withholding tax on the amount paid.

If most of work was overseas, this will not have a significant impact on tax liability.

However, if most of the calculation period for retirement benefit was in Japan,

the tax liability will be higher than the standard tax calculation for retirement income.

As an exception to this, there is a system known as selective taxation of retirement income.

Selective taxation of retirement income

The selective taxation of retirement income allows:

non-residents to declare their retirement benefits as if they were paid in full as a resident, including both domestic and overseas working.

Withholding tax is settled through the tax return.

Let's look at a specific example.

Here's the case where a non-resident receives a retirement benefit of 25 million yen after 40 years of working.
(30 years domestically and 10 years overseas)

Let's start with the basics.

Non-residents are subject to tax on domestic-source income,

so the 25 million yen retirement benefit is apportioned based on the portion corresponding to the period of domestic working.
(25 million yen x 30 years / 40 years = 18.75 million yen)

Withholding tax is applied to this amount, completing the tax calculation.
(18.75 million yen x 20.42% = 3,828,750 yen)

Next, let's calculate the amount based on the special provisions for selective taxation.

The full retirement benefit is calculated as if it were received as a resident.

The retirement allowance is ¥25 million.

The amount to be deducted from this
(retirement income deduction)

is

¥8 million + ¥700,000 (40 years - 20 years) = ¥22 million.

The net difference is ¥3 million.

This is divided in half and multiplied by the excess progressive tax rate.
¥3 million x ¥1/2 x 5.105% = ¥76,575.

With this declaration,

You will receive a refund of ¥76,575 - ¥3,828,750 = ¥3,752,175.

Filing period and filing method

You can file a refund claim for up to five years, starting from January 1 of the year following the year in which your retirement benefit was paid.
(For example, if your retirement benefit was paid in 2025, the period would be from January 1, 2026 to December 31, 2030.)

Non-residents generally must designate a tax agent in Japan to file a refund claim.

If you would like to file a refund claim, please contact us.

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都築太郎税理士事務所/Tsuzuki Taro Tax Accountant Office

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