Living in Japan as an Expat: Tax Rules, Pensions and Property

Japan is one of the world's most captivating countries — a unique blend of ancient tradition and cutting-edge modernity, extraordinary food culture, exceptional public safety, world-class public transport, and a society of remarkable precision and courtesy. For many internationally mobile professionals, a posting to Tokyo or other Japanese cities is among the most personally enriching experiences of their careers.

But Japan's financial and tax system presents some of the most complex planning challenges for expats of any country in Asia. Its high personal income tax rates, specific foreign asset reporting requirements, and the evolving treatment of overseas pensions and investment accounts demand careful professional advice before — and throughout — any extended Japan residency.

Japan's Tax Residency Categories

Japan has three categories of tax residency, each with different implications for taxation of overseas income:

Non-Resident (非居住者 — Hizaikusha)

An individual present in Japan for fewer than one year with no intention to reside there. Non-residents are taxed only on Japan-source income. This is the status that applies to short business trips and tourist visits.

Non-Permanent Resident (非永住者 — Hi-eizyusha)

An individual who:

• Has been present in Japan for fewer than 5 years in total during the past 10 years, AND
• Does not have Japanese nationality, AND
• Has domicile or residence in Japan

Non-permanent residents are taxed on:

• Japan-source income (in full)
• Foreign-source income remitted to Japan or paid in Japan

Foreign-source income that is NOT remitted to Japan is generally exempt from Japanese tax for non-permanent residents. This is a significant planning opportunity for incoming expats in the first five years.

Permanent Resident (永住者 — Eijusha)

An individual who has:

• Had a domicile or residence in Japan for five years or more in total during the last 10 years, OR
• Has Japanese nationality

Permanent residents are taxed on their worldwide income, regardless of whether it is remitted to Japan.

Key planning implication: The non-permanent resident category (years 1–5 in Japan) provides a remittance-basis tax position somewhat analogous to the former UK non-domiciled remittance basis. During this period, overseas investment income, capital gains, rental income, and pension income held outside Japan and not remitted to Japan can generally be sheltered from Japanese tax.

After five years of accumulated Japan residence in the past 10 years, worldwide taxation commences — a material change requiring advance planning.

Japanese Income Tax Rates

Japan's income tax rates at national level are among the developed world's highest:

National income tax:

• ¥0–1,950,000: 5%
• ¥1,950,001–3,300,000: 10%
• ¥3,300,001–6,950,000: 20%
• ¥6,950,001–9,000,000: 23%
• ¥9,000,001–18,000,000: 33%
• ¥18,000,001–40,000,000: 40%
• Above ¥40,000,000: 45%

Plus local taxes:

• Residence tax (Jūminzei): 10% flat rate on income, levied by the prefecture and municipality

Combined top rate: 55% (national 45% + local 10%)

Reconstruction surtax: An additional 2.1% of the national income tax amount applies (originally temporary after the 2011 earthquake/tsunami; extended through 2037).

Japan's national tax agency (NTA — Kokuzeicho) is rigorous in enforcement.

Japanese Social Insurance

Japan's mandatory social insurance contributions are substantial:

• Health Insurance (Kenko Hoken): Approximately 5% employee contribution (up to a cap)
• Pension (Kosei Nenkin): Approximately 9.15% employee contribution (up to a cap)
• Employment Insurance: Small additional contribution

The pension contributions accumulate entitlement to Japanese Social Insurance Pension (Nenkin), which can provide meaningful income in retirement for long-term Japan residents. Under the Japan-UK Social Security Agreement, periods of UK National Insurance contributions can be combined with Japanese pension contributions to reach benefit eligibility thresholds.

Foreign Asset Reporting (Kokugai Zaisan Chosho)

One of the most important — and frequently neglected — compliance obligations for Japan residents is the Foreign Asset Report (Kokugai Zaisan Chosho). Japanese tax residents whose foreign assets (overseas bank accounts, investments, property, insurance policies) exceed ¥50 million (approximately £260,000 at mid-2026 exchange rates) as of 31 December must file a report with the NTA by 15 March.

Failure to file attracts penalties. This reporting requirement applies regardless of whether the foreign assets generate taxable income in Japan.

UK expats with significant UK investment portfolios, ISAs, SIPPs, offshore bonds, or UK property will typically exceed the ¥50 million threshold and must file.

UK Pensions and Japan Residency

UK SIPP: UK SIPPs held by Japan residents are subject to complex analysis. During the non-permanent resident period, pension funds outside Japan that do not remit income to Japan are generally not taxable. Once worldwide tax applies, income accumulating in the SIPP may (depending on NTA interpretation) be viewed as accruing foreign-source income subject to Japanese tax.

Offshore bonds: Japan treats offshore life insurance bonds as potentially subject to Japanese tax on the "accrued" gain annually (similar to Canada's FAPI rules). This is an area of active NTA enforcement; careful advice before taking up Japan residency with existing offshore bonds is essential.

UK State Pension: Paid to Japan residents. The UK-Japan DTA provides that UK State Pension is taxable in Japan (not the UK) for Japan residents. Note that the UK State Pension IS frozen in Japan — Japan has no reciprocal social security agreement with the UK covering annual pension uprating, so the State Pension is paid at the rate applying when you first claimed (or left the UK) and does not rise each year. (The separate UK-Japan Social Security Agreement covers National Insurance contribution coordination for workers, not uprating of pensions in payment.)

Property in Japan

Japan's property market is distinctive globally for its depreciating wooden buildings — the legal concept of tatemono (building value) depreciates to near-zero over 20–30 years, while tochi (land value) is the stable component. This means older Japanese houses can be purchased very cheaply (sometimes for near-zero), while prime land in Tokyo remains very expensive.

As of 2026, indicative Tokyo property prices:

• Prime central Tokyo (Minato, Shibuya, Shinjuku): ¥1.5 million–3 million/sqm
• Good residential areas (Setagaya, Meguro, Nakameguro): ¥600,000–1.5 million/sqm
• Outer wards: ¥300,000–600,000/sqm

Foreign nationals can freely purchase property in Japan — there are no foreign ownership restrictions on real estate. This distinguishes Japan from many Asian countries (Thailand, Vietnam, Indonesia) which restrict foreign land ownership.

Property purchase costs:

• Real Estate Acquisition Tax: approximately 3–4% of assessed value
• Registration Tax: approximately 0.4–2% of assessed value
• Agent fees: approximately 3% + ¥60,000 + consumption tax
• Consumption tax (10%) applies to building components of new property transactions

Rental investment in Japan: Japan's property market has recently attracted significant international attention. Relatively low yields (2–4% gross in central Tokyo) are supplemented by the appeal of a stable, rule-of-law country with strong tenant protections. More recently, short-let and holiday rental opportunities have improved in tourist areas. Kyoto, Osaka, and regional resort areas have seen significant overseas investor interest.

Banking in Japan

Opening a Japanese bank account as a new resident has historically been complex. Major banks (MUFG, Mizuho, SMBC) typically require 6 months of residence before opening accounts for foreign nationals. Japan Post Bank and Seven Bank (linked to 7-Eleven convenience stores) offer ATM access for foreign cards and can be more accessible initially.

International banks (Citibank Japan, HSBC Japan) are more expat-friendly but have limited branch networks.

Digital banks (Rakuten Bank, PayPay Bank) can be opened via smartphone and have reduced the access barriers significantly for residents with a My Number (national ID).

Transfers to and from Japan: Japan's banking system is improving but can be slow for international transfers. SWIFT transfers from UK accounts are the standard mechanism; currency specialists (Wise, OFX) offer better rates than Japanese bank transfer fees.

Healthcare in Japan

Japan's healthcare system is widely regarded as one of the best in the world — outstanding quality, comprehensive coverage, and relatively affordable co-pays. Residents (including foreign nationals) are required to enrol in either National Health Insurance (Kokumin Kenko Hoken) or their employer's health insurance scheme.

Premiums are income-related. Emergency care, specialist care, and most treatments are covered. Dental and some other specialties are partially outside the public system.

Most expats supplement national health insurance with international private insurance for out-of-system care, medical evacuation, and care outside Japan during travel.

Financial Planning Checklist for Japan Expats

1. Confirm tax status on arrival — non-permanent resident for the first five years
2. During non-permanent resident period: avoid remitting foreign-source income to Japan where possible; keep overseas investment returns offshore
3. Register for Japanese pension (Nenkin) and social insurance through employer
4. Obtain a My Number card — essential for all financial and administrative matters
5. Open a Japanese bank account — use Post Bank or Seven Bank initially if needed
6. Arrange mandatory national health insurance or employer scheme enrolment
7. Plan for the transition to worldwide taxation at the 5-year mark
8. File Foreign Asset Report (Kokugai Zaisan Chosho) annually if assets exceed ¥50 million
9. Review offshore bonds — Japan's tax treatment may require restructuring
10. Draft a Japanese will for Japanese assets; coordinate with UK estate plan

Compliance Reminder

Japan's tax system is complex and the NTA is a rigorous regulator. The transition from non-permanent to permanent resident status at five years is a material tax change that demands advance planning. This guide reflects the position as of 2026. Seek qualified advice from Japan-specialist tax professionals. Property and investment values can fall as well as rise.

How Global Investments Can Help

Global Investments advises internationally mobile professionals and HNW individuals based in Japan. We assist with non-permanent resident tax planning, UK pension and SIPP structuring, offshore investment portfolio management, estate planning, and coordination with specialist Japanese tax advisers. Contact us for a confidential discussion.