Finance Guide for Expats Moving to Japan
Japan’s Financial System Explained for Expats
Understanding Japan’s financial system is crucial for expats looking to settle and thrive in the country. This guide provides an overview of the key elements of the system, including banking, currency, taxation, and investment opportunities.
Additional information may be found on the Japanese Ministry of Finance website.
Banks in Japan
Japan has a mix of domestic and international banks, offering services in English. Major banks like Mitsubishi UFJ, Sumitomo Mitsui, and Mizuho are widely used, while foreign banks like HSBC and Citibank also operate there.
To open a bank account, you'll typically need a valid residence card, passport, certificate of employment/student card, a (Japanese) phone number, and possibly a personal seal (hanko). Many banks now offer online banking services in English, making it easier to manage your finances.
It's important to note that cash is still widely used in Japan, so having access to ATMs is essential. Most convenience stores and post offices have ATMs that accept foreign cards. Additionally, be aware of transaction fees and withdrawal limits, as these can vary by bank.
Currency in Japan and Exchange Rates for Expats
The official currency is the Japanese yen (JPY), symbolized by “¥”. 1 USD typically exchanges for around 110 to 120 yen (although rates fluctuate), and its denominations are coins (1, 5, 10, 50, 100, and 500 yen) and banknotes (1,000, 5,000, and 10,000 yen). You can exchange currency at airports, banks, and exchange offices, although ATMs in convenience stores and post offices generally accept international cards and provide competitive exchange rates.
It’s advisable to monitor exchange rates to make the most of your money when transferring funds from abroad. It is worth considering opening a bank account if you are going to be located in Japan for a significant length of time.
Building Credit History in Japan
Building a credit history in Japan as an expat is essential for accessing loans, renting apartments, and obtaining credit cards. To establish a credit profile, you'll need a local bank account and must demonstrate responsible financial behavior, such as making timely payments and maintaining low debt levels.
Understanding the Japanese Credit System: The Japanese credit system is overseen by major credit bureaus like Tokyo Shoko Research (TSR), the Japanese Credit Rating Agency (JCRA), and JICC (Japan Credit Information Reference Center Corp.), which manage credit information. The Japanese credit system operates on a points-based model similar to other countries, but it often takes longer to build a solid credit history, requiring consistent financial behavior and documentation of residency and employment.
Strategies to Build Credit History in Japan: Open a local bank account to establish a financial foundation. Do apply for a credit card – preferably a secured card or one for foreigners – and use it responsibly by paying off the balance on time.
Make timely payments on bills, such as utilities and rent, for a positive payment history. Also be sure to keep your debt low by managing your credit utilization ratio.
Do also engage with your bank to gain insights into credit products and regularly monitor your credit report for accuracy.
Taxation for Expats in Japan
The text here is an informal guide and should not be taken as professional advice from a tax specialist.
Understanding the taxation system in Japan is crucial for expats to ensure compliance and optimize their financial planning. This section provides an overview of the key aspects of the Japanese tax system, including residency status, income tax, and double taxation treaties.
Resident vs. Non-Resident Taxes in Japan
The Japanese tax system distinguishes between residents and non-residents for tax purposes. Your residency status impacts your tax obligations.
Residents: Individuals are residents if they either have a permanent home in Japan or have maintained a temporary home for more than one year. Japanese tax rules distinguish between non-permanent residents (those with an aggregate stay of five years or less in Japan) and permanent residents (those with an aggregate stay of more than five years).
Non-Residents: Individuals who maintain a temporary home for less than a year. Non-residents are subject to a flat tax on any Japanese-sourced income.
Japan has a progressive income tax system, meaning that tax rates increase with higher income levels. The tax rates for residents range from 5% to 45%. Only permanent residents are charged on foreign-source incomes.
Other primary taxes include consumption tax, local inhabitant tax and surtax. The local inhabitants’ tax is generally levied at a flat rate of 10% on the prior year’s income, while surtax is 2.1% of an individual’s national income tax.
Japan has double taxation treaties with many other countries to prevent expats from being taxed twice on the same income. These treaties typically allow for tax credits or exemptions on foreign-sourced income. It’s essential to understand the provisions of the relevant treaty between Japan and your home country. PWC have a comprehensive guide to taxation in Japan which they update regularly.
Value-Added Tax in Japan
In Japan, Value Added Tax (VAT) is called Consumption Tax, set at 10% for most goods and services, with a reduced rate of 8% for certain food and beverages. This tax is typically included in the displayed price, and businesses collect it from consumers. Expats should factor this into their budgets, as it affects overall living costs.
The Japanese Tax Year
For expats living in Japan, understanding the tax year structure is crucial for complying with local tax obligations and effectively managing financial planning.
The Japanese tax year follows the calendar year, running from January 1st to December 31st. This structure aligns with many other countries, making it somewhat familiar for expats used to similar tax periods.
Adhering to key tax deadlines is essential to avoid penalties and ensure timely compliance.
Annual Tax Return Due Date: For individuals, tax returns are to be filed by 15 March the following year. For example, tax returns for the tax year 2023 would be filed by 15 March 2024.
Investing in Japan as an Expat
The text here is an informal guide and should not be taken as professional advice from a qualified investment specialist.
Investing in Japan as an expat offers unique opportunities in a robust economy with diverse markets, including stocks and real estate. However, understanding local regulations and tax implications is crucial for successful investing.
Stocks: Investing in stocks in Japan offers access to a diverse array of companies on the Tokyo Stock Exchange, one of the largest globally. The Nikkei 225 and TOPIX indices are key benchmarks for tracking market performance in Japan.
Mutual Funds: Mutual funds and other investment funds managed by financial institutions offer another avenue for investment. These funds pool money from multiple investors to invest in a diversified portfolio of assets, providing professional management and reduced risk through diversification.
Bonds: Investing in bonds in Japan offers expats a relatively stable income option, with government bonds (JGBs) and corporate bonds available, offering varying levels of risk and return.
Real Estate: Real estate is a popular investment choice for expats due to its potential for significant returns and personal use benefits. Find out more about housing in Japan here.
Expats looking at investment options in Japan should be aware of the added tax implications that this activity may have. Be sure to consult a professional.
Planning for Retirement in Japan
Retiring to Japan requires good understanding of local financial systems and tax implications. If you’re planning on retiring in Japan, find out what health insurance you may need here.
National Pension Scheme (NPS): This Japanese scheme offers a basic pension for all residents, including expats. Participation is mandatory for individuals aged 20 to 59, with contributions based on income. Expatriates can receive benefits if they meet eligibility criteria, such as contributing for at least 10 years. Additionally, those who repatriate can apply for a lump-sum withdrawal of their contributions, making the NPS an important factor for long-term financial planning in Japan.
Employee’s Pension Insurance System (EPI): Expats previously employed by Japanese companies can take advantage of the EPI system. Contributions are based on salary, and both employees and employers contribute. Benefits include a pension upon retirement and disability coverage.
Receiving Foreign Pensions: Expats are able to receive pensions from their home countries while living in Japan, but it's important to check with the pension provider about the rules for receiving payments abroad and any potential tax implications. Japan has agreements with several countries that may allow for the transfer of pensions without excessive fees or tax penalties.
