U.S. tax rules sour life for Americans abroad


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I am in a similar situation, subject to the full weight of taxation in the U.S. and also Japan. There is a tax treaty in place to guard against dual taxation, but it's not enough (Japan writes off ある程度 "a certain amount of" tax I pay in the U.S. but not all). I have a hugely complex tax situation and among other things, Japan has no option for a business owner to save money in a 401(k), hence the money I put away for my retirement in the U.S. is taxed by Japan. This caused no small amount of swearing in my house, I can tell you.

4 ( +6 / -2 )

^don't report your international finances to the japanese tax man?

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The U.S.A. needs to come up to the 21st century. It's behind in so many other ways too. No national health service. Still using ancient weights and measures, yards, feet, inches and so on.

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@malfupete I am unfortunately required to, unless I want to start doing silly things like staying out of Japan for 50.01% of the year. It will likely affect how long I run my business -- if I choose to retire 5+ years earlier than I would otherwise have done, both countries will lose a lot more tax revenue.

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Maybe this will cut down on foreigners who intentionally travel to America just to give birth and obtain automatic US citizenship to their children, hahaha.

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The problems go even further than this. Since the IRS requiers Americans who have "signatory authority" over any financial account to report on that account on their personal tax returns, an American employed by a bank or securities company might not ever be able to get a promotion at work that might give them such authority over a company account.

Ideally taxation should have nothing to do with citizenship, but at the very least the IRS should eliminate the need to file a tax return entirely if you earn less than the ruoghly $90,000 threshold for taxation. They're wasting man-hours processing these returns (which generate no revenue), and wasting the time of their constituents.

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What's also fun is, since Japan is anti-savings (trying to get people to save less, whereas America is desperate to encourage people to save for their retirements), I cannot participate in the 401(k) I set up for myself and my employees. (I have a company in San Diego whose income is all being taxed in Japan.) This means that I will likely say to the employees, sorry guys, the Japanese government says we can't have a 401(k), and pull the cord on the program. I've spent more time on tax documents in the past 6 months than I have developing new products to sell...

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PeterPayne, where are you incorporated? Or that doesn't matter to the tax man?

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The US tax system makes it very difficult for Americans to work/live abroad for an extended length of time and poses a major disadvantage in terms of US international competitiveness.

If you are a US citizen, you are responsible to pay US tax if you earn more than around $90K per year (with the strong yen these days more in Japan probably do make more) even if you do not set foot on American soil in a given tax year -- while still paying the full tax rate that Japanese citizens/residents pay (less write-offs for US taxes paid, mentioned by Peter Payne).

This is a significant disadvantage placed on US citizens compared to other expats, and constitutes taxation without representation. I hear that the French and German governments even heavily subsidize tuition of the French/German schools here, while the US government won't even allow US children in Japan to attend schools on the US military base unless a parent is a service member or US military employed. This means on top of an added tax burden US citizens in Japan with children also have no choice but to pay exorbitantly high ($20K plus) tuition costs for school. It usually doesn't make sense for a US citizen to stay in Japan for long.

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An estimated four to seven million Americans live outside the country...[including] so-called “accidental” Americans who happened to be born in the United States to foreign parents and dual citizens who may have lived most or all of their lives abroad.

On another note, these "accidental" Americans include those children born to Chinese and other "birth tourists" (recently making headlines in California) who give birth in the US to bestow a US passport on their offspring. I am sure those maternity hotels do not advertize that these children, many of wealthy families, could one day find themselves and their US assets under IRS scrutiny. I wouldn't put it passed the US government given the growing desperation to find ways to pay off the nation's crippling debt.

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I think Russia & North Korea also apply this system.

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the aim in theory is to “go after the wealthy resident in the United States who is hiding money overseas,”

Except that I know a few of these wealth individuals... and they tell me the tax dodge is hilariously simple. They tell me that instead of getting paid out money from their investments they simply have their main companies set up overseas companies listed on the local stock exchange, and then use those companies to buy assets like holiday homes, cars, etc. These companies are nothing more than shells designed to hold assets. Often these shell companies have bank accounts that they draw from directly. Of course they aren't signatories, because then they'd have to declare, instead a local attorney is paid a small retainer, and they instruct them whenever they want money moved around, and hide behind attorney-client privilege.

... of course honest citizens have neither the money nor the criminal intent to go through all this to hide their assets, but the wealthy do. As usual the law triumphs over common sense.

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@Malrupete, we're a Japanese corporation. That's not a problem, the issue is all my income plus my U.S. company (not incorporated), which causes massive confusion and time wasting, and (apparently) the need to pay all taxes to both governments and hope that I get the duplicate part returned to me. That's the official way I'm supposed to do it...

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@Frungy, in general America (and Japan, always copying America a few years afterward) says, you need to declare all moneies you own anywhere in the world, and if you miss any accounts, you lose your right to them. Therefore most rich people will not message around and will declare their taxes. This is (I am sure) why Mitt Romney didn't release his tax returns before 2009: that was when there was an amnesty to declare your hidden money, and the money he'd been hiding would have been clear to everyone if he'd shown us his taxes.

(Japan starts this requirement next year, in case you file here but have assets elsewhere in the world.)

-1 ( +2 / -3 )

Having done my own taxes, mostly. As a resident of Japan and citizen of the USA, I have not had any problems or confusion in doing the tax returns. I don't and have not gone over the $95,000.00 Maximum foreign earned income exclusion though. The fortunate people who go over this amount, lucky you. Contributions made to IRA'S in America are generally pre-tax or not pre-tax depending on your options. Making a contributions while living in another country would be the same as working in America for a company that did not provide pre-tax contributions to a IRA. So I don't see or understand the sour part of filing, but like I said I m not making more than $95,000.00.

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The basic fact that an expat US citizen is even required to report foreign-earned income to Uncle Sam is utterly ridiculous regardless of the income level.

Best advice: obtain other citizenship(s) and renounce US citizenship. CYAssets.

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NO ONE can answer a simple question. I am a non SOFA (American) living in Japan (Okinawa). I retired after 26 years in the USAF and my wife sponsored me (she is Okinawan). My wife pays living taxes and every year I have to fight with City Hall. I have been retired since Nov 2009. I am not working and all that we have is my pension and savings (US Credit Union). All of my interest and pension comes from America and not Japan. I pay full taxes ( and taxes are taken out of my pension from the UNited States). Japan keeps telling me (through the city hall) that I must pay Japanese taxes on my US retirement pension and US savings interest. No one has been able to solve my issues and everyone seems confused. We is it so difficult, there are many retires living here and I seriously doubt that they are paying double taxes.

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im in the same situation twinans. Is there anyone out there that can answer this?

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@twinans and facto2

Are we talking about private or public pensions?

Public pensions are taxed only in the state of origin.

Private pensions, however, are taxed in the state of residence.

And AFAIK, all interest income is double taxed, but the cap is at 10%.

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