Income Taxes on Retirement Allowance (退職金) Received after Becoming a Nonresident of Japan

Retirement allowance paid after becoming a nonresident is subject to withholding tax at the rate of 20.42% for the portion of service in Japan. The retirement amount corresponding to the service in Japan is calculated by multiplying the retirement payment paid to the nonresident by the percentage of the period of service in Japan out of the total period of service. With regard to the retirement income of a nonresident, the calculation of the retirement allowance can be made in the same way as if the nonresident were a resident of Japan, in accordance with the provisions of the “Taxation on Retirement Income at the Taxpayer's Election"(退職所得についての選択課税). If you have worked in Japan for a long period of time, you may be entitled to a refund of withholding tax by applying the “Taxation on Retirement Income at the Taxpayer's Election"(退職所得についての選択課税).

In order to apply for the “Taxation on Retirement Income at the Taxpayer's Election"(退職所得についての選択課税),” you are required to submit a tax return. If you file your tax return from outside Japan, you are also required to appoint a tax agent in Japan and submit the "Notification of Tax Agent" to the national tax office.

In addition, if a foreigner who has been a participant in the Employees' Pension System in Japan returns to his/her home country and receives the Lump-sum Withdrawal Payment(脱退一時金), 20.42% of withholding tax will be deducted from his/her refund. Withholding income tax deducted from the Lump-sum Withdrawal Payment for Employees' Pension and other benefits may also be refunded by filing an income tax return. In this case, it is necessary to appoint a tax agent in Japan.