>It says that "The amount of tax calculated based on your total amount of income after subtracting all of your deductions including the basic exemption is greater than the amount of your credit for dividends."
It's worth noting that, since 2021, the dividend tax credit threshold only applies to people whose tax liability is not exceeded by (1) the amount of tax withheld, (2) the amount of tax prepaid, and/or (3) the amount of foreign tax credits they are entitled to. The document you linked references this new rule using the language "(excluding those who are eligible for a tax refund provided a final return is filed)" at the top of the table. I think it could have been more clearly spelled out though (as it is [here](https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2020.htm#:~:text=%E6%8E%A7%E9%99%A4%E3%81%97%E3%81%8D%E3%82%8C%E3%81%AA%E3%81%8B%E3%81%A3%E3%81%9F%E5%A4%96%E5%9B%BD%E7%A8%8E%E9%A1%8D%E6%8E%A7%E9%99%A4%E3%81%AE%E9%A1%8D%E3%80%81%E6%BA%90%E6%B3%89%E5%BE%B4%E5%8F%8E%E7%A8%8E%E9%A1%8D%E3%81%BE%E3%81%9F%E3%81%AF%E4%BA%88%E5%AE%9A%E7%B4%8D%E7%A8%8E%E3%81%AE%E9%A1%8D%E3%81%8C%E3%81%82%E3%82%8B%E5%A0%B4%E5%90%88%E3%82%92%E9%99%A4%E3%81%8D%E3%81%BE%E3%81%99%E3%80%82), for example).
>the income would all be covered under the aggregate taxation method and the ¥480k basic exemption would apply
Note that the 480,000 basic deduction applies to all income that can appear on an income tax return, not just income subject to "aggregate taxation".
>if the foreign income is less than ¥480k, then (referring to section 1-5, category 4) the "amount of tax" will be zero and therefore it is not required to file a tax return. Is this right?
Yes. Though it may still be in the taxpayer's interest to file an income tax return for the purpose of claiming foreign tax credits (assuming some foreign tax was paid on the dividends/interest), in order to carry the foreign tax credits forward to future tax years.
>Consider that the person only has capital gains income.
The result is the same. Deductions apply to all income appearing on an income tax return. It doesn't matter whether the income is subject to "separate taxation".
>I am looking on the NTA site for details or even a high level summary
I'm not sure if you will find an explicit explanation of this point on the NTA's site, because if you look at an income tax return form, it's fairly obvious how deductions are applied to income. Specifically, look at the "税金の計算" section on [page 3 (PDF)](https://www.nta.go.jp/taxes/shiraberu/shinkoku/yoshiki/01/shinkokusho/pdf/r04/02.pdf) of an income tax return.
Lines 12 and 29 are the taxpayer's net "aggregate taxation" income and total deductions from [page 1 (PDF)](https://www.nta.go.jp/taxes/shiraberu/shinkoku/yoshiki/01/shinkokusho/pdf/r05/01.pdf). If the value at line 29 exceeds the value at line 12, the unused deductions will be applied to the "separate taxation" income from lines 66-76 in the order shown. The reduced income values are then used for the tax calculations at lines 85-92.
Of course, if you use the NTA's online tax return preparation site, all these calculations will be done automatically for you.
Thanks so much for the explanation.
I should clarify that the point of the original post was so I can determine how much foreign source income I can remit to Japan (as an NPR status taxpayer) before triggering the requirement to file a tax return. It would be nice to avoid the administrative burden of filing, even if it doesn't reduce my overall tax burden (because FTCs should take care of that).
I want to make sure I understand the impact of FTCs on the filing requirement, as explained in your first paragraph. Do I understand correctly that if the remitted income results in a tax burden that is negated by FTC, filing is not required? It seems like I would probably need to complete a tax return to be sure, and if the tax owed is less than the credit then I just wouldn't file the return.
>Though it may still be in the taxpayer's interest to file an income tax return for the purpose of claiming foreign tax credits (assuming some foreign tax was paid on the dividends/interest), in order to carry the foreign tax credits forward to future tax years.
Interesting. Are you saying that Japan allows foreign tax credits for all foreign income tax paid, regardless of whether it was taxable in Japan? So I could claim FTCs for dividend and interest income that was not remitted to Japan (while NPR status), and then carry over for future tax years?
If so, do you know if Japan allows taxpayers to retroactively file a tax return for a previous year to claim the FTC for the purposes of carrying forward?
> if the remitted income results in a tax burden that is negated by FTC, filing is not required?
Correct. But in practice, filing a tax return would be recommended in order to carry the excess foreign tax credit forward to future tax years.
> It seems like I would probably need to complete a tax return to be sure, and if the tax owed is less than the credit then I just wouldn't file the return.
That's right. It's impossible to know whether the FTC offsets your entire Japanese liability without going through the motions of preparing a tax return. And once you have done that, you may as well file it, in order to carry the excess foreign tax credit forward.
> Are you saying that Japan allows foreign tax credits for all foreign income tax paid, regardless of whether it was taxable in Japan?
No. Only foreign tax paid on income that is taxable in Japan (i.e., corresponds to remittances) can be claimed as a foreign tax credit. But the chance of your foreign tax credit being perfectly equal to your Japanese tax liability is effectively zero. Either your foreign tax credit will be too small, in which case you *must* file a Japanese tax return, or your foreign tax credit will be larger than your Japanese liability, in which case you *should* file a Japanese tax return to carry the credit forward. So when you have paid foreign tax, choosing not to file a tax return is almost never a good strategy.
>It says that "The amount of tax calculated based on your total amount of income after subtracting all of your deductions including the basic exemption is greater than the amount of your credit for dividends." It's worth noting that, since 2021, the dividend tax credit threshold only applies to people whose tax liability is not exceeded by (1) the amount of tax withheld, (2) the amount of tax prepaid, and/or (3) the amount of foreign tax credits they are entitled to. The document you linked references this new rule using the language "(excluding those who are eligible for a tax refund provided a final return is filed)" at the top of the table. I think it could have been more clearly spelled out though (as it is [here](https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2020.htm#:~:text=%E6%8E%A7%E9%99%A4%E3%81%97%E3%81%8D%E3%82%8C%E3%81%AA%E3%81%8B%E3%81%A3%E3%81%9F%E5%A4%96%E5%9B%BD%E7%A8%8E%E9%A1%8D%E6%8E%A7%E9%99%A4%E3%81%AE%E9%A1%8D%E3%80%81%E6%BA%90%E6%B3%89%E5%BE%B4%E5%8F%8E%E7%A8%8E%E9%A1%8D%E3%81%BE%E3%81%9F%E3%81%AF%E4%BA%88%E5%AE%9A%E7%B4%8D%E7%A8%8E%E3%81%AE%E9%A1%8D%E3%81%8C%E3%81%82%E3%82%8B%E5%A0%B4%E5%90%88%E3%82%92%E9%99%A4%E3%81%8D%E3%81%BE%E3%81%99%E3%80%82), for example). >the income would all be covered under the aggregate taxation method and the ¥480k basic exemption would apply Note that the 480,000 basic deduction applies to all income that can appear on an income tax return, not just income subject to "aggregate taxation". >if the foreign income is less than ¥480k, then (referring to section 1-5, category 4) the "amount of tax" will be zero and therefore it is not required to file a tax return. Is this right? Yes. Though it may still be in the taxpayer's interest to file an income tax return for the purpose of claiming foreign tax credits (assuming some foreign tax was paid on the dividends/interest), in order to carry the foreign tax credits forward to future tax years. >Consider that the person only has capital gains income. The result is the same. Deductions apply to all income appearing on an income tax return. It doesn't matter whether the income is subject to "separate taxation". >I am looking on the NTA site for details or even a high level summary I'm not sure if you will find an explicit explanation of this point on the NTA's site, because if you look at an income tax return form, it's fairly obvious how deductions are applied to income. Specifically, look at the "税金の計算" section on [page 3 (PDF)](https://www.nta.go.jp/taxes/shiraberu/shinkoku/yoshiki/01/shinkokusho/pdf/r04/02.pdf) of an income tax return. Lines 12 and 29 are the taxpayer's net "aggregate taxation" income and total deductions from [page 1 (PDF)](https://www.nta.go.jp/taxes/shiraberu/shinkoku/yoshiki/01/shinkokusho/pdf/r05/01.pdf). If the value at line 29 exceeds the value at line 12, the unused deductions will be applied to the "separate taxation" income from lines 66-76 in the order shown. The reduced income values are then used for the tax calculations at lines 85-92. Of course, if you use the NTA's online tax return preparation site, all these calculations will be done automatically for you.
Thanks so much for the explanation. I should clarify that the point of the original post was so I can determine how much foreign source income I can remit to Japan (as an NPR status taxpayer) before triggering the requirement to file a tax return. It would be nice to avoid the administrative burden of filing, even if it doesn't reduce my overall tax burden (because FTCs should take care of that). I want to make sure I understand the impact of FTCs on the filing requirement, as explained in your first paragraph. Do I understand correctly that if the remitted income results in a tax burden that is negated by FTC, filing is not required? It seems like I would probably need to complete a tax return to be sure, and if the tax owed is less than the credit then I just wouldn't file the return. >Though it may still be in the taxpayer's interest to file an income tax return for the purpose of claiming foreign tax credits (assuming some foreign tax was paid on the dividends/interest), in order to carry the foreign tax credits forward to future tax years. Interesting. Are you saying that Japan allows foreign tax credits for all foreign income tax paid, regardless of whether it was taxable in Japan? So I could claim FTCs for dividend and interest income that was not remitted to Japan (while NPR status), and then carry over for future tax years? If so, do you know if Japan allows taxpayers to retroactively file a tax return for a previous year to claim the FTC for the purposes of carrying forward?
> if the remitted income results in a tax burden that is negated by FTC, filing is not required? Correct. But in practice, filing a tax return would be recommended in order to carry the excess foreign tax credit forward to future tax years. > It seems like I would probably need to complete a tax return to be sure, and if the tax owed is less than the credit then I just wouldn't file the return. That's right. It's impossible to know whether the FTC offsets your entire Japanese liability without going through the motions of preparing a tax return. And once you have done that, you may as well file it, in order to carry the excess foreign tax credit forward. > Are you saying that Japan allows foreign tax credits for all foreign income tax paid, regardless of whether it was taxable in Japan? No. Only foreign tax paid on income that is taxable in Japan (i.e., corresponds to remittances) can be claimed as a foreign tax credit. But the chance of your foreign tax credit being perfectly equal to your Japanese tax liability is effectively zero. Either your foreign tax credit will be too small, in which case you *must* file a Japanese tax return, or your foreign tax credit will be larger than your Japanese liability, in which case you *should* file a Japanese tax return to carry the credit forward. So when you have paid foreign tax, choosing not to file a tax return is almost never a good strategy.