Individuals may come to Japan while holding assets outside of Japan. For example, someone who decides to marry and live in Japan might own real estate in the United States. If they attempt to sell these assets after residing in Japan for over ten years, they may be required to pay income tax even if no profit is realized in USD.
You may be surprised by the tax amount when calculating, so it’s essential to pay close attention to timing and exchange rate.
Need to Convert to Japanese Yen In Japan’s Income Tax System
When living in Japan from outside the country, it’s easy to think you only hold foreign currency.
However, when calculating Japanese income tax, you need to calculate a profit in Japanese yen.
Let’s look at an example.
I bought a $100,000 condo ten years ago and sold it this year. The sale price was $100,000. Since I didn’t make any profit, I figured I wouldn’t have to pay taxes on it.
You might think this way.
However, you need to look closely at the exchange rate.
Suppose the exchange rate was JPY120 ten years ago and JPY150 this year.
- Sale price: $100,000 × JPY150 = JPY15,000,000
- Purchase price: $100,000 × JPY120 = JPY12,000,000
You’ve made a profit of JPY3 million. This amount is subject to taxation.
This differs significantly from the general public’s perception, so caution is necessary.
Legal Basis
Looking at the Income Tax Act, the legal basis is found here.
(Income Tax Act Article 57-3 Conversion of Foreign Currency Transactions:所得税法 第57条の3 外貨建取引の換算)
居住者が、外貨建取引を行つた場合には、当該外貨建取引の金額の円換算額は当該外貨建取引を行つた時における外国為替の売買相場により換算した金額として、その者の各年分の各種所得の金額を計算するものとする。
When a resident engages in a foreign currency transaction, the yen equivalent of the amount of such foreign currency transaction shall be calculated based on the foreign exchange buying and selling rates prevailing at the time of the transaction, and shall be used to calculate the amount of the resident’s various types of income for each year.
I’ve highlighted the harder-to-read parts for you.
In short, this means you should convert it to yen at the time of the transaction.
Generally, you’ll want to convert your profits into dollars.
For example, like this:
- (USD100,000-USD100,000)xJPY150
However, this approach is explicitly prohibited, so you need to be cautious.
Take Care of Yen’s Weakening Trend
Looking back 10 years from 2025, the exchange rate hovered around JPY120.
And in 2025 itself, it was around JPY150.
Therefore, cases like this one, where taxation occurs, are likely to arise.
Since this is something you can avoid if you’re aware of it, make sure to keep a firm grasp on how much you hold in JPY.
