\nIf a resident pays foreign income taxes in accordance with foreign laws and ordinances on the same income from sources abroad, there\u2019ll be international double taxation.
\nIn order to adjust this double taxation, a certain amount of foreign income taxes can be credited against Japanese income tax.
\nThis system is called credit for foreign taxes.<\/p>\n
2 Calculation of credit for foreign taxes<\/h2>\n
Foreign income taxes can be credited against Japanese income tax for the year in which foreign income taxes are to be paid.
\nHowever, the credit for foreign taxes is limited to the amount calculated by the following formula (hereinafter referred to as a \u201ccredit limit\u201d). This means that the credit for foreign taxes is the amount of foreign income taxes to be paid in the year or the credit limit, whichever is smaller.<\/p>\n
![\"Japanese](\"http:\/\/www.nta.go.jp\/taxanswer\/images\/e12007.gif\")
<\/p>\n
Note 1: The \u201cAmount of Japanese income tax for the year\u201d is the amount after applying tax credits such as credit for dividends, special credit for loans relating to a dwelling, and credit for officially proclaimed natural disasters.<\/p>\n
Note 2:The \u201cTotal\u00a0amount of income for the year\u201d is the sum of the total income subject to aggregate taxation and incomes subject to separate taxation by filing (prior to applying special exemption).
\nIf a resident has applied carry-over of net losses, carry-over of casualty losses or other carry-overs of losses, incomes concerned will be the ones before applying these deductions.
\nIf the \u201cTotal amount of income for the year\u201d is less than the \u201cTotal amount of income from sources abroad for the year\u201d, the \u201cTotal amount of income for the year\u201d will be treated as the same amount as the \u201cTotal amount of income from sources abroad for the year\u201d.<\/p>\n
Note 3: The \u201cTotal amount of income from sources abroad for the year\u201d is the sum of the total income subject to\u3000aggregate taxation (excluding income from sources in Japan) and incomes subject to separate taxation by filing (excluding income from sources in Japan). Note 4: \u201cForeign income taxes\u201d qualified for the credit for foreign taxes are taxes that are imposed on individual income by foreign governments or its local authorities in accordance with foreign laws and ordinances. (a)\u3000A tax which a taxpayer can voluntarily claim a refund of after the tax was paid.<\/p>\n (b)\u3000A tax whose period of grace for payment can be decided voluntarily by a taxpayer.<\/p>\n (c)\u3000A certain amount of tax whose rate was determined from among multiple tax rates based on agreement between a taxpayer and foreign governments or its local authorities and so on.<\/p>\n (d)\u3000A tax which is equivalent to additions to a principal tax such as penalty and delinquent tax.<\/p>\n (e)\u3000A tax which is imposed on income derived from certain transactions which can\u2019t be considered as usual ones.<\/p>\n (f)\u3000If a resident has a non-resident taxpayer period in and before the year, a tax which is imposed on income arising during this period.<\/p>\n (g)\u3000A tax which is not taken into account for calculating the credit for foreign taxes by a provision of tax treaties.<\/p>\n (h)\u3000If a tax rate applied to a certain income exceeds a limited tax rate provided by tax treaties, the excess amount of tax over the amount calculated by using the limited tax rate.<\/p>\n (i)\u3000In the case of a non-permanent resident, a tax which is imposed on income on which Japanese income tax is not imposed.<\/p>\n \u3000A certain amount of foreign income taxes can be credited against Japanese income tax for the year in which foreign income taxes are to be paid. (1)\u3000If the conditions mentioned in both (a) and (b) below are met, the credit for foreign taxes by the carry-over mentioned in (c) below can be applied.<\/p>\n (a)\u3000Foreign income taxes to be paid in the year exceed the sum of the credit limit and the credit limit for local tax (30% of the credit limit for the year) for the year (the excess amount hereinafter referred to as an \u201cexcess over credit limits\u201d).<\/p>\n (b)\u3000There is the credit limit within the preceding three years which is carried over to the year (hereinafter referred to as a \u201ccredit limit carried over\u201d).<\/p>\n (c)\u3000The excess over credit limits for the year can be credited against Japanese income tax within the credit limit carried over.<\/p>\n [ Illustration ]<\/p>\n (2)\u3000If the conditions mentioned in both (a) and (b) below are met, the credit for foreign taxes by the carry-over mentioned in (c) below can be applied.<\/p>\n (a)\u3000Foreign income taxes to be paid in the year are less than the credit limit for the year (the balance hereinafter referred to as a \u201cremaining credit limit\u201d).<\/p>\n (b)\u3000There are foreign income taxes to be paid within the preceding three years which are carried over to the year (hereinafter referred to as \u201cforeign income taxes carried over\u201d).<\/p>\n (c)\u3000The foreign income taxes carried over can be credited against Japanese income tax within the remaining credit limit for the year.<\/p>\n [ Illustration ]<\/p>\n If foreign income taxes are abated in and after the following year of a year in which credit for foreign taxes was applied to those foreign income taxes, the following adjustments are necessary in applying the credit for foreign taxes in the year in which the foreign income taxes are to be abated. (1)\u3000When there are foreign income taxes to be paid in the year and the foreign income taxes are more than the abated amount<\/p>\n (a)\u3000Deduct the abated amount from the foreign income taxes to be paid in the year.<\/p>\n (b)\u3000Then, apply the credit for foreign taxes to the result of (a).<\/p>\n (2)\u3000When there are no foreign income taxes to be paid in the year or foreign income taxes to be paid in the year are less than the abated amount<\/p>\n (a)\u3000Deduct the foreign income taxes to be paid in the year from the abated amount.<\/p>\n (b)\u3000Then, subtract the result of (a) from the excess over credit limits within the preceding three years.<\/p>\n (3)\u3000If there is still unadjusted amount in the abated amount after applying (1) and (2) (1)\u3000In order to apply the credit for foreign taxes, it is necessary to state the amount to be credited in the final tax return, the amended return or the request for a correction to the tax return (hereinafter referred to as \u201creturns, etc.\u201d) and attach the \u201cDetailed statement for the credit for foreign taxes<\/a>\u201d, documents proving that foreign income taxes were imposed and a statement for the calculation of total amount of income from sources abroad, etc.<\/p>\n (2)\u3000In order to apply the credit for foreign taxes by the credit limit carried over or the foreign income taxes carried over mentioned in 3 above, the following procedures are needed:<\/p>\n (a)\u3000Have filed returns, etc. every year since the oldest year of years in which the carry-over has arisen and have stated the credit limit for each year and foreign income taxes to be paid in each year in each returns, etc.<\/p>\n (b)\u3000State the amount to be credited by the carry-over in the returns, etc. for the year in which the credit for foreign taxes by the carry-over is applied.<\/p>\n
\n<\/a>In the case of a non-permanent resident, the \u201cTotal amount of income from sources abroad for the year\u201d is limited to income on which Japanese income tax shall be imposed.<\/p>\n
\nBut the following taxes are not included in \u201cforeign income taxes\u201d, for example.<\/p>\n3 Credit for foreign taxes by carry-over<\/h2>\n
\nBut a year in which income from sources abroad arises and a year in which foreign income taxes are to be paid do not always correspond with each other.
\nIn order to adjust such mismatch of years, the difference between foreign income taxes and credit limits can be carried over to the following three years.<\/p>\n![\"explain](\"http:\/\/www.nta.go.jp\/taxanswer\/images\/e12007_2.gif\")
<\/p>\n![\"explain](\"http:\/\/www.nta.go.jp\/taxanswer\/images\/e12007_3.gif\")
<\/p>\n4 Adjustment when foreign income taxes are abated<\/h2>\n
\nIn the case of foreign income taxes abated on and after April 1, 2009, the adjustments are necessary, if foreign income taxes are abated within seven years from the following year of a year in which credit for foreign taxes was applied to those foreign income taxes.<\/p>\n
\nThe unadjusted amount will be included in gross income of miscellaneous income for the year.<\/p>\n5 Procedure for applying credit for foreign taxes<\/h2>\n