An explanation of foreign tax credit for residents of Japan
Let’s assume that you have been living in Japan for more than five years.
Then, you are a permanent resident for tax purposes.
Then, if you have an income of 3 million yen in the Philippines, you will also be taxed on 3 million yen in Japan.
However, you have already paid income tax on 3 million yen (profit) to the Philippine tax office.
If you also pay income tax on 3 million yen to the Japanese tax office, you will be paying income tax twice.
In this case, you can apply for a foreign tax credit.
You also have an income of 2 million yen in Japan.
In this case, the calculation formula for the foreign tax credit is as follows.
3 million yen + 2 million yen = 5 million yen
And, you can calculate the income tax in Japan for 5 million yen. Let’s assume it is 10 yen.
10 yen x 3 million yen / 5 million yen = 6 yen
If you have already paid 6 yen or more in the Philippines, you can apply for a foreign tax credit of 6 yen.
Therefore, you only need to pay 4 yen to the Japanese tax office.