Working for yourself in Japan, and filing in two countries.

Freelancers, consultants and small business owners have the most moving parts of any client this office sees: two tax systems, two sets of deadlines, and one social security question that decides a large part of the bill.

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The 15.3% question

The foreign earned income exclusion and the foreign tax credit address U.S. income tax. Neither of them touches self-employment tax, which is charged at 15.3%. A profitable first year in Japan is often where people discover this.

The U.S.–Japan totalization agreement decides which country’s social security system you belong to. If you are covered by the Japanese system, a Certificate of Coverage from the Japan Pension Service is the document that supports the position on your U.S. return. Getting that certificate is part of the engagement, not an afterthought.

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What gets handled on each side

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Fee

¥275,000 + ¥55,000 = ¥330,000 per year, typical.

That is the combined U.S. and Japan annual plan plus the self-employment addition. First-year setup: +¥55,000, one time.

Every engagement begins with a fixed written quote.

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Questions

I already pay into the Japanese pension system. Do I still owe U.S. self-employment tax?

If you are covered by the Japanese system and hold a Certificate of Coverage, the totalization agreement is intended to prevent the same earnings being charged twice. The certificate is the evidence for the position, so it is obtained before the return is filed rather than after.

Is the blue return worth filing?

For most self-employed people with proper books it is, because of the deduction and the treatment of losses. It has to be elected in advance, which is why the first year is the one that matters.

Do I need invoice registration?

It depends entirely on who your customers are. Registration is not automatically in your interest, and we would rather look at your actual invoices than give a general answer here.

Should I incorporate in Japan?

Sometimes, and rarely for the reason people expect. A Japanese company owned by a U.S. person brings its own U.S. reporting, which has to be weighed against the Japanese saving before anything is decided.

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