We are Murata Sogo Tax & Accounting Office, specializing in inheritance and international taxation, with an office in Miyakojima-ku, Osaka City.

In this issue, we will discuss the treatment of U.S. withholding tax when remitting funds from a U.S. IRA account to Japan.

1. Case 

I am a resident of Japan. I recently returned to Japan after having worked in the U.S. for about 30 years. I made a fixed amount conversion from an IRA account that I had accumulated while in the U.S. and began remitting the funds to my account in Japan. Previously, an 11% withholding tax was deducted, but I have been informed that the tax rate will be 30% from now on. In this case, how will the Japanese and U.S. taxes be handled?

2. Treatment on the Japanese side

The income is exempt from taxation in the U.S. based on Article 17 (1) of the U.S.-Japan Tax Treaty, which provides for taxation rights in Japan as the country of residence.
For Japanese residents who are not U.S. citizens or green card holders, unless the pension is paid by the U.S. government or a U.S. local government, it is subject to taxation in Japan, and tax returns must be filed.

3. Treatment on the U.S. side

If you were in the U.S. on a visa or have already surrendered your green card, you are exempt from withholding tax in the U.S. if you file a W-8Ben. However, there may be a time lag due to tax treaty procedures, and 30% withholding may be triggered, in which case the tax will be recovered on the U.S. return using the tax treaty.

In this case, we have introduced an example of a Japanese resident receiving a U.S. IRA, but the same treatment applies to a Japanese resident receiving a 401K instead of an IRA. If you have any questions about this case, please contact us through the inquiry form.