We are Murata General Tax and Accounting Office, located in Miyakojima Ward, Osaka City, specializing in inheritance and international taxation.

Today, we would like to discuss the Japanese income tax treatment applicable to U.S. citizens who engage in YouTube activities while residing in Japan, a topic that has recently generated a number of inquiries.

 
1. Case Study

I am a U.S. citizen who moved to Japan three years ago and currently reside in Japan with my spouse, who is a Japanese national.

My primary occupation is being a YouTuber. All advertising revenue generated through my YouTube activities is deposited into my U.S. bank account. Since moving to Japan, I have periodically remitted funds from my U.S. account to my Japanese bank account to cover my living expenses.

In this situation, am I required to file a Japanese income tax return?

 
2. Answer

Under the Japan-U.S. Tax Treaty, YouTube advertising revenue is treated as Japanese-source income. Accordingly, regardless of whether funds are remitted to Japan, the income must be reported in Japan as business income.

In addition, such revenue is generally not subject to Japanese Consumption Tax.

 
3. Detailed Analysis under the Income Tax Act

(1) Classification of the Taxpayer
Because the individual maintains a domicile in Japan, he or she is classified as a resident for Japanese income tax purposes.

Furthermore, because the individual is a foreign national, he or she is generally classified as a non-permanent resident among Japanese tax residents.

 
(2) Treatment of YouTube Revenue
Advertising revenue earned through YouTube is generally treated as a royalty under Japanese income tax principles.

Article 95(4)(ix) of the Income Tax Act provides that royalties received from a person conducting business outside Japan constitute foreign-source income. Since YouTube revenue is typically paid by Google entities located outside Japan, such revenue would ordinarily be classified as foreign-source income.

However, Article 12 (Royalties) of the Japan-U.S. Tax Treaty provides that royalties beneficially owned by a resident of one Contracting State (in this case, Japan) shall be taxable only in that Contracting State.

Accordingly, the treaty allocates the taxing right exclusively to Japan.

Because the treaty provisions differ from the source rules under the Income Tax Act, the treaty prevails pursuant to Article 162(1) of the Income Tax Act. Therefore, the income is treated as Japanese-source income for Japanese tax purposes.

 
(3) Conclusion
Because the income is treated as Japanese-source income, it is taxable in Japan regardless of whether any funds are remitted to a Japanese bank account.

Accordingly, the YouTube income must be reported in Japan as business income.

 
4. Detailed Analysis under the Consumption Tax Act

(1) Requirements for Japanese Consumption Tax
A transaction is subject to Japanese Consumption Tax if all of the following conditions are satisfied:

The transaction is conducted in Japan;
The transaction is carried out by a business operator in the course of business;
Consideration is received;
The transaction involves the transfer of assets, leasing of assets, or provision of services.
In this case, all requirements other than the first one ("the transaction is conducted in Japan") are generally satisfied.

Therefore, the key issue is whether the transaction constitutes a domestic transaction.

 
(2) What Constitutes a Domestic Transaction?
The provision of advertising services through YouTube is classified as a telecommunications service under Article 4(3) of the Consumption Tax Act.

The National Tax Agency has also identified:

"Advertising distribution and placement via the Internet and similar networks"
as a typical example of telecommunications services.

Reference:

NTA Guidance on Cross-Border Digital Services

For telecommunications services, whether a transaction is domestic or foreign is determined based on the location of the recipient of the service.

In this case, the recipient of the advertising service is generally Google, which is located outside Japan.

Therefore, the transaction is treated as a foreign transaction rather than a domestic transaction.

 
(3) Conclusion
Because the transaction does not satisfy the requirement of being conducted in Japan, it falls outside the scope of Japanese Consumption Tax.

 
In this article, we have discussed the Japanese income tax and consumption tax treatment applicable to U.S. citizens who earn advertising revenue through YouTube while residing in Japan.

If you are facing a similar situation or have questions regarding international taxation, please feel free to contact us through our inquiry form.