Japanese Income Tax on Military Retired Pay, VA Compensation and Social Security

Military retired pay. Article 18(2) of the U.S.-Japan income tax convention of 2003 makes a pension paid by a government in respect of services rendered to it taxable only in that country, unless the recipient is both a resident and a national of the other country. Treasury's technical explanation says pensions paid to retired civilian and military employees of either government are meant to be covered. Article 1(5) keeps Japan bound to this whatever the saving clause says about residents, so a U.S. retiree living in Japan who is not a Japanese national owes no Japanese income tax on retired pay. It stays taxable on the U.S. return. U.S. Social Security is treated differently. Article 17(1) makes pensions, including social security payments, taxable only in the country of residence, and the technical explanation confirms that U.S. Social Security falls under Article 17 rather than Article 18. Japan therefore taxes it. The saving clause in Article 1(4) is not lifted for Article 17(1), so the United States also keeps taxing a citizen's Social Security, and double tax is relieved by credit rather than by exemption. How Japan taxes a newcomer's other foreign income. Japan treats someone with a domicile in Japan, or who has lived there continuously for a year or more, as a resident. A resident who is not a Japanese national and has had a domicile or residence in Japan for five years or less in the preceding ten is a non-permanent resident, and the National Tax Agency's guide says a non-permanent resident is taxed on foreign-source income only to the extent it is paid in Japan or paid abroad and remitted to Japan. After five years, all worldwide income is in scope. VA disability compensation. No article of the treaty names it, and no National Tax Agency guidance or court ruling on it was found. Under the general rules above it is foreign-source income, so during the first five years it is reached only if paid in Japan or remitted there; after that, whether it is taxable turns on how Japanese law classifies a foreign government disability payment, which this entry cannot answer. Ask a Japanese tax office or a licensed tax accountant (zeirishi) before filing, and keep the VA award letter showing the payment is for a service-connected disability rather than for length of service. It is exempt from U.S. tax under 38 U.S.C. 5301.