Avoiding Double Taxation

I’ve been doing a lot of tax-related entries lately because I’ve learned a lot during this period when my tax situation got more and more complicated, and believe this can help people.

As I’ve been working in Japan, I am a tax resident of Japan. So when I recently joined the Korean startup, they initially wanted to take 22% off my salary, which is the tax rate in Korea for non-resident foreigners. Upon discussion with a friend who is a director at Ernst & Young, I learned that there is the likelihood of a tax treaty between Japan and Korea. Tax treaties are usually formed between major economic nations to avoid double taxation. These can be found online and the part of concern is normally listed in Article 14. So, if you need to find out whether it applies to you, go search for it online.

The article would most likely look something like this:

1.Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contracting State unless:

(a) he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; or

(b) he is present in that other Contracting State for a period or periods amounting to or
exceeding in the aggregate 183 days in the calendar year concerned.

If he has such a fixed base or remains in that other Contracting State for the aforesaid period or periods, the income may be taxed in that other Contracting State but only so much of it as is attributable to that fixed base or is derived in that other Contracting State during the aforesaid period or periods.

As with all legal documents, this is quite complicated to comprehend. To put it in layman’s term, your income should only be taxed in the country you live in unless 1) you have an office in the foreign country required for you to perform your duties; or 2) you spend 183 days or more in the calendar year (Jan 1 to Dec 31) in the foreign country. In that case, you will be taxed in the foreign country only, for the part of income that comes from the foreign country.

In my case, I get to keep the 22% and will pay taxes for that part of income from Korea in Japan only, so I don’t get taxed twice. Depending on how much your total income is, this difference can be quite substantial. Further, you can mark this additional income as a fee instead of salary, which means you can write a lot of things off as expenses as opposed to regular salary.

Interestingly, tax-related posts don’t seem very popular among my readers perhaps because it doesn’t apply to most people. Maybe I’ll stop writing about it.


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