People sometimes get confused about the concept of tax Permanent Resident with Rermanent Resident for VISA. They are separate concepts.
Being a Permanent Resident (PR) for VISA does not necessarily mean you are a Permanent Resident for tax. PR for visa is a permission to stay and you can still decide how many days you stay in Japan and how many abroad. It is more like a reason or factor to be recognized as a tax resident. On the other hand, being recognized as a Tax Permanent Resident implies you have been in Japan for close to or more than a half of this year and more than 5 years in the last 10 years. Being a tax resident is a result of your life style or what you have done.
So, in short, PR for Visa is like a license or a status, while being a Tax Resident is more like result of your life style.
Definition of Tax Resident
A person who has a center of life in Japan is considered a Tax Resident. Center of life has another terminology called Domicile. Center of life is a relative word but it roughly means the location where you have a place to live, your job, your family and your majority of assets.
Precisely speaking, the definition of a tax resident is a person who has a domicile in Japan or a person who has a place to live for more than 1 year. Even though you don’t have or rent an apartment in Japan, but if you stay in a hotel for more than a year, you will probably be regarded as a resident.
It may happen that you have your family back in your country but you have a job here. And a notion of “domicile” is sometimes ambiguous, there are clauses in the tax law to presume a person is a resident or not as a resident. Since this is just a presumption by law, you may still argue and prove otherwise.
(Situation where your domicile is presumably in Japan: Income Tax Law Enforcement Ordinance, Article #14)
1-1) A person has a job that usually require to stay in Japan more than 1 year,
1-2) A person has Japanese nationality and has a spouse or his/her family who are under the same household. Or considering his/her job , his/her assets and other elements, there are factors that suggest this person has lived in Japan more than 1 year.
2) Family members of the above mentioned person shall also be regarded as a resident.
(Situation where domicile of a person is not presumed to be in Japan; Article #15)
1-1.) A person has a job that usually requires to stay more than 1 year abroad.
1-2.) A person has a foreign nationality or has a permission of Permanent Residency in another country(ies) AND he/she does not have a family member who lives under the same household.
2.) Family members of the person above are also presumed to be non-residents.
People always talk about the 183 days rule but it is not everything. You may stay in Japan a little bit more than 183 days and you can still be a non-resident if you have your house in your home country, family and a job. Domicile is a relative concept. The tax authority weighs all the elements and decide which country has the most weight in your life.
Since the concept of “Center of Life” is vague, the law has some clauses that assume person’s resident status based on his/her nationalities.
Definition of Tax Permanent Resident
A person who is a tax resident and not a non-permanent resident. A non-permanent resident is a person without Japanese nationality and a person who has not have domicile or a place to live more than 5 years in the past 10 years.
Impact of becoming a Tax Resident
Residents with Japanese nationality are globally taxable. The scope of taxable income for residents with foreign nationality depends on how long he/she has been in Japan. If it is under 5 years in the past 10 years, he/she is a non Permanent Resident (again by tax definition) whose taxable income are only Japan source income and foreign income that is brought into Japan. The money transferred from your saving is not taxable, of course.
On the other hand, Permanent Residents are taxable globally. It is the same taxable liability as residents with Japanese nationality.
Some income categories have different taxable rates between residents and non-residents. For example, salary income is taxable for both residents and non-residents. However, the tax rates are different; it is progressive tax rates starting from 15% to 55% for residents while it is just one tax rate (20.42%) for non-residents. The same goes for retirement income.
Property income is taxed with the same rate (5%-45%) between residents and non-residents. You will claim all the revenue and expenses. The only difference is deductions based on personal status. Non-residents cannot claim deductions based on the number of their family member dependents, for example.
Business income is a little bit tricky. Non-residents are not taxable unless they have a Permanent Establishment (e.g. office) except for typically high income vocation groups such as artists, sport athletes.