The tax treaty between Japan and US states that US nationals in research and teaching professions are exempt from paying income tax for their first two years working in Japan (and vice-versa). Article 20 states:
An individual who visits a Contracting State temporarily for the purpose of teaching or conducting research at a university, college, school or other educational institution in that Contracting State, and who continues to be a resident, within the meaning of paragraph 1 of Article 4, of the other Contracting State, shall be exempt from tax in the first-mentioned Contracting State on any remuneration for such teaching or research for a period not exceeding two years from the date of his arrival.
The provisions of paragraph 1 shall not apply to income from research if such research is undertaken primarily for the private benefit of one or more specific persons.
What constitutes a resident is outlined in article 4, paragraph 2:
Notwithstanding the provisions of paragraph 1, an individual who is a United States citizen or an alien lawfully admitted for permanent residence in the United States under the laws of the United States shall be regarded as a resident of the United States only if the individual: (a) is not a resident of Japan under paragraph 1;
(b) has a substantial presence, permanent home or habitual abode in the United States; and
(c) for the purposes of a convention or agreement for the avoidance of double taxation between Japan and a state other than the United States, is not a resident of that state.
I'm not clear about how to interpret this for my situation. I:
- am moving to Japan to work as a researcher
- have been living outside of the US since about 9 years, currently living in France and paying income tax in France (but filing US taxes every year)
- have not been resident in the US for any period during that time
- planning to move from France directly to Japan
- have been taking FEIE in all of my US tax returns
- have no 'permanent home' in the US, although I'm registered to vote via the house I grew up in.
- have no plans to return to the US.
To benefit from the income exemption I have to be considered a US resident. I'm not sure whether being a US national implies that I am (because I could be) a US resident or not. The definition of 'resident' in Japan seems to hinge upon whether or not I pay taxes to Japan. But whether or not I pay taxes in Japan seems to hinge upon whether or not I am a resident in the US. So the whole thing feels pretty recursive.
Questions: 1) Am I considered a US resident under these circumstances? I'm guessing not. 2) If I am (and the exemption is therefore possible) are there any nonfinancial benefits or drawbacks for being considered a US resident under these circumstances? And would I then be paying US income taxes instead of Japanese ones?
For what it is worth, I accepted the position and calculated my cost of living based on the assumption that I'd be paying Japanese income taxes, and I'd rather pay that than US income tax. I'm just not sure what I'm actually supposed to be doing here.