September, 2024

No.4

Outline of Taxation of Foreign Professional Athletes in Japan
Tsutomu Endo
1.

Introduction

In Japan, the sports industry is experiencing rapid growth. While baseball (NPB) and soccer (J League) havetraditionally been the most popular sports in Japan, the professional league of basketball (B.LEAGUE) is also
gaining traction, and it has been announced that a new league of volleyball (SV League) will be established and isplanned to become a professional league in the near future. This expansion is attracting top international talentfrom around the globe. For professional athletes, their agents and advisors, understanding Japan’s tax systems,
including their potential pitfalls, is crucial for navigating their careers. The complexity of tax regulations,especially concerning international taxation, potentially causes many tax issues that could significantly impact
their financial positions. Recently, a news report highlighted that some foreign soccer players 1 had different
views on their tax residency from that of the Japanese tax authority, which led to substantial reassessments
imposing additional tax liabilities 2. This newsletter outlines the Japanese tax systems applied to foreign athletes
playing in Japan, especially focusing on tax treatment of remuneration paid by the club to such athletes.

2.

Outline of taxation

For foreign professional athletes moving to Japan, and those already living/working in the county, the most
relevant taxes are income tax and consumption tax. With regard to income tax, if the athlete is a non-resident ofJapan for the purpose of Japanese tax law, he or she is subject to income tax in Japan only with respect to domestic
source income as enumerated in the Income Tax Act. In addition, in principle, income tax is imposed by way oftax withholding and he or she is not obliged to file an income tax return. On the other hand, if the athlete is aresident of Japan for the purpose of Japanese tax law, he or she is subject to income tax in Japan with respect toworldwide income. However, if he or she is considered a non-permanent resident3, the scope of income taxation
is limited to domestic source income and other income paid in or remitted to Japan. Further, in principle, theathlete must file an income tax return with the competent local tax office every year.
With regard to consumption tax, if an athlete is considered as an employee under the employment contract withthe club, basically, he or she is not subject to consumption tax, while, if he or she is considered as a sole proprietor,
he or she is subject to consumption tax. It depends on the type of sport and its typical contract practice, but,under Japanese practice, in most sports, such as baseball and soccer, professional athletes are treated as sole
proprietors, and accordingly, are subject to consumption tax in Japan. If the athlete is a non-resident of Japanand the taxable sales arise from a provision of services as an entertainer or sportsperson, such taxable sales are
subject to consumption tax by way of a reverse-charge mechanism. On the other hand, an athlete who is aresident of Japan is obliged to file a consumption tax return with respect to his or her taxable sales in Japan.

1 One of them is Andrés Iniesta, who is a former soccer player on the Spanish national team.
2 https://www.asahi.com/ajw/articles/15206848
3 A non-permanent resident is a resident who does not have a Japanese citizenship and has been domiciled or has resided in Japanfor five years or less in the past ten years.

© 2024 Nagashima Ohno & TsunematsuNon-Resident

Income tax

Consumption tax

Scope of Taxable Income: Domestic
source income-Reverse-charge mechanism forprovision of service as entertaineror sportsperson-

Filing tax return for other sales-

Filing tax return

Taxation Method: Tax withholding

Resident

NonPermanent
Resident

Scope of Taxable Income: Domestic
source income + foreign source
income paid in or remitted to Japan
Taxation Method: Filing tax returnOthers

Scope of Taxable income: Worldwide
IncomeTaxation Method: Filing tax return3.

Tax residency

As is shown in 2. above, tax residency is an essential issue for the tax treatment of foreign athletes. For thedetermination of tax residency, some countries adopt simple and clear criteria using the number of days present
in the country (e.g., so called “183-day rule”), but, Japanese tax law does not adopt such approach. Instead,under Japanese tax law, a person is considered as a resident of Japan if he or she is domiciled or resides
continuously for one year or more in Japan. Whether or not a person is domiciled in Japan is determined basedon all the relevant facts and circumstances. The main factors for such determination are, according to former
judicial decisions, the number of days present, the location of their home, their occupation, the location of theirfamily and the location of their assets.
In this respect, for foreseeability, the National Tax Agency of Japan published a Q&A with respect to tax residency
of foreign professional athletes. Following is an outline of the Q&A.
Question: I do not have Japanese citizenship. I, as a professional athlete, execute a contract with a Japaneseclub and move to and play in Japan. (i) The period of my contract is 11 months, (ii) my family will not movewith me, and (iii) I will vacate my residence/domicile in Japan and return to my home country after the season
has finished. Am I considered as a resident or non-resident of Japan for income tax purposes?
Answer: Based on the above facts, generally, since the athlete is not considered to be domiciled or to residecontinuously for one year or more in Japan, he or she is treated as a non-resident of Japan. However, theathlete may be considered as a resident of Japan (a) if the period of the contract is considered to be substantiallymore than one year, (b) the athlete is considered to substantially bring his or her family to Japan (e.g., his or her
family stays in Japan for almost all of the season or his or her family goes to school in Japan), or (c) if the athlete
leaves his or her belongings at his or her residence/domicile, or places such belongings in the care of domestic
business operator, when he or she goes back to their home country after the season has finished.

If the athlete plays in Japan only for one year, it is relatively clear that he or she is considered to be a non-residentof Japan for the purpose of Japanese tax law. However, if it is more than one year, the tax residency issue must
be carefully examined.
Such uncertainty causes a tax risk that the athlete originally takes the position that he or she is a resident of his or
her home country and a non-resident of Japan, but, the Japanese tax authority later reassesses his or her income
tax liability by arguing that he or she is a resident of Japan. In such case, as a result, the athlete is treated as a- 2 -© 2024 Nagashima Ohno & Tsunematsu

resident in both his or her home country and Japan, and accordingly, subject to double resident taxation 4. In
order to avoid such scenario, tax residency must be carefully examined.
In the following, we will focus on the difference in tax treatment of remuneration received from a Japanese club
by a foreign athlete who is a non-resident (in 4.) and a resident (in 5.).

4.
(1)

Taxation of remuneration received by non-resident athletes
Income Tax

The remuneration paid by a club to a non-resident foreign professional athlete falls under domestic source income,and therefore, is subject to income tax by way of tax withholding, the tax rate on which is 20.42%. The
withholding tax is the final tax and the athlete is not obliged to file an income tax return separately. Such taxation
is basically not exempted by tax treaty because most of the tax treaties concluded by Japan allocate the taxing
right to Japan as the source country with respect to income earned by entertainers and sportspersons in Japan.
(2)

Consumption Tax

In principle, remuneration paid to non-resident foreign athletes is subject to consumption tax at the rate of 10%
by way of a reverse-charge mechanism, under which the club rather than the athlete is liable for the consumption
tax on the remuneration. Such amount is, at the same time, deductible as an input consumption tax in theconsumption tax filing of the club. Therefore, the athlete is not liable for the consumption tax in relation to hisor her remuneration.

5.
(1)

Taxation of remuneration received by resident athletes
Income Tax

Remuneration paid to resident foreign athletes is subject to income tax at progressive rates. The maximum rate,including special income tax for reconstruction and inhabitant tax, is set at 55.945%. In principle, the athlete isobliged to file an income tax return with the competent local tax office by March 15 of the following year. Inaddition, with respect to certain types of sports such as baseball and soccer, income tax is withheld by the clubfrom the remunerations paid to the athlete at the rate of 10.21% 5, but, such tax withheld is creditable against theincome tax amount in the final tax return.
The following table shows the tax rate applicable based on taxable income:Taxable income

Tax rate

JPY 1,000 to 1,949,000

15.105%

JPY 1,950,000 to 3,299,000

20.21%

JPY 3,300,000 to 6,949,000

30.42%

JPY 6,950,000 to 8,999,000

33.483%

JPY 9,000,000 to 17,999,000

43.693%

JPY 18,000,000 to 39,999,000

50.84%

JPY 40,000,000 over

55.945%

4 As mentioned in 1. above, when auditing Andrés Iniesta, a famous soccer player, the Japanese tax authority treated him as aresident of Japan for the purpose of Japanese income tax. On the other hand, he was also treated as a resident of Spain forSpanish income tax purposes. As a result, he was subject to resident taxation in both countries. It has recently been reported
that he is trying to mitigate the double taxation by using the mutual agreement procedure (MAP) between the Spanish andJapanese tax authorities.
5 20.42% for the income exceeding JPY 1 million.

- 3 -© 2024 Nagashima Ohno & Tsunematsu

(2)Consumption Tax

If the resident foreign athlete is considered as a sole proprietor rather than an employee, the remuneration paid
to the athlete is subject to consumption tax at the rate of 10%. In such case, since the reverse-charge mechanism
is not applicable, in principle, the athlete is obliged to file a consumption tax return with the competent local tax
office by March 31 of the following year. However, if the taxable sales in the two preceding year is JPY 10 million
or less, the athlete is exempted from the consumption tax liability under the exemption rule for a small business.
On the other hand, in the event that the exemption rule for a small business is applicable, in principle, the clubcannot deduct consumption tax on the remuneration as input consumption tax in its consumption tax return.
Therefore, the club may not allow the athlete to use the exemption rule for a small business. In addition, if thetaxable sales in the two preceding year is JPY 50 million or less, the athlete is entitled to deduct a fixed percentage
of consumption tax as input consumption tax in his or her consumption tax return.

6.

Conclusion

As explained above, the tax treatment of remuneration and other income earned by foreign professional athletes
is significantly different between a foreign resident and foreign non-resident, and as such, foreign athletes may
face a difficult situation in relation to the determination of the tax residency due to its uncertainty. In particular,
as in the case of Andrés Iniesta, if the athlete originally treats him or her as a non-resident of Japan, and instead,a resident of his or her home country, but the Japanese tax authority later denies such position, he or she is subject
to resident taxation in both countries. Therefore, it is necessary to carefully examine an athlete’s tax position in
Japan by consulting with legal and tax advisors. Lastly, please note, though this newsletter does not address, thatthe issue of taxation of royalties with respect to image rights and fees for advertisement should not be overlooked.
September 5, 2024

[Author]

Tsutomu Endo (Nagashima Ohno & Tsunematsu Partner)
tsutomu_endo@noandt.com

Tsutomu Endo is a partner at Nagashima Ohno & Tsunematsu. Mr. Endo engages in many tax
advice and planning matters related to a variety of transactions such as international transactions
and corporate restructuring transactions, and, also represents taxpayers in many tax disputecases including transfer pricing cases and cross-border business restructuring cases. With
respect to sports taxation, Mr. Endo advises professional athletes, companies and sports leagues
and organizations, as well as making a presentation regarding tax issues of foreign professional
athletes in Sports Business Subcommittee of Research Commission for the Establishment of aSports Oriented Nation of the Liberal Democratic Party, the Japanese ruling party.
Tsutomu Endo received B.A. from the University of Tokyo in 2006, Juris Doctor from the Universityof Tokyo in 2009, Master of Corporate Law (MCL) from the University of Cambridge in 2016, andLL.M. in International Tax Law from Vienna University of Economics and Business(Wirtschaftsuniversität Wien) in 2017.

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