Why is tax withheld once you are a "non-resident" of Japan?

Guidance about the lump-sum payment keeps using the word "non-resident". This article covers only what that word means in the context of reclaiming the tax withheld from the lump-sum.

"Non-resident" is about where you live, not your nationality

In Japanese tax law, "resident" and "non-resident" are decided by whether you actually live in Japan, regardless of nationality. Once someone who lived and worked in Japan leaves for another country, they are a non-resident under Japanese tax law from that point on.

That is why one of the conditions for the refund is living outside Japan now. It is also why there is no nationality requirement beyond not holding Japanese nationality — the test is where you live, not what passport you hold.

How that timing relates to the lump-sum

The lump-sum payment is claimed after you have left Japan. In other words, you are already a non-resident when it is paid. As explained in the retirement income taxation election, the tax being withheld without the deduction a resident would get follows directly from that non-resident status.

So how do you undo it?

The withholding itself cannot be prevented. Instead you file the election afterwards, have the tax recalculated on a resident basis, and reclaim the difference.

This article is limited to the Employees' Pension lump-sum case. Non-resident taxation of other income — salary, interest, dividends — is not covered and needs to be checked separately.