The United States is virtually the only country in the world that taxes by nationality. US citizens and green card (permanent resident) holders must report their worldwide income to the US every year, no matter where on the planet they live. Even after 30 years in Tokyo, paying taxes in Japan. On top of that, under FATCA (the Foreign Account Tax Compliance Act), Japanese banks and brokerages report the account information of US persons to the US side. People born in the US to Japanese parents, children of Japanese-American couples, people who returned to Japan still holding a green card — in fact, quite a few people in Japan are "covered without knowing it." Using primary sources, we walk through the system and the exit (renouncing citizenship and the expatriation tax).
How it works: a filing obligation that follows you for life, even if you do not live there
Most countries tax "people who live in that country" (residence-based taxation). Japan works that way too: once you leave Japan and become a non-resident, Japanese taxation of your foreign income in principle stops. Only America is different.
| Japan (residence-based) | United States (citizenship-based) | |
|---|---|---|
| Basis of taxation | Domicile or residence (where you live) | Nationality or permanent residency (who you are) |
| If you move abroad | Taxation of foreign income ends, in principle | The obligation to report worldwide income continues |
| Who is covered | Residents of Japan (any nationality) | US citizens plus green card holders (wherever they live) |
The US Internal Revenue Service (IRS) states officially that "US citizens and resident aliens are subject to US income tax filing rules on their worldwide income even when living abroad." The United States is the only country that runs full-scale worldwide taxation based on nationality; the only other example usually cited is Eritrea, which levies a 2% tax on citizens living abroad.
That said, tools do exist to prevent paying twice.
- Foreign Earned Income Exclusion (FEIE) — people who live and work abroad can exclude up to 132,900 dollars a year (2026; about 19.9 million yen) of earned income such as salary from US taxation (subject to conditions such as the physical presence test)
- Foreign tax credit — income tax paid in Japan can be subtracted from the US tax bill. Japanese rates are often higher than US rates, so for many people the additional US tax is zero or small
- There is also a Japan-US tax treaty, but the US inserts a "saving clause" reserving the right to tax its own citizens regardless of the treaty, so citizenship-based taxation itself is not eliminated by treaty
The key point: even at zero tax, the filing obligation does not disappear. Even someone whose tax comes to 0 dollars after the exclusions must, once income exceeds a threshold, still file an annual tax return (US Form 1040) and meet the account-reporting obligations described next.
FATCA and FBAR: your Japanese bank accounts are reported to the US
You might think "they cannot know if I am overseas" — FATCA and FBAR are the net that closes that gap.
- FATCA, enacted in 2010, is a mechanism that makes financial institutions worldwide report the accounts held by US persons to the IRS. Institutions that refuse face 30% withholding on US-source payments, so in practice financial institutions everywhere participate
- Based on the Japan-US authorities' statement of June 11, 2013, Japan set up a framework under which Japanese banks, brokerages and insurers register with the IRS and report the accounts of consenting US persons to the IRS. Even non-consenting accounts can be covered through information exchange via the National Tax Agency under the Japan-US tax treaty
- When you open an account in Japan and are asked "Do you hold US citizenship or US permanent residency?", this framework is the reason
- Form 8938 (FATCA reporting by individuals) — for a single person living abroad, foreign financial assets exceeding 200,000 dollars (about 30 million yen) at year-end, or 300,000 dollars at any point during the year, must be reported as an attachment to the tax return (for US residents the thresholds are stricter, starting at 50,000 dollars at year-end)
- FBAR (Report of Foreign Bank and Financial Accounts) — if the combined balance of your non-US financial accounts exceeds 10,000 dollars (about 1.5 million yen) even once during the year, you must file Form 114 annually with the Treasury's Financial Crimes Enforcement Network (FinCEN). For a US citizen living in Japan, every ordinary Japanese bank account is a "foreign account"
- Failure to file either carries civil penalties (fines), and in egregious cases criminal penalties
Why it exists: the Civil War and "citizens who left the country"
The origins of citizenship-based taxation go back more than 160 years.
- It is generally traced to 1861, when the federal income tax was created to fund the Civil War and included a mechanism to tax the income of citizens abroad. The idea: as long as you remain a citizen, you enjoy the nation's protection even after leaving, and should share the burden
- In 1924 the Supreme Court ruled that "taxation based on citizenship is constitutional" (Cook v. Tait), settling the legal question
- What transformed modern enforcement was FATCA. After a scandal in the late 2000s in which a major Swiss bank was found helping Americans evade tax, the powerful mechanism of "making financial institutions worldwide report" was created in 2010
The "tax by nationality" rule itself has existed since the 19th century, but the ability to actually track people worldwide dates only from the past 15 years or so.
The result: people giving up citizenship, and the "exit tax" waiting at the door
- In the US, the names of people who renounce citizenship are published quarterly in the Federal Register. Tallies based on these publications show renunciations surging after FATCA took effect, with a record of about 6,700 in 2020. Levels have stayed high since, with about 5,500 in 2024 and about 4,900 in 2025
- The renunciation fee was raised in 2014 from 450 dollars to 2,350 dollars (about 350,000 yen), drawing criticism as "the highest in the world," but after litigation and other pressure it was lowered back to 450 dollars (about 68,000 yen) in April 2026 (US State Department schedule of consular fees)
Certain wealthy individuals owe an expatriation tax when giving up citizenship (or a green card). Anyone meeting any of the following is a "covered expatriate."
- Net worth of 2 million dollars (about 300 million yen) or more
- Average federal income tax liability over the past 5 years exceeding 211,000 dollars (2026; about 31.7 million yen)
- Unable to certify full compliance with US tax obligations for the past 5 years
- A covered expatriate is deemed to have sold all assets at market value on the day before expatriating, and the unrealized gains are taxed (deemed disposition). However, up to 910,000 dollars (2026; about 140 million yen) of gain is excluded
- Form 8854 must be filed upon expatriation; failure can incur a 10,000-dollar penalty
- Green card holders who were "long-term residents" — holding the card for 8 or more of the past 15 years — face the same expatriation tax when surrendering it
- Furthermore, there is a mechanism that taxes the US person who receives gifts or bequests from a covered expatriate, closing the loophole of "expatriate first, then pass assets to family"
The US follows birthright citizenship: anyone born in the US is automatically a US citizen. People born in the US during a parent's overseas posting who returned home soon after, or people born abroad to an American parent, may carry filing obligations without ever realizing it — they are called "Accidental Americans." In Europe, problems such as being unable to open bank accounts came to light, and under criticism the IRS created relief procedures in 2019. Renouncing citizens with net worth under 2 million dollars, total tax liability of 25,000 dollars (about 3.8 million yen) or less over the 6 years including the year of expatriation, and whose non-compliance was non-willful, are not treated as covered expatriates and past unpaid amounts are not collected.
Comparison with Japan: Japan's "exit tax" is residence-based
Japan also has two regimes called "exit tax," but both differ from the US in design philosophy.
| US expatriation tax | Japan's departure-time taxation | |
|---|---|---|
| Trigger | Giving up citizenship or permanent residency | Moving your domicile abroad (nationality irrelevant) |
| Who is covered | "Covered expatriates" — net worth of 2 million dollars or more, etc. | Certain residents holding 100 million yen or more in covered assets such as shares |
| What is taxed | Unrealized gains on all assets (910,000-dollar exclusion) | Unrealized gains on securities etc. (income tax plus special reconstruction income tax) |
| Introduced | Current regime since 2008 | From July 1, 2015 |
| Deferral | Tax deferral can be elected for some assets | Payment deferral available with procedures such as posting security |
- Japan's departure-time taxation exists to prevent "moving to a no-tax country with unrealized gains and selling there" — you settle once at departure, and that is the end. It is not a system like the US one where "you keep filing after leaving as long as you hold the nationality." We cover the details in our article on wealthy emigration and taxes
- Note that the International Tourist Tax (3,000 yen per departure from July 2026), which makes the news in Japan as a "departure tax," is a separate tax collected as a flat amount from everyone leaving the country. Only the name is similar; it has nothing to do with taxing the unrealized gains of the wealthy
"America taxing by nationality" versus "Japan taxing by residence" is not a question of which is right — it is a difference in design philosophy about where the bond between state and individual lies. The US model anchors fairness in nationality, but it is criticized for imposing annual filing and reporting burdens on ordinary citizens living abroad, and reform debates continue inside the US as well.
Cases that concern people in Japan: you cannot simply say "not our family"
Even living in Japan, people in the following situations may be touched by US filing obligations.
- People born in the US — someone born in the US during a parent's posting or study abroad is very likely a US citizen even without being aware of it, and filing and FBAR obligations can arise even while living in Japan
- Children of Japanese-American couples — a child born to an American parent is a US citizen from birth if conditions such as the parent's US residence history are met. Japanese nationality law asks dual nationals to resolve their status, but making the "declaration of choice" of Japanese nationality does not automatically extinguish US citizenship — renouncing US citizenship requires a separate US-side procedure (an oath at an embassy or consulate and the 450-dollar fee)
- People who returned to Japan still holding a green card — until you formally abandon it (such as by filing Form I-407), the filing obligation in principle continues for US tax purposes. Moreover, holding it for 8 or more of the past 15 years puts you in scope for the expatriation tax test at surrender. "I never use it" is not a defense
- People inheriting or receiving gifts from US-citizen family members — if there is a US citizen in the family, US estate and gift tax rules also come into play. We cover the basics of international inheritance in our article on foreign nationals and inheritance tax
If you may be affected, see a specialist before acting. In US tax matters, how you use the relief procedures (such as streamlined procedures for catching up on past filings) can change the outcome dramatically. Before ignoring the issue on your own judgment — or, conversely, hastily giving up citizenship or a green card — consult a tax accountant well versed in international taxation or a US Certified Public Accountant. The safe approach is to design the whole picture, including coordination with your Japanese filings (foreign tax credits and the like).
What to do today
What to do today
- Check your and your family's "points of contact with the US" — born in the US, an American parent, holding (or having held) a green card. Place of birth can be checked in the family register or a passport
- If anyone qualifies, list the total balances of their Japanese financial accounts — a combined total over 10,000 dollars (about 1.5 million yen) can trigger FBAR reporting
- Before proceeding on your own with any procedure (filing, or renouncing citizenship or a green card), book a consultation with a tax accountant versed in international taxation or a US CPA
FAQ
Q. I live in Japan and pay taxes in Japan — do I still need to file in the US?
A. US citizens and green card holders must file with the US every year once income exceeds a threshold, regardless of where they live. For many people the additional US tax is zero or small thanks to the Foreign Earned Income Exclusion (up to 132,900 dollars for 2026) and the foreign tax credit, but the filing obligation itself remains, along with FBAR and Form 8938 reporting when account balances exceed the thresholds.
Q. What is an "Accidental American"?
A. Because the US follows birthright citizenship, someone born in the US — for example during a parent's overseas posting — is automatically a US citizen. People born abroad to an American parent can also be citizens if conditions are met. Those who carry US filing obligations without realizing it are called "Accidental Americans." The IRS offers relief procedures that allow past matters to be settled without back payments for those with net worth under 2 million dollars and total tax of 25,000 dollars or less over 6 years, among other conditions.
Q. If I give up US citizenship or my green card, am I free of US taxes?
A. Income after you give it up is in principle no longer taxed, but there is a test at the exit. A "covered expatriate" — anyone with net worth of 2 million dollars or more, average tax over the past 5 years exceeding 211,000 dollars (2026), or unable to certify 5 years of tax compliance — is subject to the expatriation tax, which deems all assets sold at market value (with a 910,000-dollar exclusion). Green card holders with 8 or more years out of the past 15 are treated the same. We recommend consulting a specialist before starting the procedure.
Q. Are Japan's "exit tax" and the US exit tax the same thing?
A. No. Japan's departure-time taxation (since 2015) taxes unrealized gains when a resident holding 100 million yen or more in covered assets such as shares moves abroad — nationality is irrelevant. The US expatriation tax hits wealthy individuals when they give up citizenship or permanent residency. And the International Tourist Tax, reported in Japan as a "departure tax," is yet another tax, collected as a flat amount from everyone leaving the country.
References (sources)
* Figures are based on materials published as of August 2026. Dollar-to-yen conversions use an approximate rate of 1 dollar = 150 yen. Renunciation counts are reference figures tallied from names published in the Federal Register. How US filing obligations and relief procedures apply depends on individual circumstances. This article is general information about the system; for individual decisions, consult a tax office, a tax accountant versed in international taxation, a US CPA or another specialist.