Translation fees paid to “residents” are defined as remuneration under Article 204 of the Income Tax Act. Therefore, tax withholding is carried out at the time of payment without examining the content of the translation.

On the other hand, what about translation fees paid to “non-residents”? Are they naturally subject to taxation when the “non-resident” performs translation work overseas?

This time, we will examine the taxation implications when a “non-resident” performs translation work overseas.

Explanation

1. Non-Residents and Domestic-Source Income

Non-residents are only subject to taxation on domestic-source income (income arising within Japan) – unless their work results in copyrights being create.

If a payment for ‘translation’ constitutes a royalty payment for the use of a {resulting} copyrighted work, or consideration for the transfer of a copyright, it falls under Article 161, Paragraph 1, Item 11 (b) of the Income Tax Act , and is subject to income tax withholding at the time of payment.

[Income Tax Act – Article 161, Paragraph 1, Item 11 (b)]
Royalties for the use of copyrights (including publication rights, related/neighboring rights, and other similar rights) or consideration for their transfer

Furthermore, if a payment for translation constitutes remuneration for the provision of personal services within Japan, it falls under Article 161, Paragraph 1, Item 12 (a) of the Income Tax Act, and the payment of such compensation is subject to tax withholding.

However, if the work is performed outside Japan, the remuneration does not constitute domestic-source income, and is therefore not subject to taxation.

[Income Tax Act Article 161, Paragraph 1, Item 12 (a)]
Salaries, wages, remuneration, annual allowances, bonuses, or other payments of a similar nature, and other remuneration for the provision of personal services, arising from work or other provision of personal services performed within Japan

2. Key points for determining whether compensation paid to a non-resident for translation work constitutes a royalty for the use of a copyright or compensation for the transfer of a copyright –

When translated works constitute copyrighted material, and royalties are paid or the works are transferred, such payments constitute copyright royalties, and are subject to taxation.

Therefore, in a written contract between the client and the contractor for translation services, if the translated work is recognized as a work protected by the Copyright Act, it is considered subject to taxation.

[Copyright Act, Article 2, Paragraph 1, Item 1]
A ‘work of authorship’ means a creative expression of ideas or emotions that falls within the scope of literature, scholarship, fine arts, or music.

3. Key points for determining whether payments for translation services rendered by non-residents constitute payments for the provision of personal services within Japan –

When translation services are performed within Japan, they constitute provision of personal services within Japan, and are subject to taxation.

On the other hand, when translation services are performed outside Japan, they are not subject to taxation.

4. Conclusion

When translation fees are paid to residents, such fees constitute remuneration or fees under Article 204 of the Income Tax Act, and are subject to withholding tax.

On the other hand, when translation work is outsourced to non-residents abroad, if the translated work qualifies as a copyrighted work and payment of royalties or a transfer of that copyrighted work occurs, the payment constitutes copyright royalties and is subject to taxation. However, if the translated work does not qualify as a copyrighted work, related payments are not subject to withholding tax, and there is no requirement for withholding at the time of payment.

Therefore, regarding taxation of payments made to non-residents for translation work carried out overseas, it is necessary to determine whether or not the translated work constitutes a copyrighted work.