Introduction
Foreign nationals who have worked in Japan may be eligible to claim a Lump-Sum Withdrawal Payment from the Employees’ Pension Insurance system after ceasing to have an address in Japan. In addition, Japanese income tax withheld from the payment may, in certain cases, be wholly or partially refunded through Japan’s elective taxation system for retirement income.
These are two completely separate systems. The Lump-Sum Withdrawal Payment is a social insurance benefit administered by the Japan Pension Service, while elective taxation of retirement income is an income tax mechanism administered by the Japanese tax authorities. They intersect because an Employees’ Pension Lump-Sum Withdrawal Payment is treated as a retirement payment for Japanese income tax purposes. They also need to be considered together with the individual’s departure-year tax filing and the possible appointment of a Japanese Tax Representative.
What is the withdrawal lump-sum payment from the Employees' Pension?
The Employees’ Pension Lump-Sum Withdrawal Payment is available to certain non-Japanese nationals who leave the Japanese public pension system and no longer have an address in Japan.
The main requirements generally include not being a Japanese national, no longer being insured under a Japanese public pension system, having at least six months of qualifying pension coverage, not having satisfied the ten-year qualifying period for an old-age pension, never having acquired entitlement to certain disability pension benefits, having no address in Japan, and filing the claim within the applicable statutory period after losing pension coverage or ceasing to have an address in Japan.
The relevant condition is not simply whether the individual has physically left Japan, but whether the individual has ceased to have an address in Japan. The Japan Pension Service permits a claim form to be sent from within Japan after a municipal moving-out notification has been filed, provided that the form reaches the Japan Pension Service on or after the scheduled moving-out date.
Under the current system, the calculation period is generally capped at five years
For certain Employees’ Pension Insurance coverage periods from April 2021 onward, the current maximum period used in calculating the Lump-Sum Withdrawal Payment is 60 months, or five years.
However, legislation enacted in 2025 provides for future changes to the Lump-Sum Withdrawal Payment system, including an increase in the maximum payment calculation period from five years to eight years and changes affecting foreign nationals who leave Japan with re-entry permission. These are future reforms and are not the same as the rules currently in force.
Once a Lump-Sum Withdrawal Payment is received, the Japanese pension coverage periods preceding the claim will generally no longer count toward future Japanese pension entitlement. The possible use of a social security agreement and the prospect of receiving a Japanese pension in the future should therefore be considered before making a claim.
The pension payment and elective taxation are separate systems
The Lump-Sum Withdrawal Payment is a social insurance benefit claimed from the Japan Pension Service.
Elective taxation of retirement income, by contrast, is a Japanese income tax mechanism available to a non-resident who receives qualifying Japan-source retirement payments.
Claiming the Lump-Sum Withdrawal Payment does not automatically trigger the tax refund procedure. After the payment has been made and the amount of Japanese tax withheld has been confirmed, a separate filing must be made with the Japanese tax authorities if the individual wishes to use the elective taxation system.
A withholding tax of 20.42% is generally applied
Under the income tax law, one-time payments made based on the Employees' Pension Insurance Act, etc., are considered "retirement benefits, etc." in certain cases.
When a non-resident receives the withdrawal lump-sum payment from the Employees' Pension Insurance, the Japan Pension Service generally withholds 20.42% of the payment amount as income tax and special reconstruction income tax. The Japan Pension Service itself also explicitly states this treatment in the information regarding the withdrawal lump-sum payment.
This 20.42% is not necessarily the final amount of income tax in Japan. By utilizing the option for taxation on retirement income, residents may be able to recalculate the tax amount in a manner similar to when they receive retirement benefits, and receive a refund for all or part of the withheld tax amount.
What is elective taxation of retirement income?
When a non-resident receives retirement allowances based on work performed during the period they were a resident, they are generally subject to withholding tax at a rate of 20.42% on the payment amount.
Article 171 of the Japanese Income Tax Act allows the non-resident to elect to calculate Japanese tax by treating the total qualifying retirement payments received during the relevant year as if they had been received by a resident of Japan. This is referred to as elective taxation of retirement income.
Under the election, the Japanese retirement income deduction and the relevant retirement income calculation are applied. However, ordinary personal income deductions used in a standard Japanese income tax return, such as the basic deduction or certain family and medical deductions, are not generally available under this special election. The National Tax Agency’s filing example expressly states that ordinary income deductions do not apply.
Accordingly, the system does not mean that the entire 20.42% withholding is automatically refunded. The actual refund depends on the amount of the Lump-Sum Withdrawal Payment, the relevant employment and coverage periods, the retirement income deduction, other qualifying retirement payments received during the same year, and any special rules applicable to short-term retirement payments.
How the two systems connect
Although the pension and tax systems are legally separate, they connect because the Employees’ Pension Lump-Sum Withdrawal Payment is treated as a retirement payment for Japanese income tax purposes.
In practice, the process will generally be:
Cease to have an address in Japan → claim the Employees’ Pension Lump-Sum Withdrawal Payment → receive the payment subject to 20.42% withholding tax → review eligibility for elective taxation of retirement income → file the relevant Japanese tax return → receive any available tax refund.
The National Tax Agency publishes a specific filing example for elective taxation of retirement income, and the Japan Pension Service also explains that a non-resident may obtain a refund of withholding tax through this procedure.
Relationship with departure tax return
A foreign national who is required to file a Japanese departure tax return for the year in which they leave Japan must consider that filing separately from the tax refund relating to the Lump-Sum Withdrawal Payment.
If an individual leaves Japan without appointing a Tax Agent and falls within the statutory departure-filing rules, a Japanese departure tax return may need to be filed by the time of departure. If a Tax Agent is appointed before departure, the relevant return can generally be filed through that Agent, who is usually also a tax representative, during the ordinary filing period in the following year.
Importantly, the ordinary income tax return for the departure year and the return filed to elect taxation of retirement income are separate procedures.
Accordingly, even where the departure- tax return has already been completed, a separate elective taxation filing may subsequently be required after the Lump-Sum Withdrawal Payment is received.
Why appointing a Tax Agent before leaving Japan can help
A non-resident who needs to file Japanese tax returns, pay Japanese tax, receive tax refunds or handle other Japanese national tax procedures will generally need to appoint a Tax Agent (Nouzei Kanrinin) in Japan.
Appointing a Tax Representative before departure can therefore provide continuity. The same representative may handle the ordinary departure-year income tax return and, after the Lump-Sum Withdrawal Payment has been received, the separate elective taxation filing and refund procedure.
Where all departure-year tax matters were completed before leaving Japan and no Tax Representative was initially appointed, a Tax Representative can still be appointed later when the retirement income refund filing becomes necessary. The Japan Pension Service also explains that where the notification was not filed before returning home, it may be submitted together with the refund filing.
Tax treaty considerations
For Japanese domestic tax purposes, an Employees’ Pension Lump-Sum Withdrawal Payment is generally treated as a retirement payment attributable to employment or services performed while the recipient was a Japanese resident. For tax treaty purposes, the National Tax Agency generally applies the employment income article, rather than the ordinary pension article, to such payments.
In a typical case where the payment relates to employment physically performed in Japan, Japan will generally retain taxing rights.
However, where the pension coverage includes periods of employment physically performed outside Japan, the domestic-law source determination and the place-of-performance analysis under an applicable tax treaty may not necessarily produce the same result. In such less common cases, or where the applicable treaty contains specific provisions, Japan’s taxing rights should be reviewed separately.
A refund based on a tax treaty restriction is legally and procedurally different from a refund obtained through the domestic elective taxation system for retirement income.
Planning the process before leaving Japan
For a foreign national leaving Japan, considering the Lump-Sum Withdrawal Payment in isolation may result in additional Japanese tax procedures becoming necessary after departure.
A more efficient approach is to review, before departure, the individual’s Japanese tax residency status, departure-year filing obligations, the need to appoint a Tax Representative, eligibility for an Employees’ Pension Lump-Sum Withdrawal Payment and the potential subsequent refund under the elective taxation rules.
*This article aims to provide general information based on the Japanese tax laws, pension system, and publicly announced administrative practices in effect as of September 2026. Regarding the lump-sum withdrawal payment, changes to the system, including an increase in the payment limit to 8 years, are planned due to the pension system reform law enacted in 2025. Additionally, the actual tax treatment may vary depending on the classification of resident or non-resident, place of employment, duration of enrollment, amounts of retirement allowances, applicable tax treaties, and other individual circumstances. It is necessary to check the latest laws and systems applicable at that time when making specific applications or declarations.
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Mochizuki & Associates assists foreign nationals leaving Japan with departure-year tax analysis, appointment of a Japanese Tax Representative, Japanese income tax return filing, post-departure tax compliance and refund claims under the elective taxation rules for Employees’ Pension Lump-Sum Withdrawal Payments.