Under the Agreement, a self-employed worker is generally subject to only the laws of the country in which the worker performs the work. However, the Agreement provides for an exception if a person transfers his or her self-employment activity from one country to the other for five years or less. In this case, the self-employment activity remains subject to the social security laws of the country from which the worker transferred the activity and exempt from social security coverage and taxation in the other country.

A self-employed U.S. citizen who is subject only to Japanese law under the Agreement and is exempt from paying Social Security Self-Employment (SECA) tax must still file a U.S. tax return every year.

To show that the self-employment earnings are exempt from U.S. Social Security self-employment tax, the person must do the following:

• Indicate on Schedule SE that the earnings are exempt under the Agreement; and

• Request a certificate of coverage from the Japanese authorities; and

• Attach a photocopy of the certificate of coverage issued by Japan to the U.S. tax return every year as proof of the exemption.

RS 02002.095, Certificates of coverage under the Agreement with Japan.