How do you usually reply when someone compliments your Japanese?

These days, I usually respond with それほどでも…. I don’t actually mean it that way, but it tends to surprise native speakers quite a lot.

I used to say お世辞でも嬉しいです back in the day, but I wouldn’t recommend it anymore because it can come across as a bit insolent.

A good alternative is 励みになります. The nuance is that being praised motivates you to keep striving and improving.

In very formal situations, you can use 滅相もございません. It’s an extremely polite way of saying そんなことないよ.

If you want to take formality to the extreme, try 過分なお褒めにあずかり、痛み入ります. Just be warned, though there’s a good chance they’ll laugh, because no Japanese person expects a foreigner to pull out such advanced Japanese.