TAX IN JAPAN
Like other countries, Japan has many types of taxes including Income tax, Enterprise tax, Property Tax, Consumption Tax, Vehicle-related Taxes, Liquor, Tobacco and Gasoline Taxes. In Japan, taxes are paid on income, property, and consumption on the national, prefecture and municipal levels.
Japan offers a number of ways to pay the taxes. For instance, some tax elements are deducted at source, others we might have to pay ourselves. The exact composition of these tax obligations varies from person to person and depends on the type of job you do, the status of your home, how long you have been here, whether you have any dependents or not, and also where you live.
Income Tax
Personal Income Tax is a tax collected from individuals and imposed on different sources of income like labor, pensions, interest, and dividends. The benchmark that tax authority uses refers to the Top Marginal Tax Rate for individuals. Revenues from the Personal Income Tax Rate are an important source of income for the government of Japan. This page provides brief information about the Japan Personal Income Tax Rate and how it is calculated. We also provide you a simple tool that gives an estimated amount of tax you need to pay based on your total annual income.
Individuals living in Japan are divided into three groups for tax purposes. Such categorization does not affect the categories of visas:
Non-Resident
A person who has lived in Japan for less than a year and is not primarily based in Japan. Non-residents only pay taxes on income from Japanese sources, but not on foreign income.Non-Permanent Resident
A person who has lived in Japan for less than five years, but has no intention of living in Japan permanently. Non-permanent residents pay taxes on all income except on income from abroad that are not sent to Japan.Permanent Resident
A person who has lived in Japan for at least five years or has the intention of staying in Japan permanently. Permanent residents pay taxes on all income from Japan and abroad.
Remember that tax treaties can take precedence over the above guidelines between Japan and more than 50 nations, including the United States, Britain, Canada, Australia, China, South Korea, and most European countries.
How to pay taxes?
Income tax in Japan is based on a self-assessment system (by filing a tax return a person calculates the tax amount himself or herself) in conjunction with a withholding tax system (taxes are subtracted from salaries and wages and submitted by the employer).
Many Japanese workers do not need to file a tax return due to the withholding tax scheme. Workers, in addition, only have to file a tax return if one of the following conditions is true:
The current income tax rates for Japan are as follows:
- For those earning under 1.95 million yen per year: 5% of your taxable income
- For those earning 1.95-3.3 million yen per year: 10% of your taxable income above 97,500 yen
- For those earning 3.3 to 6.95 million yen per year: 20% of your taxable income above 427,500 yen
- For those earning 6.95 to 9 million yen per year: 23% of your taxable income above 636,000 yen
Above this is a sliding scale with the top tax rate at 45 percent for those who earn more than 40 million yen a year. In addition, an extra flat fee of 4 percent for prefectural taxes will be deducted.
It should also be remembered that this year's taxes withheld will in effect be based on the tax liability accrued last year. In other words, in 2017 you must pay tax based on your 2016 income. This can create a problem when circumstances pressure you to take a heavy pay cut if you switch from one job to another. In this scenario, going to your local tax office (usually in the city hall) and seeing if you could discuss a fairer rate might be a good idea.
Employees, who do not need to file a tax return, will have their income taxes withheld from their salaries by their employer, and an eventual adjustment is made with the year's final salary. People, who are required to file a tax return, such as self-employed persons, must do so at the local tax office (zeimusho), by mail or online (e-Tax) between February 16 and March 15 of the following year. for example , the tax return for 2018 had to be filed between February 18 and March 15, 2019.
Tax Return
Normally, many Japanese workers don't have to file a tax return. The company is likely to do that for you, although you may be asked to sign a few documents stating the identity, such as relationship status, living address, and the number of dependents. In some cases, variations in these factors can qualify you for exemptions.
Exemptions are also available, in case you are self-employed, to cover insurance premiums, medical costs, and business operating costs.
As I said, almost everyone doesn't have to file their own tax return, but there are a few exceptions.
You will have to submit your own tax return if:
- Your annual salary reaches 20 million yen
- You have more than one employer
- You have secondary income, whether it is a second job, a dividend of more than 200,000 yen per year
- You work for a non-Japanese company. You will need to file a tax return if you decide to leave Japan during the financial year.
When to pay taxes?
If the employer does not withhold, national income taxes will be due in full by March 15 of the next year (mid-April unless you pay by automatic bank transfer), with two prepayments payable in July and November of the current tax year. Prepayments are measured on the basis of earnings from the previous year, i.e. during your first year in Japan, you do not pay them. For example, if you had to pay national income taxes of 2018, they had to be paid in full by March 15, 2019 (or April 22, 2019, in the case of automatic bank transfer payments), with prepayments paid in July and November 2018.
If the employer does not defer taxes on prefectural and regional salaries, they will be paid in quarterly installments in the following year. For example, in June, August and October 2019 and January 2020, the 2018 taxes will be paid in four installments.
Tax Rates
The tax rate is based on the taxable income. As in other countries, taxable income is the total income minus a common allowance, exemptions for dependents and different types of deductions, such as insurance premium deductions, medical expenses and self-employed business expenses.
| National Income Tax Rates | |
|---|---|
| Taxable Income | Tax Rate |
| less than 1.95 million yen | 5% of taxable income Tax Rate |
| 1.95 to 3.3 million yen | 10% of taxable income minus 97,500 yen |
| 3.3 to 6.95 million yen | 20% of taxable income minus 427,500 yen |
| 6.95 to 9 million yen | 23% of taxable income minus 636,000 yen |
| 9 to 18 million yen | 33% of taxable income minus 1,536,000 yen |
| 18 to 40 million yen | 40% of taxable income minus 2,796,000 yen |
| more than 40 million yen | 45% of taxable income minus 4,796,000 yen |
| Prefectural Income Tax Rates | |
| Taxable Income | Tax Rate |
| all | 4% of taxable income |
| Municipal Income Tax Rates | |
| Taxable Income | Tax Rate |
| all | 6% of taxable income |
| Prefectural Enterprise Tax Rates (in case of self-employed persons) | |
| Taxable Income | Tax Rate |
| all | 3% to 5% depending on the type of business |
Gender and tax
There is partner exclusion that some have suggested that women are excluded from joining the full-time workplace. The 1.03 million yen and 1.30 million yen wall in Japan is a controversial social phenomenon among Japanese housewives due to the taxation policy of the government.
If the salary of a partner reaches 1.03 million dollars, which is a taxable income of 380,000 yen, the marital deduction cannot be taken by the family. If the income of a partner reaches 1.30 million yen, which is a taxable income of 760,000 yen, the special marital deduction cannot be taken by a couple. If the main earner's income exceeds 10 million yen, a spouse is not liable for the marital deduction.
It serves as a limitation to raise their personal income beyond the 1.03 million yen mark, as most women participating in the workforce do so only as part-time workers. There is a simple allowance for all income of 650,000 yen and other deductions, so a 1.03 million yen annual income will be a taxable income of just 380,000 yen in Japan. Therefore, a housewife must not exceed the 1.03 million yen in order to keep her taxable income below 380,000 yen. Therefore, there is a disincentive for women to work full-time jobs that may affect the involvement of the workforce.
It is important to note that income taxation is not directly a gender issue according to the 2013 Foreigners Income Tax Guide. Quoting this source, "a qualified spouse is defined as one living in the same household as the taxpayer as of December 31st of the year concerned, and whose total amount of income for 2013 did not exceed 380,000 yen.” This means that according to the law, a homemaker is simply someone living in the taxpayer's home whose income does not significantly contribute to the household, regardless of sex. Later in the document, the "qualified spouse" is referred to as "his or her" , further emphasizing that the tax law is not intended to discriminate against housewives in particular. The fact that, despite the lack of gendered language in tax law, the "1.03 million yen barrier" has impacted women more than men speaks to the influence of the social context (and other factors not determined) in Japanese labor force decisions.
Calculation details
First of all, it is necessary to calculate your Taxable Income. If you are working for a company, you need to deduct the Employment Income Deduction based on the following table:
| Annual Salary | Calculation |
|---|---|
| 0 - 1,800,000 | The greater of (Annual Salary * 40%) or 650,000 |
| 1,800,001 - 3,600,000 | (Annual Salary * 30%) + 180,000 |
| 3,600,001 - 6,600,000 | (Annual income * 20%) + 540,000 |
| 6,600,001 - 10,000,000 | (Annual Salary * 10%) + 1,200,000 |
| 10,000,001 - 15,000,000 | (Annual Salary * 5%) + 1,700,000 |
| 15,000,001+ | ¥2,450,000 |
For example, if your total annual salary is ¥2,000,000, your Taxable income will be ¥1,220,000. ¥2,000,000 - ((¥2,000,000 *30%) + ¥180,000) = ¥1,220,000
Insurance and Pension
If you're living in Japan for more than a year, you have to take insurance and pension plans. When you work for a company, the social insurance that covers both insurance and pension will most likely apply to you. If you don't, the city/ward office will ask you to take the National Health Insurance.
National Health Insurance
This depends on where you are living. But in general, it is between 6% to 10% of your taxable income. This will be higher if you have dependents like a wife and kids. For those who are in Japan for their first year, they will pay an average of ¥50,000.
National Pension
It is now ¥196,920 per year
Your Social Insurance
Your social insurance will be calculated based on your total salary and it is 4.95% for insurance and 9.15% for the pension. Thus, in total it will be 14.10% of your salary.
Income Tax calculation
The Income Tax is calculated based on your Taxable Income minus the Standard Personal Deduction (which is equal to 380,000Y). In general, you have up to three basic deductions if you are married and have more dependent. For example for a are a single taxpayer, you can deduct 380,000Y. If you are married with one kid, you can deduct 1,140,000Y(380,000* 3) from your Taxable Income.
In order to calculate the income tax, you need to use the table explained in the tax rate section. For example, the remaining amount from the above calculation is 2,590,000, then you’d have to pay 5% on the first 1,950,000 and 10% on the last 640,000.
Example:
Imagine you are married with two more dependents and you are working at a company. Your annual salary is ¥5,000,000. How much tax you need to pay.
First,
you need to deduct the Employment Income Deduction.
Salary after deduction=¥5,000,000 - ((¥5,000,000 * 20%) + ¥540,000)
Salary after deduction=¥3,460,000
Second,
you need to find the amount of Social Insurance.
Social Insurance=¥5,000,000 * 14.10%
Social Insurance=¥705,000
Third,
you need to calculate your Standard Personal Deduction which can be deducted for 3 persons.
SPD= ¥380,000 * 3
SPD= ¥1,140,000
Finally,
you need to calculate your income tax based on the tax rate table.
Taxable Income= ¥3,460,000 - ¥1,140,000 - ¥705,000
Taxable Income= ¥1,615,000
Since it is below ¥1,950,000, the rate will be 5%.
Income Tax= ¥1,615,000 * 5%
Income Tax= ¥80,650
I have seen some say we need to add the Special Income Tax for Reconstruction (復興特別税) to this amount which is 2.1% of the calculated income tax. So, it can be around ¥82,344.