There’s no getting away from it, you’re going to have to pay your taxes in Japan: so how, when and how much should you expect to have to pay? Please note that we are not tax accountants and this section is not an official tax site, just a starting point for you to get an overview of the tax system in Japan. Please read our disclaimer. Taxes in Japan are broken up into two major categories: National Tax and Local Tax. After that, it gets very complicated! There are more than 25 additional taxes on “consumption”, including everything from “bathing tax”, “golf course utilization” (no, this isn’t a joke!) to “gasoline tax” (part of the reason prices are 2 to 3 times higher than in the US). This may sound alarming, but the vast majority of these taxes are already included in the price you pay. An overview of the various tax types follows…
The Japanese income tax is progressive, meaning that the more you make the higher the rate of the tax to be paid will be. In 2007 the tax rate was between 5-40%. There is a standard basic deduction of 380 000 yen per year for each individual – if you earn less than that amount you will not be required to pay any income taxes. When calculating your earned income keep in mind that apart from your regular salary, any bonuses, house allowances and so on is also subject of taxation. Commutation compensation is non-taxable up to a certain amount (depending on way of commutation). Commutation by public transportation has a non-taxable amount of up to 100 000 yen per month in reasonable fares. There are a number of deductions that can be made and especially if you have your own company the possibilities for deductions is well worth checking out. As your income tax obligations as a foreigner in Japan can be quite complicated – it’s highly recommended that you talk to a tax advisor before coming to Japan.
Status and responsibilities
Japan bases income tax obligations on resident status which is divided into Resident and Nonresident. In most cases, you will be responsible for income tax generated outside of Japan if you are a resident of Japan. Conversely, you may be responsible for income generated in Japan even if you are a non-resident, depending on: 1) Whether the actual transfer of funds takes place inside or outside of the country and 2) On the type of tax treaty that your country has with Japan.
A Resident is defined as someone who has domicile in Japan or has had a residence in Japan for one year or more. Those who do not fall under the status of Resident will be considered a Non-resident. Resident status is then divided into Non-permanent resident and Permanent resident.
If you are not a Japanese national and have have stayed in Japan for an aggregated time period of five year or less within the last ten years you are considered to be a Non-permanent resident otherwise you will be taxable as a Permanent resident. A Non-permanent resident has to pay taxes for incomes earned in Japan as well as incomes from sources abroad that are paid in Japan. A Permanent resident is taxable for all incomes from Japan and abroad. Filing a Tax Return
The individual income tax is based on a self-assessment system in Japan. Each taxpayer is required to calculated their tax and fill out a Final Tax Return form to give to the Tax Office. The final tax will then be calculated and adjustments will be made regarding the amount of actual tax you have paid and the amount you should have paid. Depending on how much you have paid in during the year and your final tax you might need to pay in extra or you could get a tax returns paid back to you.
If you are employed and you’re company withdraws money from your salary to pay taxes you might not need to to fill out a Tax return. Any final year adjustments will be made by the company and the adjustments will be seen on your pay slip. However you can always fill out a Tax return if you for example have deductions that you wish to make. If your company do not handle your tax payments or if your total employment income exceed 20 million yen you need to fill out a Tax Return. Also note that it is the total earned income that you are taxable for which means that if you have more than one employer or engage in other income earning activities you need to add all the incomes together.
The Tax Return should be handed in to the Tax Office where you live during the period of February 16 to March 15 of the following year and the tax should be paid before March 15.