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Income Tax

Japan's income tax system applies to both residents and non-residents, with progressive tax rates based on income levels.

Sections

1. Overview of Income Tax in Japan

Income tax in Japan is levied on individuals' income earned within a calendar year (January 1 to December 31). The system is progressive, meaning higher income levels are taxed at higher rates. There are three main types of income tax in Japan:

  • National Income Tax (levied by the central government)
  • Local Inhabitant Tax (levied by prefectural and municipal governments)
  • Special Reconstruction Income Tax (a temporary additional tax to support recovery from the 2011 Great East Japan Earthquake, applicable until 2037)

2. National Regulations

Who Pays Income Tax?

  1. Residents:
    • Permanent Residents: Individuals who have lived in Japan for more than 5 years in the last 10 years and have no intention of leaving Japan permanently. They are taxed on their worldwide income.
    • Non-Permanent Residents: Individuals who have lived in Japan for 5 years or less in the last 10 years. They are taxed on income earned in Japan and any foreign income remitted to Japan.
  2. Non-Residents:
    • Individuals who live in Japan for less than 1 year. They are taxed only on income earned in Japan.

Taxable Income

Taxable income includes:

  • Employment income (salary, bonuses, etc.)
  • Business income
  • Investment income (dividends, interest, etc.)
  • Rental income
  • Capital gains (e.g., from selling property or stocks)
  • Other income (e.g., pensions, occasional earnings)

Tax Rates

Japan uses a progressive tax rate for national income tax: | Taxable Income (JPY) | Tax Rate (%) | Deduction (JPY) | |-----------------------|--------------|-----------------| | 0 - 1,950,000 | 5% | 0 | | 1,950,001 - 3,300,000| 10% | 97,500 | | 3,300,001 - 6,950,000| 20% | 427,500 | | 6,950,001 - 9,000,000| 23% | 636,000 | | 9,000,001 - 18,000,000| 33% | 1,536,000 | | 18,000,001 - 40,000,000| 40% | 2,796,000 | | Over 40,000,000 | 45% | 4,796,000 |

Local Inhabitant Tax

  • Flat rate of 10% (split between prefectural and municipal governments).
  • Calculated based on the previous yearโ€™s income.

Special Reconstruction Income Tax

  • An additional 2.1% of the national income tax amount is levied.

3. Standard Procedures for Filing Income Tax

Who Needs to File?

  1. Employees:
    • Most salaried workers do not need to file a tax return because their employer withholds income tax and submits it to the tax office through a process called Year-End Adjustment (ๅนดๆœซ่ชฟๆ•ด, Nenmatsu Chosei).
    • However, employees must file a tax return if they:
      • Earn more than JPY 20 million annually.
      • Have multiple sources of income.
      • Earn additional income (e.g., rental or freelance income) exceeding JPY 200,000.
  2. Self-Employed Individuals:
    • Must file a tax return to report their income and expenses.
  3. Non-Residents:
    • Must file a tax return for income earned in Japan.

Filing Deadlines

  • Income Tax Return Filing Period: February 16 to March 15 of the following year.
  • If the deadline falls on a weekend or holiday, it is extended to the next business day.

How to File

  1. Online Filing (e-Tax):
    • Japanโ€™s electronic tax filing system allows individuals to file their taxes online. You will need a My Number Card and an IC card reader or smartphone for authentication.
  2. In-Person Filing:
    • Visit your local tax office (็จŽๅ‹™็ฝฒ, Zeimusho) to submit your tax return.
  3. By Mail:
    • Tax returns can also be mailed to the local tax office.

Documents Required

  • Gensen Choshu Hyo (ๆบๆณ‰ๅพดๅŽ็ฅจ): A certificate of income and tax withheld, provided by your employer.
  • Receipts for deductible expenses (e.g., medical expenses, donations, etc.).
  • Bank account details for tax refunds.
  • My Number Card or notification card.

Payment Methods

  • Bank transfer
  • Credit card
  • Convenience store payment
  • Automatic bank withdrawal (requires prior registration)

4. Deductions and Credits

Japan offers various deductions and credits to reduce taxable income:

  1. Basic Deduction: JPY 480,000 for all taxpayers.
  2. Dependent Deduction: For dependents such as children or elderly family members.
  3. Social Insurance Premium Deduction: For health insurance, pension, and unemployment insurance contributions.
  4. Medical Expense Deduction: For out-of-pocket medical expenses exceeding a certain threshold.
  5. Charitable Contributions Deduction: For donations to approved organizations.
  6. Mortgage Loan Deduction: For homeowners with qualifying loans.

5. Country-Specific Considerations for Visitors and Immigrants

Visitors

  • Short-term visitors (e.g., tourists) are not subject to income tax unless they earn income in Japan.

Immigrants

  1. My Number System:
    • All residents, including foreign nationals, are issued a My Number (a 12-digit identification number). This is required for tax filing and other administrative processes.
  2. Tax Treaties:
    • Japan has tax treaties with many countries to avoid double taxation. Check if your home country has a treaty with Japan and how it applies to your situation.
  3. Language Barrier:
    • Tax documents and procedures are primarily in Japanese. Consider seeking assistance from a tax consultant or using translation services.
  4. Employer Support:
    • Many companies assist foreign employees with tax filing, especially during the Year-End Adjustment process.
  5. Residency Status:
    • Your tax obligations depend on your residency status (resident vs. non-resident). Ensure you understand how your visa type and length of stay affect your tax liability.

6. Penalties for Non-Compliance

Failure to file or pay taxes on time can result in penalties:

  • Late Filing Penalty: 5-20% of the unpaid tax amount.
  • Late Payment Penalty: 8.7% annual interest on the unpaid amount.
  • Underreporting Penalty: 10-15% of the underreported amount.

7. Seeking Professional Help

If you are unsure about your tax obligations or need assistance, consider consulting:

  • A certified tax accountant (็จŽ็†ๅฃซ, Zeirishi)
  • Your local tax office
  • Multilingual support services (some tax offices offer assistance in English and other languages)

8. Key Takeaways

  • Japanโ€™s income tax system is progressive, with national, local, and special taxes.
  • Filing is required for self-employed individuals, high earners, and those with additional income.
  • Utilize deductions and credits to reduce your tax burden.
  • Be aware of deadlines and penalties for non-compliance.
  • Seek professional help if needed, especially if you are unfamiliar with Japanese tax regulations.

By understanding these guidelines, you can navigate Japanโ€™s income tax system effectively and ensure compliance with local laws.