Global Major Cities Guide

An overview of the tax system, including national, local, and income taxes, and how they apply to residents.

Sections

1. Income Tax in Tokyo, Japan

Income tax in Japan is levied at both the national and local levels. It applies to individuals based on their residency status and income earned.

a. Residency Categories

Your tax obligations depend on your residency status:

Non-Resident: Individuals who have lived in Japan for less than one year and do not have a permanent address. They are taxed only on Japan-sourced income.
Non-Permanent Resident: Individuals who have lived in Japan for more than one year but less than five years and do not intend to stay permanently. They are taxed on Japan-sourced income and foreign income remitted to Japan.
Permanent Resident: Individuals who have lived in Japan for more than five years or have a permanent address. They are taxed on their worldwide income.

b. National Income Tax Rates

Japan uses a progressive tax system for national income tax. The rates for 2023 are as follows:

5% for income up to ¥1,950,000
10% for income between ¥1,950,001 and ¥3,300,000
20% for income between ¥3,300,001 and ¥6,950,000
23% for income between ¥6,950,001 and ¥9,000,000
33% for income between ¥9,000,001 and ¥18,000,000
40% for income between ¥18,000,001 and ¥40,000,000
45% for income over ¥40,000,000

c. Local Income Tax

In addition to national income tax, residents of Tokyo must pay a local inhabitant tax (住民税, juminzei), which is typically 10% of your taxable income. This tax is split between the Tokyo Metropolitan Government and your local ward (municipality).

d. Deductions and Credits

Basic Deduction: ¥480,000 for most taxpayers.
Social Insurance Premiums: Contributions to health insurance, pension, and unemployment insurance are deductible.
Dependent Deductions: Taxpayers can claim deductions for dependents, including children and elderly family members.
Foreign Tax Credit: If you pay taxes on foreign income, you may be eligible for a credit to avoid double taxation.

e. Filing Procedures

Filing Deadline: The tax year in Japan runs from January 1 to December 31. Tax returns must be filed by March 15 of the following year.
How to File: You can file your taxes online via the National Tax Agency’s e-Tax system, or submit paper forms at your local tax office (zeimusho).
Documents Needed: Income statements (e.g., gensen choshuhyo from your employer), proof of deductions, and your My Number card (Japan’s national ID system).

2. Consumption Tax (VAT)

Japan’s consumption tax (消費税, shohizei) is a value-added tax applied to most goods and services.

a. Current Rate

The standard consumption tax rate is 10%.
A reduced rate of 8% applies to certain items, such as food and non-alcoholic beverages (excluding dining out) and subscriptions to newspapers published at least twice a week.

b. Exemptions

Certain goods and services are exempt from consumption tax, including:

Medical services
Education
Rent for residential properties

c. Tax Refunds for Tourists

Visitors to Japan can claim a tax refund for purchases made at participating stores if:

The total purchase amount exceeds ¥5,000 (excluding tax) in a single day at the same store.
The items are for personal use and will be taken out of Japan.
You present your passport at the time of purchase.

3. Residential Tax (Inhabitant Tax)

The residential tax (住民税, juminzei) is a local tax paid by residents of Tokyo and other parts of Japan.

a. Who Pays Residential Tax?

Residents who lived in Tokyo as of January 1 of the tax year are liable for residential tax, even if they move out later in the year.
The tax is based on your income from the previous year.

b. Calculation

The residential tax consists of a flat-rate portion (¥5,000–¥6,000) and an income-based portion (10% of your taxable income).

c. Payment

Residential tax is typically deducted from your salary if you are employed.
Self-employed individuals or those without salary deductions must pay in four installments (June, August, October, and January).

4. Other Taxes

a. Social Insurance Contributions

These are mandatory and include health insurance, pension, and unemployment insurance. Contributions are shared between the employer and employee.
The total contribution rate is approximately 15% of your salary, with half paid by your employer.

b. Property Tax

If you own property in Tokyo, you must pay an annual property tax (固定資産税, koteishisanzei), which is 1.4% of the assessed value of the property.

c. Gift and Inheritance Tax

Japan has high gift and inheritance tax rates, ranging from 10% to 55%, depending on the value of the assets.

5. Benefits of the Tax System

While Japan’s tax rates can seem high, the system provides significant benefits:

Universal Healthcare: Taxes fund Japan’s world-class healthcare system, which offers affordable medical services to all residents.
Pension System: Contributions to the national pension system ensure financial support during retirement.
Public Services: Taxes support Tokyo’s excellent public infrastructure, including transportation, education, and safety.
Social Security: Unemployment benefits, child allowances, and other social programs are funded through taxes.

6. Costs and Considerations for Visitors, Expatriates, and Immigrants

a. Costs

Taxes can be a significant expense, especially for high earners.
Social insurance contributions are mandatory and can add to your financial burden.

b. Procedures for Filing Taxes

If you are employed, your employer will typically handle your income tax withholding and residential tax payments.
Self-employed individuals and freelancers must file their taxes independently and make quarterly estimated payments.

c. Local Considerations

Language Barrier: Most tax documents and procedures are in Japanese. Consider hiring a tax consultant or using translation services.
My Number System: Ensure you register for a My Number card, as it is required for tax filings and other administrative processes.
Double Taxation Treaties: Japan has tax treaties with many countries to prevent double taxation. Check if your home country has an agreement with Japan.

7. Tips for Managing Taxes in Tokyo

Hire a Tax Consultant: If you are unfamiliar with Japan’s tax system, a consultant can help you navigate the process.
Keep Records: Maintain detailed records of your income, expenses, and deductions throughout the year.
Understand Deadlines: Mark key dates for tax filings and payments to avoid penalties.
Use e-Tax: The online filing system is convenient and available in English for some functions.

By understanding the tax system in Tokyo, you can better manage your finances and take advantage of the benefits provided by Japan’s well-structured system. If you need further assistance, consider consulting with a local tax office or professional.