Japan Tax



Japan Individual Income Tax

An individual pays tax on his income as a wage-earner or as a self-employed person. Tax for an individual who meets the criteria of a “permanent resident” in Japan will be calculated on his income in Japan and abroad. A foreign resident who is employed in Japan pays tax only on income earned in Japan.
Generally speaking there are three classes of tax payers:

  • Permanent resident.
  • Non-permanent resident (those who have been living in Japan for less than five years).
  • Non-resident.

Tax Rates

The tax rate is determined based on the taxable income. Like in other countries, taxable income is the total earnings minus a basic exemption, exemptions for dependents and various types of deductions, such as deductions for insurance premiums, medical expenses and business expenses of the self-employed.

Tax Rates

The tax rate is determined based on the taxable income. Like in other countries, taxable income is the total earnings minus a basic exemption, exemptions for dependents and various types of deductions, such as deductions for insurance premiums, medical expenses and business expenses of the self-employed.

National Income Tax Rates
Taxable Income Tax Rate
less than 1.95 million yen 5% of taxable income
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

Capital Gains: 20%

Notes:
1. The rates above are before 6% Japan municipal tax. And 4% prefectural tax, 10% in total.
2. Non residents pay for salary income in Japan 20%.

 

Japan Reporting Dates
The tax year in Japan is the calendar year ending on December 31st.

An Individual
An employee – as the individual’s tax is deducted by his employer, there is no obligation to file an annual return for an income of less than 20 million yen per annum.
When an employee earns income from two sources, or additional income as a self-employed person in excess of 200,000 yen, he is obliged to file an annual return.
A self-employed person – is obliged to report and pay tax on income for the current year no later than March 15.
When the results for the previous year show a net tax obligation (as against tax deducted at source) of at least 150,000 yen, two advance payments must be made in the following year on July 31st and November 30th, each advance payment being 1/3 of the total net tax for the previous year.

A Company

  • A company is bound to report and pay within two months of the end of the tax year (it is usually possible to request an extension of an additional month).Japan Corporate Tax
  • In 2017 Japan corporate tax is 23.4%.
  • In addition to corporate tax (a national tax) there are two classes of local tax paid by the corporation:
    1) Inhabitant Tax.
    2) Enterprise Tax.

 

Japan Deduction of Tax at Source
Japan Taxation of Employees
Japan Income Tax
The employer is obligated to deduct tax at source from a salaried worker in accordance with the tax tables. The employer is obligated to pay the income tax to the authorities by the 10th of the month after the month of payment. When paying a salary to a foreign resident, 20% should be deducted at source.

Japan Social Security
The social security covers matters such as health insurance, pension insurance, unemployment insurance and more. The rates are as follows:

Employer – 12.9%
Employee – 12.0%

Dividend, Royalties and Interest in Japan

When payments of the following sorts are made, deductions must be made at source at the following rates:

 
Dividend 20%
Royalties 20%
Interest 20%

Japan Other Deductions

  • Benefits to senior employees – mainly bonuses and compensation paid to employees are allowable as an expense. Nevertheless, payments of unreasonable amounts to directors will not be allowed as an expense.
  • Entertainment expenses – the allowance on these expenses is calculated according to a formula that takes account of the amount of the company equity; the percentage allowed as an expense shall in no case exceed 90% of the expense, or a maximum of 3.6 million yen a year.
  • Donations – as a general rule, donations to public or government institutions are allowable as an expense.
  • Research and development – a credit of 20% is given for the excess of the research and development expenses over those of the previous years. In any event, the credit is limited to 10% of the corporation tax.
  • Transactions between affiliated parties – such transactions are defined as being between 2 parties when the percentage holding, whether direct or indirect, between the companies is 50% or more. Reasonable proof of the price of the transfer between the affiliated parties is demanded from the taxpayer. As a rule, the law specifies 3 methods of calculating the reasonability of the price of the transfer.
  • Interest expenses – there is a limit to the interest allowable to companies with an overseas obligation when the amount of the obligation is more than 3 times the amount of the equity.
  • Offsetting losses – a company that meets the requirements of the blue form return is eligible to offset the loss forward for the following seven years.

Japan Depreciation of Fixed Assets

In most cases either the straight line method or the declining balance method are allowed.
Depreciation is allowable at the following rates:

Class of Asset  No. of years depreciated 
Buildings                 50
Air conditioners                 15
Sailing vessels                 12-15
Aircraft                 5-10
Computers                 4-5
Machinery and equipment                 6-22
Patents                 3-10
Goodwill                 5
Mining rights                 5-8

Comments:

  • An asset that costs less than 200,000 yen shall be depreciated over 3 years.
  • An asset that costs less than 100,000 yen shall be fully depreciated in the year of purchase.

General Information on the Japanese local land taxes

The Japanese acquisition tax and the fixed asset tax are both local government levied taxes, however colleting government levels are different.  The acquisition tax is a prefectural tax, whereas the fixed asset tax is a municipal level tax.
 

The Japanese fixed asset tax
This is a municipal government levied tax. It is levied on the property owner who is registered in the municipal property ledger as of the 1st of January of each year.
· This tax is based on the property value, evaluated by the municipal office.
· Tax rate is 1.4%.   Some properties may be taxed with an additional 0.3% which is a city planning tax.
· Payment due varies between municipal offices, but generally the pay slip is dispatched between mid April and May of each year.  Payer may pay the tax with a one-off payment or by 3 or 4 installments.

 

The Japanese acquisition tax
· This is a prefectural government levied tax.  It is levied on the property owner who purchased the real estate in Japan, and it is one off payable tax.  Amount to be paid is charged by the following rate (ex. The Hokkaido Government) of the purchased real estate value.
· The payment due is stipulated on the tax pay slip sent by a prefectural government

3-4% depending on when the property was purchaced