Income Tax Brackets In Japan

Income Tax Brackets In Japan: Explained          

Venturing into the world of income tax in Japan can feel as complex as understanding a classical Japanese play. But fear not! We’ve got your back!

This guide is your map through the intricate landscape of Japan’s tax brackets. Whether you’re a salaryman in Tokyo or an entrepreneur in Osaka, we’ll break down the essentials to make understanding your tax obligations as straightforward as a Zen garden.

Let’s dive in!

What Are The Tax Classes In Japan?

Income Tax Brackets In Japan 1

In Japan, the tax classes for individuals are based on residency status. 

There are 3 types of residence:

  • Non-Resident: If you have resided in Japan for less than one year and do not have a primary base of living in Japan, Non-residents have to pay self-assessed income tax, generally withheld at a flat rate of 20% for certain types of income, with no deductions available. 
  • Non-Permanent Resident: If you have resided in Japan for less than five years but have no intention of living in Japan permanently. 
  • Permanent Resident: If you reside in Japan for at least five years or intend to stay in Japan permanently. 

Residents have to pay self-assessed income tax, which includes national income tax and local inhabitant tax (prefectural tax and municipal tax). 

The following table enlists the type of residence and the sources of income on which tax is to be paid:

Type of residence / Category of incomeIncome other than foreign-sourced incomeForeign-sourced income
Paid within JapanPaid outside JapanPaid within JapanPaid outside Japan
Remitted to JapanOther
Residents(Permanent residents)TaxableTaxableTaxableTaxableTaxable
Residents(Non-permanent residents)TaxableTaxableTaxableTaxableNon-taxable
Non-residentsTaxableTaxableNon-taxableNon-taxableNon-taxable

For more detailed information on Japanese taxes, you may visit the websites of Japan External Trade Organization, PwC Japan Group, National Tax Agency Japan, and HSBC Expat.

How To Know Your Tax Class In Japan?

You can determine your tax class in Japan by: 

  1. Check Your Status As A Resident: You may be a resident taxpayer if you have lived in Japan for at least one year or if your domicile is there. You may be a non-resident taxpayer if you have been resident in Japan for less than one year and have no place of residence. 
  2. Make Sure Your Sources Of Income Are Correct: Resident taxpayers are taxed on their worldwide income, including foreign income. Non-resident taxpayers are usually taxed only on domestic income.
  3. Check Your Residence Card Or Certificate Of Alien Registration: This indicates your resident status.
  4. Consult With A Tax Professional: It is recommended to consult with a tax professional and/or seek assistance from the local tax office if you’re unsure about your tax status or have complex financial situations.

Remember, staying informed about any updates or changes that may affect your tax status is important.

How Much Is The Income Tax In Japan?

The tax rates for self-assessed income tax on individual income are as shown below:

Brackets Of Taxable IncomeTax Rates
Up to 1,950,000 yen5%
Over 1,950,000 yenUp to 3,300,000 yen10%
Over 3,300,000 yenUp to 6,950,000 yen20%
Over 6,950,000 yenUp to 9,000,000 yen23%
Over 9,000,000 yenUp to 18,000,000 yen33%
Over 18,000,000 yenUp to 40,000,000 yen40%
Over 40,000,000 yen45%

Income tax on employment income is calculated based on the amount obtained by deducting the following employment income deductions from income:

Employment IncomeEmployment Income Deductions
Up to 1,625,000 yen550,000 yen
Over 1,625,000 yenUp to 1,800,000 yen(employment income) x 40% – 100,000 yen
Over 1,800,000 yenUp to 3,600,000 yen(employment income) x 30% + 80,000 yen
Over 3,600,000 yenUp to 6,600,000 yen(employment income) x 20% + 440,000 yen
Over 6,600,000 yenUp to 8,500,000 yen(employment income) x 10% + 1,100,000 yen
Over 8,500,000 yen1,950,000 yen

How To Reduce Your Tax In Japan?

Income Tax Brackets In Japan 2

A reduction in taxation is possible on the following:

Home Loan Tax Deduction

It applies to people who purchased their residence in Japan. This deduction gives you 1% of the remaining home loan value (up to 40M JPY) per year as a tax credit for up to 10 years.

However, some restrictions exist, such as:

  • Your home must be larger than 50 square meters.
  • This reduction only applies to your primary residence, not a holiday home or an investment property.  
  • If your taxable income exceeds 30M JPY, you are not eligible

Employee Expenses

A permanent or non-permanent resident employee can take an earned income deduction. 

The minimum standard deduction is JPY 550,000 or gross employment income. The lower one will be chosen. 

Spousal Tax Deduction

Under the spousal tax reduction laws in Japan, if the dependent spouse is making JPY 1.03M or less each year, the taxable annual income of the household’s primary earner is reduced by JPY 380,000

If the income is above 1.03 JPY, the taxpayer does not qualify for a deduction.

Charitable Contributions

It is important to note that, according to the Ministry of Finance in Japan, charitable contributions are eligible for tax deductions only if the charity organization is in Japan. 

The deduction is restricted to 40% of the income less than JPY 2,000.

However, you must first confirm if your chosen charitable organization is qualified.

When Do You Have To Change Your Tax Class?

You must be aware of changes to your tax class and stay informed about your tax obligations. Your tax class may change when:

  • Change In Residency Status: In case of change in the residency status.
  • Duration Of Stay: Individuals initially arriving in Japan for a short stay are non-resident taxpayers. If their stay extends beyond one year, they may become eligible for resident taxpayer status.
  • Domicile: Domicile is a legal concept indicating a permanent home or residence.
  • Change In Employment Status: For instance, going from being a non-resident taxpayer on a temporary assignment to becoming a resident taxpayer due to long-term employment.
  • Marriage Or Divorce: Marital status changes can impact tax classification. For example, suppose a non-resident taxpayer marries a resident taxpayer. In that case, they may become eligible for resident taxpayer status.
  • Death Of A Spouse: In the case of the death of a spouse, the surviving spouse’s tax status may be affected. 
  • Retirement: The tax class automatically changes when or if you opt for retirement.
  • Change In Immigration Status: The gradual change in the status will eventually shift the individual to a different tax category.

It is recommended to consult with a tax professional or to reach out to the local tax office in Japan when such a case arises.

How To Change Your Tax Class?

To update your residency status, you need to file a final return form by the due date of the following year.

You are obliged to settle the excess or deficiency with the amount of tax withheld or estimated tax prepayment regarding the income earned from January 1 to December 31 of that year. This procedure is called a final return

Remember that changing your residency status may result in a change in your visa status or eligibility for some benefits.

How To Fill Out The Final Return Form?

Income Tax Brackets In Japan 3

There are two filing types for final income tax return in Japan: 

  • White Return (Shiro-iro shinkoku, 白色申告) and 
  • Blue Return (ao-iro shinkoku, 青色申告). 

Blue Return filing systems tend to offer greater benefits, including special deductions.

Sole proprietors and freelancers in Japan must report their income to the Japanese government annually by filing a Final Income Tax Return.

Furthermore, salary income earners who do not have Year-End Tax Adjustment provided by their companies must fill out the form. 

This includes:

  • Those who leave Japan before the end of the year.
  • Those who work for a non-Japan-based employer.
  • Those who have multiple sources of income and didn’t submit an Application for Exemption for Dependents of Employment Income Earner. 
  • Those whose yearly income exceeds ¥20 million.
  • Those who overpaid the tax can settle the difference by filing a tax return to get a refund.

There are 2 tax forms, A (individuals earning income) and B (business owners), depending on the income type.

For Form B:

  • TAB 1: It mostly relates to your personal information.
  • TAB 2: It’s about your gross yearly sales amount.
  • TAB 3: Enter the income amount after deducting necessary expenses. It is recommended that you fill out the Blue-Form Return Financial Statement.
  • TAB 4: Indicate the calculated amounts of deductions you’re eligible for (e.g., medical expenses, life insurance premiums, spouse deduction, etc.)
  • TAB 5: Identify the tax amount you need to pay after carrying out specific calculations.
  • TAB 6: If you’re subject to any other deductions, you’ll need to indicate them accordingly in this section. 
  • TAB 7: This is the tab for the deferred payments.
  • TAB 8: This tab shows the information for a tax refund.
  • TAB 9: Fill out your address and name.
  • TAB 10: Deduction for social insurance premiums.
  • TAB 11: Deduction for premiums of small-scale enterprises.
  • TAB 12: Deduction for life insurance premiums.
  • TAB 13: Special exemption for spouses.
  • TAB 14: Exemption for dependents.
  • TAB 15: Deduction for miscellaneous losses.
  • TAB 16: Deduction for medical expenses.
  • TAB 17: Deduction for donations.
  • TAB 18: Deduction for salaries of full-time family employees.
  • TAB 19: Resident and business tax

Different filing options are available for submission of this form:

  • You can bring the documents to the tax office directly
  • You can mail the documents to the tax office by post. 
  • You can do an e-filing via the e-Tax system. This is the easiest and highly recommended way to file your Final Income Tax Return.
  • You can leave your documents in the collection mailbox at the tax office 

Conclusion

And there we have it – a journey through Japan’s income tax brackets, demystified. Armed with this knowledge, you can now navigate the fiscal year with confidence and clarity.

Understanding taxes in Japan doesn’t have to be daunting; with the right information, it can be as orderly and predictable as a Shinkansen timetable.

Bracket Breakdown!

But wait! There’s lot more that you might be interested in following:

  • Tax Decalaration In Japan
  • Tax Consulting In Japan
  • Tax Return Software In Japan

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