Types of Taxes
In Japan, taxes are paid at the national, prefectural and municipal levels on income, property and consumption. The following is a summary of the most relevant types of taxes paid by individuals.Income Tax
It is paid annually by individuals at the national, prefectural and municipal levels. At the prefectural level, it is also known as “inhabitant tax”. The amount is calculated on the basis of the individual’s net income.Enterprise Tax
Prefectural inhabitant’s tax is paid annually by self-employed individuals engaged in business activities. The amount is calculated based on the person’s net income and the type of business.Consumption Tax
Paid by consumers when they purchase goods and services. The tax rate is usually 10%. For food and beverage products (excluding alcoholic beverages and food service) and newspaper subscriptions, the rate is 8%.Property Tax
Local tax paid annually by individuals who own depreciable assets such as land and houses.Vehicle related Taxes
Vehicle tax is paid annually by individuals who own a car, truck or bus. For passenger cars, the tax is calculated according to the engine displacement. Light vehicle tax is paid annually by owners of motorized light vehicles such as motorbikes. Vehicle weight tax is paid by owners of vehicles at the time of compulsory inspection. The prefectural automobile acquisition tax is paid by the person who acquires a car.Liquor, Tobacco and Gasoline Taxes
The national alcohol tax is paid by consumers when they purchase alcoholic beverages. The national, prefectural and municipal tobacco taxes are paid by consumers when they purchase tobacco products. The gasoline tax is paid by consumers when they purchase gasoline. Liquor tax, tobacco tax and gasoline tax are included in the prices displayed in shops.
How to pay taxes
Income tax in Japan is based on a combination of a self-assessment system (where you decide the amount of tax you owe and file it yourself) and a withholding system (where the amount of tax is deducted from your salary and submitted by your employer).Although most company employees in Japan don’t have to file an income tax return due to the withholding system, you have to do so if at least one of the following conditions applies to you,
- if your employer does not withhold taxes (e.g. employer outside Japan)
- if you have more than one employer
- if your annual income is more than 20,000,000 yen
- if you have side income of more than 200,000 yen
For company employees who do not need to file an income tax return, income tax is withheld from your salary and is finally adjusted in your final salary for the year. Self-employed workers and others who are required to file an income tax return should do so between 16 February and 15 March of the following year, either at the local tax office, by post or via the internet (e-Tax).
When to pay taxes
If your employer does not withhold tax, Income Tax is payable in full by 15 March of the following year (or mid-April for automatic bank transfer) with two prepayments paid in July and November of the running tax year.
The prepayment is calculated based on the previous year’s income.If the employer does not withhold prefectural and municipal taxes, they are to be paid in quarterly instalments during the following year. For example, the tax for 2022 will be paid in four instalments in June, August and October 2023 and January 2024.
Income tax is paid annually on income earned in a calendar year.People living in Japan are classified into three categories. This classification is not related to visa types.Non-Resident
A person who has resided in Japan for less than one year and does not have a principal place of residence in Japan. Non-residents pay tax only on income earned from sources within Japan.Non-Permanent Resident
A person who has lived in Japan for less than five years and has no intention of permanently residing in Japan. Non-permanent residents pay tax on all of their income, except for income from abroad which is not remitted to Japan.Permanent Resident
A person who has resided in Japan for at least five years or intends to reside permanently in Japan. Permanent residents pay tax on all income from Japan and abroad.
※Note that tax treaties between Japan and more than 50 countries, including the USA, UK, Canada, Australia, China, South Korea and most European countries, can take precedence over the above guidelines.
The current rates for income tax are as follows:
|Taxable Income (JPY/year)||Income Tax Rate||Tax Deduction (JPY)|
|1,000 ~ 1,949,000||5%||0|
|1,950,000 ~ 3,299,000||10%||97,500|
|3,300,000 ~ 6,949,000||20%||427,500|
|6,950,000 ~ 8,999,000||23%||636,000|
|9,000,000 ~ 17,999,000||33%||1,536,000|
|18,000,000 ~ 39,999,000||40%||2,796,000|
The taxable income is calculated by subtracting necessary expenses (必要経費 hitsuyō keihi), tax-exempted allowances (非課税手当 hi-kazei teate), and income deductions (所得控除 shotoku kōjo) from your total annual income.
Before we jump into further details, please notice that if you are a company employee, your employer will handle most of the tax-related paperwork for you.
Outside of special circumstances or unless you are self-employed, the only thing that you will have to handle yourself is do a so-called year-end tax adjustment (年末調整 nenmatsu chōsei) in December.
The year-end tax adjustment form will be handed to you by HR staff at your company. You use it to apply for income deductions. Necessary expenses and tax-exempted allowances are handled by the company.
With that out of the way, let’s have a look at what exact falls under the “tax-exempted allowances” and “income deductions” categories.
Tax-exempted allowances -provided by your employer – include the following (some only under special circumstances):
- Commuting costs (up to 150,000 JPY per month)
- Alllowances for minor work tasks completed outside of regular working hours (up to 4,000 JPY per month)
- Expenses related to business trips or transfers
- Expenses related to training relevant to your job
- Rent for company housing
- Expenses related to food provided at the workplace
Income Deductions and Exemptions
These are the income deductions you can apply for during year-end tax adjustment. Here’s a simple overview:
- Basic deduction
- Annual income under 24 million JPY: 480,000 JPY
- Annual income between 24 and 24.5 million JPY: 320,000 JPY
- Annual income between 24.5 and 25 million JPY: 160,000 JPY
- Deduction for dependents (Relatives over 16; up to 630,000 JPY)
- Deduction for people with disabilities (Yourself, a spouse, or a dependent; up to 750,000 JPY)
- Deduction for widowers or single parents (Up to 350,000 JPY)
- Deduction for spouses (Up to 380,000 JPY)
- Deduction for insurance fees including social insurance, life insurance, private pension, earthquake insurance
- Deduction for housing loans
The basic deduction always applies (unless you make over 25 million JPY in a year), the rest have more specific requirements attached to them. To read about the requirements in detail, check out this document from the National Tax Agency.
Residence tax is another mandatory tax for every resident of Japan. The tax is calculated based on your income of the previous year. This means that you won’t have to pay residence tax during your first year of working in Japan. You also don’t have to pay residence tax if you earned less than 450,000 JPY in the previous year.
Around 10% of your taxable income goes to residence tax. The tax is comprised of a 6% tax for your local municipality (city, village, etc.) and 4% for your prefecture. In addition to this percentual amount, there is also a fixed amount of 4,000 to 5,000 JPY per year.
If you’re a company employee, your company will pay the residence tax on your behalf. If you quit your job without having secured the next one, you will receive tax filing forms in the mail. Pay the tax with cash at your local bank or via a bank transfer.
If you live in Japan and are between 20 and 59 years old, you’re also required to join the country’s pension system. Officially called “Welfare Annuity Insurance” (厚生年金保険 kōsei nenkin hoken), it is often just called “pension” (年金 nenkin).
Since 2017, the rate for pension insurance payments has been fixed at 18.3%. Just like regular health insurance, this payment is split 50/50 between you and your employer. For more detailed info on the current rates, visit the homepage of the Japan Pension Service (English / Japanese).
Japanese nationals living in Japan pay into the system as long as they work, and then receive the benefits once they retire. But of course, many non-Japanese residents don’t spend their whole lives in Japan. Because of this, foreign residents can receive refunds on their pension payments upon leaving Japan. This refund is called the lump-sum withdrawal payment.
You’re qualified for a lump-sump withdrawal payment if:
- You’re not a Japanese national
- You paid pension insurance for six or more months
- You don’t have an address in Japan
- You were never eligible to receive a pension
- It has been 2 years or less since you’ve permanently left Japan
The amount of refund money you’re able to receive builds up the longer you live in Japan, but caps at 5 years. Even if you live in Japan for 8, 15 or 20 years, you will only ever be able to receive 5 year’s worth of pension payout upon leaving the country.
Income tax will be deducted from the lump-sump withdrawal payment, but you can get back the full amount lost this way through a tax refund.
In contrast to all other taxes in this article, hometown tax is an optional system. Residents of Japan can use it to support specific communities in Japan with their residence taxes and receive gifts from those communities in return.
Here’s how to participate in the Hometown Tax system:
Search for a municipality in Japan you want to support. (*You can choose freely – it doesn’t have to be your literal hometown or current place of residence)
Make donations to the municipalities you chose
Receive gifts from the municipalities you chose
Apply for a tax deduction
After making donations through the hometown tax system, the amount of money you donated will be deducted from your residence tax payments for the next year. All in all, you pay the exact same amount of taxes, but get more out of it! (Of course, this only works if you’re staying in Japan for longer than 1 year.)
The maximum tax deduction amount changes depending on the makeup of your household and your income. To get a quick estimate of the amount of money you can “reclaim,” check out this website (in Japanese).
Staying on Top of Things
Taxes come with a lot of variables and exemptions. As long as you’re a company employee, your company will handle most of the paperwork for you, so don’t be too intimidated.
To get a quick estimate of how much of your income will go to taxes, you can use the Japan Tax Calculator. While it doesn’t take into account each and every circumstance that may affect your bottom line, the estimate can be a good reference to plan out rent and other expenses before coming to Japan.
You can get more information about Japanese tax from this site:
Guidebook on Living and Working ~For foreign nationals who start living in Japan~