Japan Tax Laws and Regulations
Japan Tax Laws
With over 20 years’ experience in the front line of international payroll providers, Bradford Jacobs ensures our clients comply with every level of tax and employment law across the globe. Our ‘know-how’ is vital for foreign companies expanding into Japan.
Dealing with employment, tax, and payroll from overseas is always a tricky process and poses complications that demand expert guidance, especially so when establishing an international presence in Japan. For example, tax rates are applied at national, prefecture and municipal levels, involving up to 10 payments a year. Remitting late or incorrect returns for payroll and social security result in severe fines and other sanctions.
Overview of Taxes in Japan
| Tax Type | Percentages |
|---|---|
| Individual Income Tax | |
| Up to JPY 1.95million (US$17,830) | 5% |
| Further bands of | 10%, 20%, 23%, 33% and 40% |
| Over JPY 40million (US$365,690) | 45% |
| Non-resident locally earned income | 20.42% |
| Social Security Taxes | |
| The employers’ contribution | 18.3% |
| Capped to a maximum JPY 620,000 (US$5,670) and JPY 1.5million (US$13,713) accounting for a standard rate bonus. Employees also contribute 18.3% from their salary | |
| Value Added Tax | 10% |
| Corporate Income Taxes | |
| Japanese companies taxed on global income up to JPY 8 million (US$73,140) and | 15% |
| Above that | 23.2% |
| Also applies to companies with share capital exceeding JPY 100 million (US$908,000). | |
| Local corporate | 10.3%. |
| Inhabitants’ Tax and Enterprise Tax at prefecture and municipal levels |
Withholding Tax
Non-resident individuals and corporations are liable for 20% tax on dividends, interest, and royalties with 15% applying to bank deposits and other financial interactions.
Other Taxes
Exit Tax applies to individuals with assets of more than JPY 100 million (US$ 908,000) and those who have lived in Japan for more than five years in the previous 10 before departure. Individuals are also liable for Inhabitants’ Tax, usually at a flat rate of 10% applied at prefecture and municipal levels.
Japan Individual Tax – Single, Married
Taxation in Japan depends on residency, with individuals considered tax residents if they have lived in Japan for more than one year. A non-permanent resident is a non-Japanese citizen who has lived and worked there between one and five years in a 10-year period. They pay tax on locally earned income and foreign-earned income remitted into Japan.
A permanent resident is a Japanese individual or someone who has lived and worked in Japan for more than five years in a 10-year period and they pay tax on their Japanese and worldwide earnings.
Income tax withheld by employers is remitted to the National Tax Agency (Kokuzei-cho, NTA) and the relevant social insurance systems (Shakai Hoken), covering health insurance, employee pensions, unemployment insurance and accident compensation.
Resident individuals’ taxable income
| From – in JPY (US$) | Not Over | Tax on Excess |
|---|---|---|
| 0 | 1.95million (US$17,830) | 5% |
| 1.95million (US$17,830) | 3.3million (US$30,170) | 10% |
| 3.3million (US$30,170) | 6.9million (US$63,540) | 20% |
| 6.9million (US$63,540) | 9.0million (US$82,280) | 23% |
| 9million (US$82,280) | 18million (US$164,560) | 33% |
| 18million (US$164,560) | 40million (US$365,690) | 40% |
| 40million (US$365,690) and above | 45% |
Taxable income includes salaries and income from interest, dividends and rentals, retirement income, capital gains, business income and any miscellaneous reimbursements. There are no joint returns for married couples and all tax returns are filed individually.
The tax year is January 1 to December 31 for residents and returns must be filed by March 15 of the following year or by mid-April if being paid by bank transfer.
Non-residents’ Japanese-earned income is taxed at a flat rate of 20.42%, without deductions being allowed, and individuals will be liable for Inhabitants’ Tax once they register as a resident.