If you’re a resident in Japan, or are planning on working there for an extended period, the chances are you’ll need to file a tax return, and pay tax on some or all of your income there. Although the tax system can be tricky to navigate - in Japan or anywhere else in the world - understanding your duties is essential. If you get it wrong you could end up being fined, or even having a criminal case to answer. It’s not worth the hassle.
Japan has several different categories of residence for tax purposes, so how long you’re in the country, and whether or not you’re considered ‘domiciled’ there, will dictate what tax you owe. Tax is a complex legal area, and it’s important that you understand your own - possibly unique - situation.
This overview is a great starting point to help you learn more about the Japanese income tax system. If you think you might need to pay tax on some or all of your income in Japan, it’s advisable to get professional advice to make sure you pay the right amount.
For tax purposes in Japan, you’ll need to report income from your salary, along with any benefits or bonus payments. If you get non-monetary benefits as part of your job - for example, if your employer provides you a house to live in - this will also be treated as taxable.
You also have to report income from other sources such as rental income and capital gains, however, how this is taxed depends on where it comes from, both in terms of the type of income, and where in the world it originated.
Like most things concerning tax, it’s relatively complicated, so if you’re unfamiliar with the Japanese income tax system, taking professional advice is essential.
(Source, 15 December 2017)
What income tax you’ll be required to pay in Japan depends on your residence status. This is a little more complex in Japan than in many other countries, as there’s a third category in addition to the common resident and non-resident options. In basic terms, you’ll be classified as either:
- A resident taxpayer
- A non-permanent resident taxpayer
- A non-resident taxpayer
(Source, 15 December 2017)
In Japan, the tax year is the same as the calendar year - 1 January through to 31 December.
You’re considered a resident for tax purposes if you have a permanent home - a Jusho in Japan - or if you have a temporary home - a Kyosho in Japan - for a period of one year or more. That means that your intention is as important as where your home address is, at least for the first year. If you intend to stay in Japan on a permanent basis then you’ll likely be considered to be a resident.
As a resident taxpayer, you have to pay tax on any income you make anywhere in the world, to the Japanese authorities.
Unlike many other countries, Japan also has a kind of half-way house between being a non-resident taxpayer and a resident taxpayer. This is known as being a non-permanent resident for income tax purposes. This applies if you’re a foreigner living in Japan as an expat, but you have been there for under five years in total over the preceding ten years.
If you’re a non-permanent resident for tax purposes, then you won’t have to pay tax in Japan on income sourced outside Japan, if that income isn't paid within Japan or isn't remitted to Japan. All other income - including money you earn abroad but then remit to Japan - is taxable in Japan.
If you don’t fit either other categories above, then you’ll be deemed to have non-resident tax status. This means you pay tax in Japan only on the income you’ve earned in Japan.
(Source, 15 December 2017)
The short answer is - it depends. Because the rules about residency for tax purposes are about your ‘domicile’ - which is the place you’re considered to have the strongest links to - you could still be liable for tax in Japan even if you’re away from the country for a while.
Each case could be slightly different, so it's definitely worth taking some personalised advice about your situation. However, if you maintain a home in Japan, while you’re working away, the chances are that you could be liable to declare some or all of your income to the tax authorities in Japan.
Japan has a progressive tax system. That means that a progressively higher tax rate is applied based on how much you earn.
If you’re self-employed, you might be taxed on a slightly different basis, through what’s called the enterprise tax. Make sure you know which tax is relevant to you.
The most up to date rates available for resident, employed taxpayers in Japan are as follows:
|Income range||Japan income tax rate (%) 2017|
|Up to ¥1,950,000||5%|
|¥1,950,000 to ¥3,300,000||10%|
|¥3,300,000 to ¥6,950,000||20%|
|¥6,950,000 to ¥9,000,000||23%|
|¥9,000,000 to ¥18,000,000||33%|
|¥18,000,000 to ¥40,000,000||40%|
There are also a couple of other taxes you need to know about - at the moment there's an extra surtax of 2.1% of earnings, above the amount in the table. There’s also a local inhabitants tax which is set by local governments but is usually a flat rate of 10%.
Non-resident taxpayers are treated differently. Their Japan-sourced income is taxed at a flat rate of 20.42% with no deductions available. This rate includes the 2.1% surtax described above.
(Source, 15 December 2017)
The Japanese tax system has a number of available exemptions and deductions. Exemptions mean that, according to your circumstances, you might be able to remove some of your gross income from your calculations before you figure out your tax burden. Deductions usually have to be claimed via your tax return, and you’ll need to provide evidence, like receipts, to support your claims.
Not all exemptions are offered to non-resident taxpayers, though, so you’ll need to check what you’re entitled to according to your status.
Here are some of the exemptions, deductions and credits that you might need to know about.
There’s an earned income deduction which is available to resident and non-resident taxpayers. This is a progressive deduction, based on your income level, and it’s reassessed every year.
The amount that's deducted is calculated according to a sliding scale formula, using a fixed percentage of earned income, plus a flat amount, which changes according to your income level. However, there's a cap for the highest earners, of a ¥2,200,000 annual deduction from taxable income.
The latest figures, for 2017 income, are as follows:
|Income range||Formula for calculating exclusion||Salary exclusion|
|Up to ¥1,800,000||40% of income||¥650,000 - ¥720,000|
|¥1,800,000 to ¥3,600,000||30% of income + ¥180,000||¥720,000 - ¥1,260,000|
|¥3,600,000 to ¥6,600,000||20% of income + ¥540,000||¥1,260,000 - ¥1,860,000|
|¥6,600,000 to ¥10,000,000||10% of income + ¥1,200,000||¥1,860,000 - ¥2,200,000|
|Over ¥10,000,000||5% of income + ¥1,700,000||¥2,200,000|
If you’re a resident taxpayer you could be entitled to a personal exemption of ¥380,000 set against your income for national income tax purposes, and ¥ 330,000 for local inhabitants tax purposes. As a resident taxpayer, you could also get an exemption for any dependants who are over 16 years old, as long as they don’t earn more than ¥380,000 a year themselves. The deduction could be more if you’re caring for an elderly relative, aged over 70. There are also extra exemptions if the dependants you’re claiming for are handicapped in any way.
None of these exemptions usually apply to non-resident taxpayers, though.
Some business expenses are tax deductible. For example, if you have to move for work, and your employer provides financial support to allow this, then you might be able to deduct the extra payment from your earned income. However, there are limits to how much you can actually deduct, and in what circumstances.
You can remove the costs of some things, including life and earthquake insurance, some charity contributions, medical costs and social security contributions, from your taxable income. Don’t forget though, that there are caps and limits in place for some of these items. Make sure you understand the details when you complete your tax return.
(Source, 22 December 2017)
Double taxation agreements are important if you could be liable to pay tax in two countries during the same tax year. These agreements mean that you can offset the tax paid in one country against the bill for the other, so you don’t have to pay tax twice on the same income.
Japan’s Ministry of Finance has double taxation agreements with a large range of countries, but some of the agreements are for information sharing rather than explicitly to help citizens avoid paying too much tax. If you think you’re going to be liable for tax in more than one country, it’s worth getting professional advice to make sure you don’t pay more than you have to.
Japan has bilateral tax agreements with the following countries:
Japan double taxation agreements
|British Virgin Islands||Oman|
|Isle of Man||Ukraine|
(Source, 17 December 2017)
Most employers in Japan will withhold tax from their employees’ salaries (PAYE), which might mean that you’ve paid everything you owe during the tax year and don’t have to submit a tax return at all. However, if you want to claim some deductions then you’ll probably have to submit a tax declaration.
There are also a few personal circumstances, under which you definitely have to fill out a tax return:
- if you plan to leave Japan before the end of the tax year
- if you’re not taxed under the PAYE system
- if you’ve got more than one employer
- if you earn more than ¥20,000,000 or have side income of more than ¥200,000
If you find you need to submit a tax return you can do so in person at the local zeimusho (tax office), by mail or online. Generally, you’ll have a window of between February 16 and March 15 of the year following the tax year in question, to get your paperwork filed.
(Source, 17 December)
If you’re self-employed you might choose to pay your tax bill online. You might also find that you have more to pay if you have a second income, or if your employer doesn’t withhold tax from your wage for some reason.
That might mean that you need to pay for your Japanese taxes using a bank account held in a different country or currency. This can be more expensive than making a bank transfer from within Japan, so don’t forget to take into consideration any charges that will be added to the transfer.
It’s also well worth checking that the exchange rate used when converting your cash to yen is fair. You have to be on your guard because banks and money exchange services often don’t give customers the real, mid-market rate, which you’d find on Google. You might find that your provider has marked up the rate by as much as 4-5%. They keep the difference, and you pay more than you need to.
Instead of sticking to your regular bank, you could be better off making your international money transfer using TransferWise. TransferWise works differently to banks. You still get your money transferred quickly and safely, but Transferwise always uses the real exchange rate, and only charges a small, upfront fee.
There are no hidden charges to worry about. It works because TransferWise doesn’t use the pricey SWIFT system for making bank transfers. By cutting out this cost, the process is cheaper, and it’s possible to pass the savings on to the customer.
You might find you can pay your taxes directly using a TransferWise transfer. Otherwise, if you’re new to the country, and don’t already have a bank account in Japan, you could transfer the payment to a friend or family member who does. That way you still benefit from the cost saving, even without your own bank account.
If you’re a foreigner living in Japan as an expat, you probably find you have to move your money around between currencies frequently. If that’s the case then you might be able to make life cheaper and simpler with a new TransferWise borderless multi-currency account. You can hold your money in any one of dozens of different currencies - including yen - all in the same account. You get the real exchange rate every time you want to switch between currencies, and there’s only a small transparent fee for changing your cash.
Taxes aren’t something most people enjoy - but they can’t be ignored. They’re especially complicated if you’re an expatriate or if you juggle life between different countries. Your responsibilities and duties might be harder to figure out, but getting it wrong can be an expensive mistake. Take professional advice if you need it, and make sure you understand the law and how it’s applied to your situation.
Wherever you’re paying your taxes, you don’t want to lose out because of unfair fees added when you change your currency. The good news is that TransferWise might be able to help you save money on cross-border transactions. See if you can get a better deal from TransferWise if you find yourself needing to pay your taxes abroad.
|This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date.|
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