Resident Tax, What is it? How is it calculated? How do I read it? When do I pay it?
Have you recently received your Resident Tax Notice? If so, read on.
WHAT IS IT? In Japan, Resident Tax (jumin zei) and also sometimes referred to as Inhabitant Tax or Local Income Tax is a tax levied on those residents in Japan who earn more than 1,000,000 JPY per calendar year. This tax covers the cost of public services such as welfare for senior citizens and children, education, infrastructure, police departments, fire stations etc
HOW IS IT CALCULATED? Around January each year your Ward/City Office (kuyakusho/shiyakusho) receives a copy of your previous years tax return from your employer or local tax office. For those who file a personal income tax return in March each year this form is also submitted to your Ward/City Office. If you have income in 2019 and had a registered address in Japan as of January 1st, 2020 you will be obligated to pay this tax.
Initially you will receive a Year R2 (Reiwa year 2) Resident Tax notice from your employer or payroll provider this month (June). Please see example below:
HOW DO I READ IT? Your Resident Tax notice above shows:
- Adjusted Income, the adjusted total of all your earnings from the previous year.
- Total Deductions. Most salaried employees have social insurance deductions which show the total contributions you made through monthly withholding of your Health and Pension in addition to a standard deduction of 330,000 JPY. If you have any dependents, private insurance, or a housing loan, you may qualify for additional deductions.
- Taxable Income = Adjusted Income – Total Deductions (rounded down to the nearest 1000 JPY)
- Resident Tax amount due. This equates to approximately 10% of your taxable income. Some cities have additional tax. For example, Yokohama City charge a “green tax” on their residents to plant more trees and to cover the cost of landscape maintenance.
WHEN DO I PAY IT? Based on the above example, if your payday is on the 25th, your employer will withhold 32,300 yen from your June 25th paycheck. From July through to the following May (2021) 31,400 yen will be withheld from your monthly paycheck.
Please also note for those who are planning to leave Japan that your final official day of residence in Japan can have a major effect on your Resident Tax obligations. Don’t forget to inform your Ward/City office before your departure that you are giving up your residency.
Leave Japan on or after January 1st. 2021 and you will be obligated to pay Resident Tax based on your 2020 income.
Leave Japan on or before December 31st. 2020 and you will not be obligated to pay residence tax based on your 2020 income
If you are not sure about your particular situation and would like further clarification please feel free to contact us. We will be happy to put you in contact with the appropriate professionals.