A Basic Guide to Income and Resident Tax in Japan
Occasionally I am asked by my candidates (company employees) to explain how Income and Resident Tax are calculated here in Japan. As companies in Japan are currently involved with the year-end tax adjustment for employees I’ve put together a short guide below which should at least clarify the basics of Income and Resident Tax.
For additional advice relative to your personal situation I recommend you consult with a registered Japanese Tax Accountant or your payroll provider.
There are a few different types of taxes we pay in Japan. The exact nature and amount of taxes we pay vary from one person to the next and depend on several factors, including:
- Where your address is registered
- Whether you have any dependents and how many
- Your length of residency in Japan
- Your residency status in Japan
- Your source of income
Income Tax (shotoku zei)
The main deduction that we face each month is income tax, and its exact amount depends upon the amount of income you make. This is similar to PAYE systems in South Africa, Australia, NZ, and the UK.
The table below illustrates the tax rates and income brackets.
|Tax Percentage||Income Bracket|
|5% of taxable income||<1,950,000 yen per year|
|10% of all taxable income above 97,500 yen||1,950,001 – 3,300,000 yen per year|
|20% of all taxable income above 427,500 yen||3,300,001 – 6,950,000 yen per year|
|23% of all taxable income above 636,000 yen||6,950,001 – 9,000,000 yen per year|
|33% of all taxable income above 1,536,000 yen||9,000,001 – 18,000,000 yen per year|
|40% of all taxable income above 2,760,000 yen||18,000,001 – 40,000,000 yen per year|
|45% of all taxable income above 4,796,000 yen||>40,000,001 yen per year|
Year End Tax Adjustment (nenmatsu chosei)
In Japan, most employees don’t file a personal tax return (kakutei shinkoku). Instead, your company does a year-end tax adjustment on your behalf. You will be asked to fill out and sign some forms to clarify things such as your:
- Registered Address
- Marital Status
- Number of Dependents
- Private Insurance premiums (hokenryo)
- Housing loan (jutaku kariire kin)
Your answers to these questions may qualify you for tax deductions. Additional deductions can be made for medical expenses and charitable contributions however you would need to file a personal tax return to claim these. With the above said, there are exceptions to this rule. You might have to also file your own personal tax return if you meet any of the following factors:
1) Your salary is more than 20 million JPY a year (January – December)
2) You work for more than one employer
3) You have a secondary income of more than 200,000 JPY a year
4) Your employer is located outside of Japan
5) You leave Japan
Resident Tax jumin zei (Also known as Inhabitant Tax or Local Tax)
Resident Tax is calculated on 10% of your previous year’s income and takes into account your registered address, not where you work. You’ll know how much you need to pay when your employer receives the tax bill from your local Ward Office. This is important to note as it can create a problem if your financial circumstances take a dramatic turn for the worse from one year to the next.
Resident Tax is calculated based on your income from January to December of the previous year. The amount deducted takes effect from June of the following year. It’s important to note that if you are registered as living in Japan on January 1st then the Resident Tax will be levied on you and payment deducted from your salary. Please see below example:
Income Calculation Period Payment From Payment to
January-December 2018 June 2019 May 2020
January-December 2019 June 2020 May 2021
January-December 2020 June 2021 May 2022
Please also note that Resident Tax consists of Prefectural Tax, (doufu kenmin zei) which is 4%, and Municipal Tax, also known as City or Ward Tax (shicho sonmin zei) which is 6%. Combined, these two taxes reflect the 10% Resident Tax.
As a footnote, please remember not to overlook this tax, especially if you are a non-permanent resident as failure to pay can jeopardize your chances of securing a visa renewal.