Tax information: going to Japan
Welcome to the tax guide on going to Japan, produced by Deloitte. Looking for tax information about leaving Japan, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 01 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
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Before/once you arriveQ. Do I need a work permit to work in Japan?
A. Yes. Japanese officials monitor entry into Japan stringently. Expatriates must have the correct visas and permits to live and work in Japan. All applications should be filed at an appropriate Japanese embassy or consulate before going to Japan. If a spouse accompanies an expatriate to Japan and the spouse intends to work in Japan, the spouse must apply for his or her own work permit.
Q. Should I complete any documentation upon arrival in Japan?
A. Every foreigner who stays in Japan for more than 90 days should register with the local municipality as an alien and obtain an alien registration card (two passport-size photographs are required for this purpose). All foreigners, except children under age 16, should carry their alien registration cards at all times.
Q. Should I open an offshore bank account or is it OK to have an account on the Japanese mainland?
A. A non-permanent resident is exempt from tax on income sourced outside Japan unless this income is paid in or remitted to Japan and therefore an offshore bank account is tax efficient for these individuals.
Q. What is the name of the Japanese tax authority?
A. Ministry of Finance- http://www.mof.go.jp/index.htm
Q. What is the tax year?
A. The tax year runs from 1 January to 31 December.
Q. How will I be taxed in Japan?
A. Your tax liability will depend on your residence status. Permanent residents are subject to income tax on worldwide income. Non-permanent residents are taxed on Japanese source income and on foreign source income that is paid or remitted to Japan. Non-residents (persons who are neither a permanent nor non-permanent residents) are subject to income tax on Japanese source income only.
Q. How is tax residence determined?
A. A resident is defined as an individual (whether Japanese or foreign) who is domiciled in Japan for any period of time, or resident in Japan for at least one year. Japanese nationals who have a home in Japan and individuals who go to Japan to establish and operate a business or profession that continues for one year or more are considered to have a domicile in Japan.
There are three categories:
Permanent resident: a Japanese national who is domiciled in Japan and a foreign national who has maintained a domicile or abode in Japan for over 5 years within the preceding 10 years.
Non-permanent resident: A foreign national who has maintained a domicile or abode in Japan for one year or more and has maintained a domicile or abode in Japan for 5 years or less within the preceding 10 years.
Please note: The 2006 tax reform introduced the above new definitions, effective from April 1, 2006.
A foreigner who accepts employment in Japan generally is classified as a non-permanent resident (as opposed to a non-resident) immediately upon his or her arrival if the conditions of employment normally require continuous residence in Japan for one year or more, or if the individual has been issued a permanent residence visa and some basis exists to expect the stay to last one year or more (such as the presence of a spouse and children in Japan).
Non-resident: an individual who is neither a permanent nor a non-permanent resident.
Q. What does 'Domicile' mean?
A. Domicile is considered to be the "base and centre of an individual's living" and cannot be located in more than one place at the same time. A foreigner generally is considered not to have a domicile in Japan. A person will be presumed to have his or her domicile in Japan if the individual: (i) is engaged to work in Japan and, under normal circumstances, it would require his or her continuous residence in Japan for one year or more, or (ii) is a foreign national or a Japanese national, admitted to permanent residency under the laws of a country outside Japan, but who retains sufficient social and economic ties within Japan to presume that they will return to Japan and have Japan as their centre of living. A person who is continuously in Japan for one year or more and a person who entered Japan with the intention of residing for one year or more will be considered as a resident. Japan generally looks at intent and substance over form when determining domicile.
Q. Are there any regional or state taxes?
A. Japan imposes a variety of local and municipal taxes as follows:
Prefectural Inhabitants Tax (Per Capita Levy) - A prefectural inhabitants tax (per capita levy) is imposed by both the prefectures and municipalities and applies to all resident taxpayers and non-residents with a house or place of business in Japan. The tax varies from approximately ¥3,000 to ¥4,000 per year, depending on the size of the population of the individual's home municipality.
The tax also applies to individuals who have no domicile in the prefecture but who have an office or place of business in the prefecture or municipality.
Prefectural Inhabitants Tax (Levy on Income) - Individuals residing in a prefecture and realizing income in the past accounting period from that prefecture are liable for the levy on income, as well as the per capita levy.
Local Enterprise Tax - A local enterprise tax applies to all individuals engaged in a business, rental activity or a profession in Japan. The applicable rate is normally flat 5% after self-employment income deduction up to ¥2.9 million.
There are a number of other taxes that are levied on land, buildings and fixed assets.
Q. Can I file a joint tax return with my spouse?
A. No. Spouses whose income exceeds certain thresholds must file their own tax returns and pay tax independently.
Q. What rate of tax will I pay in Japan?
A. For the year ended 31 December 2008 the national income tax rates are as follows:
| Level of Taxable Income (¥) | Rate Applicable to Income Level (%) |
| Less than 1,950,000 | 5 |
| 1,950,001-3,300,000 | 10 |
| 3,300,001-6,950,000 | 20 |
| 6,950,001-9,000,000 | 23 |
| 9,000,001-18,000,000 | 33 |
| 18,000,001 or more | 40 |
Inhabitants Tax (Combined Prefecture and Municipal)
Flat rate of 10%.
Q. Can I claim a tax deduction for charitable contributions?
A. You are entitled to an allowance for charitable contributions to government-authorized organizations in excess of ¥5,000. The allowance is limited to 30% of the aggregate of the taxpayer’s ordinary income, retirement income and timber income.
Q. Are any other tax deductions available?
A. There are statutory employment income deductions, the amount of which depends on the level of gross employment income. Employees and company officers who are residents of Japan may file a tax return to claim actual employment-related expenses, rather than taking the statutory deduction. The higher of standard or actual deductions is allowed.
In addition to the statutory employment income deduction, additional deductions and credits are available in respect of specified expenses.
Q. I will also be paying tax in my home country. Am I being taxed twice?
A. Yes. However, tax relief from double taxation of resident individuals is given by the credit method.
Q. Do I need to file a Japanese tax return?
A. Most resident employees who are paid onshore in Japan do not have to file tax returns because their income tax liabilities are usually settled when year-end payroll adjustments are made in December of each year.
Individuals must file a tax return by 15 March of the following year when:
- Gross employment income exceeds ¥20 million;
- Other income and employment income not subject to a year-end adjustment exceeds ¥200,000; or
- Employment income was paid abroad (or remitted into Japan from abroad); or
- Other special circumstances apply.
Q. When does it need to be filed?
A. On or before 15 March following the tax year.
Q. Can the filing deadline be extended?
A. There are no extensions for filing your tax return. Penalties and interest will be assessed if filed late.
Q. What is the procedure for paying tax?
A. Prepayments of national tax on income, other than that subject to withholding taxes, must be made in two instalments . These instalments are due by the end of July and by the end of November of each year except in the year of arrival.
In general, tax due must be paid at the time of filing the return. Two-thirds of the prior year's total tax (after deduction of withholding taxes) must be prepaid in two equal instalments and only the balance will be paid at the time of filing the return. The first prepayment must be made on or before 31 July. The second payment must be made on or before 30 November.
Inhabitants tax liabilities may be satisfied through employer withholding. The employer must withhold tax every month, starting in June, over a period of 12 months. If income is not subject to monthly withholding tax, the taxpayer receives a tax assessment directly from the municipality in which he or she lives. This assessment requires the taxpayer to pay tax either in one lump sum at the end of June, or in four instalments: at the end of June, August, October, and January. Tax is payable only if the taxpayer is resident in Japan on 1 January of the year following the year in which the income was generated.
Q. Will non-cash compensation be taxable (e.g. housing)?
A. All benefits are taxable unless specifically exempted or subject to certain tax concessions. In general, housing benefits provided by an employer to an employee is partially taxable. The taxable amount is determined by a complex formula when the name of the lessee is the employer; only a relatively small amount is taxable at a rate between 5% and 10% of the actual rent. Relocation expenses, meal and clothing reimbursements, educational expense reimbursements, home leave payments (subject to limitations), commuting costs and corporate club memberships may be subject to some tax relief.
Q. I will be working in different countries while living in Japan. Will all of my employment income be taxable in Japan?
A. A permanent resident is liable for national income tax and for prefectural and municipal inhabitants taxes on his or her worldwide income.
A non-permanent resident is liable for national income tax and for prefectural and municipal inhabitants taxes on his or her Japan-source income, and is exempt from tax on income sourced outside Japan unless this income is paid in or remitted to Japan.
A non-resident is subject to national income tax on Japanese-source income only. In general, a non-resident who has a place of business or real property located in Japan must pay national income tax and local inhabitants tax, but other non-residents are not liable for inhabitants taxes.
Q. Will I pay Japanese tax on investments and rental income generated in my home country?
A. This will depend upon your residency status. Permanent residents are subject to Japanese taxes on their worldwide income. Non-permanent residents are liable for Japanese taxes on Japanese source income, and are exempt from tax on income sourced outside Japan unless this income is paid in or remitted to Japan. A non-resident is subject to Japanese national income tax on Japanese-source income only.
Q. Is there a Capital Gains Tax regime in Japan?
A. Yes. Capital gains are treated in a variety of ways. Some are taxed as income at normal income tax rates. Others, including those on the disposal of real estate and shares, are taxed at special rates.
Gains on the disposal of machinery and equipment by an entrepreneur, the disposal of patents, golf memberships, zero-coupon bonds, deep-discounted bonds, deferred payment bonds, paintings and antiques are taxable. Capital gains from the sale of ordinary bonds and debentures are not taxable from 01 January 2007.
Q. Could I offset capital losses from disposal of shares against the other income?
A. Basically, capital gains (losses) from the disposal of shares are under separation tax method. But, a new regime has been introduced, that is effective from 01 January 2009, to offset capital losses from the disposal of listed shares, including those net losses carried forward from the three immediately preceding years, against dividend income if certain conditions are met.
Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?
A. Individuals who acquire property through inheritance may be subject to Japanese inheritance tax based on the property's assessed value. If the beneficiary is resident in Japan at the time of the decedent's death, tax is levied on all properties, regardless of the location of the properties. If the beneficiary is not resident in Japan, tax is levied only on property located in Japan.
Gifts between individuals are also generally subject to the Japanese Gift tax. The transfer of assets at less than fair market value may give rise to such a gift. The donee will pay the tax, not the donor. Non-residents are liable for tax only on gifts of property located in Japan.
Various deeds or commercial documents are subject to stamp tax.
Q. Am I required to pay Japanese Social Security?
A. If you arrive in Japan from abroad and take up employment with a Japanese employer, or take up self-employment, you will generally be required to pay Japanese Social Insurance to cover the costs of various social security programmes, such as health insurance, welfare (retirement) pension, unemployment insurance, and workers compensation insurance.
If you have been sent to work temporarily in Japan by an employer in a country with which Japan has a bilateral Social Security Agreement, you may be able to continue paying foreign social security contributions and are not required to pay Japanese Social Insurance.
Q. Are social security contributions deductible for tax purposes?
A. Japanese Social Insurance premiums paid for yourself, spouse, or for other relatives living with you are fully deductible.
