There are many factors that enable all countries to grow and prosper. Certain factors include economy, businesses, tourism, and the like. These key factors generate money on a daily to a yearly basis that would help finance the needs of the country in order for it to flourish. One of these factors is tax. In almost every country, each citizen is required to pay a certain amount as tax to the government on a yearly basis. This tax supposedly goes to various things that would help improve the states of the country. This includes the building of schools, hospitals, and other infrastructures. Furthermore, some of these funds are also used to pay government officials for the jobs they do in order to keep the country running and functional for its citizens. These taxes play a role in the GDP of the country.
In the land of Japan, every person is required to pay taxes regardless of nationality. There are different classifications as to how much a person would need to pay as tax depending on his or her residency, as stated in the law of Japan. Hence, people who wish to travel and be under employment in the country must be made aware of this requirement.
Types of Taxes in Japan
There are many ways that taxes are paid in the Land of the Sun. To give an overview, these include income, property, and consumption. Taxes paid on consumption also vary on levels with national, prefectural, and municipal levels. There are many types of taxes that are to be paid by individuals in Japan. It is of utmost important to learn the basics on each one before deciding to work in Japan.
One of the most common types of taxes in Japan is income tax. Income tax in Japan is paid on a yearly basis by each person residing in the country. Similar to consumption levels, income tax are also paid on the national, prefectural, and municipal levels. Income tax is more commonly known as “resident tax” on the prefectural and municipal levels. The amount to be paid would depend on the net personal income of each individual.
Should one be self-employed or trades goods and services on his or her own, there is another tax known as enterprise tax that need to be paid. This is prefectural tax that self-employed persons need to pay on a yearly basis if they are into business activities of their own rather than being employed by a different company. The amount to be paid would depend on the net income of the person as well as the type of business that he or she addresses and runs as his or her own.
Not just for the working individuals, people who own land in Japan also have to pay another type of tax. This tax is known as property tax. It is a municipal tax to be paid by people who own land in the country. The tax is also to be paid on a yearly basis. Aside from land, individuals who own housing and other kinds of depreciable assets would need to pay property tax annually.
In generally, people who buy goods and services also have to pay a type of tax known as consumption tax. As the name suggests, this type of tax is to be paid by consumers of certain products and services. The rate to be paid is presently at 8 percent of the actual price of the goods or the services.
Aside from consumption tax, there is also a type of tax known as vehicle-related taxes. It is a prefectural automobile tax to be paid by people who own a vehicle such as a car, a truck, or a bus. Should the vehicle be a passenger car, the amount to be paid annually would depend on the engine displacement of the car. If the vehicle is a motorbike or another kind of motorized light vehicle, there is corresponding municipal light vehicle tax for this. Even just the acquisition of a car entails one to pay for a prefectural automobile acquisition tax. This would not be news for people who already own cars in Japan.
Three Categories of Japanese Income Tax
For individuals who pay income tax, they are generally aware of the three categories that they may fall into when paying for this type of tax. First category is the Non-Resident. Basically, every individual who do not qualify as a resident of Japan is categorized as a Non-Resident when paying for income taxes. Non-Residents also include people who have lived in Japan for a year or less and do not have Japan as their primary base of living.
The amount that they would have to pay as income tax on a yearly basis shall depend on the income that they obtained within the country of Japan. The general scope of their income that is taxable for withholding tax shall be under the provisions for incomes sourced domestically. Therefore, aside from special cases, income tax for Non-Residents is now usually accomplished only via withholding at source procedures. Hence, any income that a Non-Resident obtains outside of the borders of Japan is no longer assessed as part of the income tax to be paid to the country.
The second category for classification for income taxes would be for Residents. This category can be further divided into two subcategories, namely, Permanent Resident and Non-Permanent Resident. An individual who has lived in the country of Japan for five years or more and has the intent of residing in the country on a permanent basis would be considered a Permanent Resident.
Furthermore, people who have a domicile in the country would also be considered Permanent Residents. The term “domicile” pertains to the princiapl base and center of the life of a person. The whole income of Permanent Residents, whether this be obtained within or outside of Japan, is subject to income tax. This means that if a Permanent Resident earns money from overseas, this income would also be assessed for the computation of income tax in Japan.
The other subcategory know as Non-Permanent Resident pertains to people who have lived in Japan for less than five years and, furthermore, has no intent of staying in the country on a permanent basis. This subcategory may also include individuals who do not possess a Japanese citizenship or do not have a domicile in the country for five years or more. The assessment on the income tax for Non-Permanent Residents is quite similar to that for Permanent Residents wherein the whole income shall be taxed.
However, for Non-Permanent Residents, income sourced outside the country shall not be assessed in Japan so long as the money is not paid within the borders of the country. Another condition would be that the income would also not be remitted to Japan. On the other hand, if the income earned based on domestic sources, the salary would still be assessed as part of the calculation for income tax in Japan. While these are guidelines as to how income tax works in Japan, there are also other tax treaties that have been agreed upon between Japan and other nations that may take precedence over the aforementioned guidelines above. More information about this can be found in the website of the government of Nagoya.
How and When to File Income Tax and Income Tax Returns in Japan
The basis of income tax in Japan relies on a self-assessment system. This means that an individual should be able to determine the amount in terms of income tax that he or she would have to pay by filing a tax return. This is in combination with a withholding tax system wherein taxes are to be deducted from the salary of an individual as submitted by his or her employer. Typically, most employees working in Japan no longer need to file a tax return all thanks to this withholding tax system.
Currently, there are only a number of reasons as to why an employee would need to file a tax return. The first reason would be if he or she leaves the country prior to the conclusion of the tax year. The second reason would be if his or her employer does not abide by the withholding tax system. This may be applicable to people who have employers outside Japan. The third reason would be if he or she has more than one employer. The fourth reason would be if he or she has an annual income of more than 20 million yen. Lastly, the fifth reason would be if he or she has a side income that generates more than 200,000 yen.
For employees who no longer need to file a tax return, their income taxes are to be deducted from their salaries by their employers via the withholding tax system. This also includes an eventual adjustment that is created with the final salary of the tax year. On the other hand, for people who do need to file for a tax return such as people who are self-employed or run their own businesses, they must file a tax return at the local tax office, also known as zeimusho in Japanese. This can be done either by mail or online called e-Tax. Furthermore, this task needs to be done between the 16th of February and 15th of March of the following year. For example, the tax return for the year 2016 should be filed between the 16th of February in the year 2016 and the 15th of March in the year 2017.
Should the employer not incorporate the withholding tax system, employees must take note of the fact that national income taxes are due in full by the 15th of March of the next year. If one pays by automatic bank transfer, the due date would be by mid-April. These taxes are composed of two prepayments that are to be paid on the months of July and November of the running tax year. Prepayments are also computed based on the income of an individual from the previous year. Hence, one would not need to pay these taxes during his or her first year in the country.
On the other hand, if prefectural and municipal income taxes are not deducted by the employer of an individual, these taxes shall be paid in quarterly installments during the next year. An example of this would be the 2016 taxes. These shall be paid in four installments on the months of June, August, and October of the year 2017 and on the month of January in the year 2018.
Japanese Income Tax Rates
The tax rate can be calculated based on the income that is taxable by the government. Similar to other nations, taxable income in Japan is the total earnings of an individual minus a basic exemption, such as exemption for dependents. There are also other different kinds of deductions like deductions for medical expenses and for insurance premiums. There are also deductions for business expenses that are specifically designed for self-employed individuals who run their own business activities. A table below shows the basic income tax rates in Japan.
|
National Income Tax Rates |
|
|
Taxable Income |
Tax Rate |
|
less than 1.95 million yen |
5% of taxable income |
|
1.95 to 3.3 million yen |
10% of taxable income minus 97,500 yen |
|
3.3 to 6.95 million yen |
20% of taxable income minus 427,500 yen |
|
6.95 to 9 million yen |
23% of taxable income minus 636,000 yen |
|
9 to 18 million yen |
33% of taxable income minus 1,536,000 yen |
|
18 to 40 million yen |
40% of taxable income minus 2,796,000 yen |
|
more than 40 million yen |
45% of taxable income minus 4,796,000 yen |
|
Prefectural Income Tax Rates |
|
|
Taxable Income |
Tax Rate |
|
all |
4% of taxable income |
|
Municipal Income Tax Rates |
|
|
Taxable Income |
Tax Rate |
|
all |
6% of taxable income |
|
Prefectural Enterprise Tax Rates (in case of self-employed persons) |
|
|
Taxable Income |
Tax Rate |
|
all |
3% to 5% depending on the type of business |
These income taxes are the financial sources of the government in order to further improve the state of Japan. This is not seen as a gift to the country but rather an obligation to ensure the survival of Japan. Furthermore, it also betters the lives of the Japanese people who use the public transportation systems and other public services. While paying income taxes may not be easy for a lot of people as this is deducted to the money that they get to bring home to their families, they can still rest assured that the taxes that they pay for are put into good use as they are able to witness the growth of Japan.