Japan’s income tax is said to be the second-highest in the world (at the highest tax rate) after Sweden, and it is one of the big expenditures that cannot be ignored. This tax applies to all people who live in Japan and have income, so of course, foreigners are also eligible. In this article, I will explain what income tax is and how much you should pay.
What is Income Tax in Japan?
Income tax is calculated by applying a certain tax rate to the amount of income deducted from all income for the year from January 1st to December 31st each year. If you have income, you must pay this.
The income tax rate adopts an “excess progressive tax rate” that gradually increases according to the amount of taxable income. Simply put, a person with a high income pays more tax than a person with a low income.
What is Withholding (源泉徴収)?
Income tax paid by a business operator on behalf of the person in this way is called withholding income tax (源泉徴収:gensenchoushu). Business operators deduct and pay this income tax from the employee’s salary in advance.
In most cases, salarymen pay income tax with this tax withholding method. If you look at your payslip, you’ll see that your “income tax” has been deducted.
Type of Incomes
Let’s see what kind of income will be subject to income tax.This income tax will be levied mainly on the following incomes, though the detailed tax rate will change,
| Type | Explanation |
| Interest income | Income from interest on deposits and savings and public and corporate bonds, joint investment trusts, public and corporate bond investment |
| Dividend income | Income such as shareholder dividends |
| Real estate income | Income earned from renting real estate, etc |
| Business income | Income earned by self-employment such as agriculture, fishery, manufacturing, wholesale, retail, and service industries |
| Salary income | Salary provided by the company |
| Retirement income | Income paid by the employer upon retirement |
| Forest income | Income earned by cutting and selling forests or transferring them as standing trees |
| Capital gains | Income earned from the transfer of land, buildings, stocks, golf memberships, etc |
| Temporary income | Reimbursement for prizes, Fukubiki, horse racing, bicycle racing, etc., income such as temporary income when life insurance is canceled |
| Miscellaneous income | Income earned from side businesses |
How is Income Tax Different From Resident Tax
Income tax and residence tax are the same in that they are deducted from your monthly salary (if you are a salaryman), but there are several differences in other factors.
First, the residence tax is a “local tax” paid to local governments such as prefectures and municipalities. On the other hand, income tax is a “national tax” paid to the country.
Then another difference is the taxable period. Income tax is calculated from the income from January to December of the year, while residence tax is determined based on the income of the previous year.
How to calculate income tax in Japan
Income tax is calculated by “(taxable income amount x tax rate)- (tax deduction amount)“. It is probably difficult to understand just by looking at this formula, so from here, I will explain the contents in detail.
First, to calculate income tax, you need to find taxable income. This deducts the “income deduction” from the total amount of income from January to December of the year. This will calculate the taxable amount (taxable income amount).
Then multiply that amount by the tax rate in the table below. For example, if your taxable income is 4 million, it is 20%.
Finally, subtract the deduction amount from that value to find the amount of income tax.
| Taxable Tax (yen) | Tax rate (%) | Amount of Deduction (yen) |
| 1.95 million or less | 5 | 0 |
| 1.95 million ~ 3.3 million or less | 10 | 97,500 |
| 3.3 million ~ 6.95 million or less | 20 | 427,500 |
| 6.95 million ~ 9 million or less | 23 | 636,000 |
| 9 million ~ 18 million or less | 33 | 1,536,000 |
| 18 million ~ 40 million or less | 40 | 2,796,000 |
| 40 million ~ | 45 | 4,796,000 |
When should I pay income tax in Japan?
If you pay tax in cash using the payment slip, it will be March 15th, which is the same day as the final tax return filing deadline. However, if you pay the tax with a transfer account, it will be withdrawn from the designated account in late April.
In addition, you can use a system called “deferred payment”, which allows you to postpone less than half of your income tax and special reconstruction income tax until the end of May. However, note that the interest will be added to the tax for deferred payment.
Delayed Payment
With regard to income tax, if you pay more than half of the amount you should payby the normal payment deadline, you are allowed to postpone the tax payment deadline for the remaining amount.
Taking 2017 as an example, by paying half the price by March 15, 2018 (Thursday), the payment deadline can be extended until May 31, 2018 (Thursday). However, an annual interest tax of 1.6%will be levied on the deferred payment amount.
Transfer tax payment
The transfer tax payment system is a system in which the amount of tax paid is automatically deducted from your bank account. Once you complete the procedure, you can continue to use this system.
To use transfer tax payment, submit an “Account Transfer Request Form” to the tax office or financial institution in your jurisdiction.
Scheduled tax payment
If the amount, which is calculated based on the previous year’s income amount, and tax amount fixed as ofMay 15of that year (planned tax payment standard amount) is 150,000 yenor more, the income tax and special reconstruction income tax for that year.
There is a system to pay a part of the tax in advance. This system is called scheduled tax payment.
If you receive a notification regarding scheduled tax payment, the amount equivalent to one-third of it will be paid for the first period from July 1st to July 31st, and for the second period from November 1st to November 30th.
How can I pay income tax myself?
If you need to pay this yourself, there are several options you can choose.
1. Cash
With this method, you can pay at the tax office in your area, as well as at a financial institution or convenience store.
When paying taxes at a tax office or financial institution, you can pay by attaching a payment slip. Payment slips can be received not only at the tax office but also at financial institutions.
When paying at a convenience store, if the tax payment amount is 300,000 yen or less, you will be required to pay using the payment slip with the barcode or issued by the tax office.
2. Bank Transfer
As mentioned above, you can make a transfer tax payment by specifying the account of the financial institution. You can use it by submitting an account transfer request form.
3. Electronic tax payment
Direct payment (ダイレクト納付)
In the case of “ダイレクト納付(Dairekuto noufu)”, when you file a tax return using e-Tax, you can make the payment by transferring from the account of the specified financial institution immediately.
Internet Banking
When paying using Internet banking, there are two methods: registration method and input method. For electronic payments, it is necessary for you to submit a start notification form for “e-Tax” in advance.
| Registration method | After registering the payment information data in e-Tax, payment will be made using the payment classification number issued according to the registered payment information. |
| Input method | There is no need to register payment information data in e-Tax. Instead, you will have to create your own payment purpose code and make the payment. |
Electronic tax payment is a service especially for those who cannot go to the tax office or financial institution window during reception hours.
Credit Card
You can pay tax with a credit card on designated websites, but you will be charged a fee according to the amount of tax paid.
freee
If you want to do the income tax calculation and various document procedures efficiently, I recommend the fully automatic cloud-based accounting software “freee“. It is software that even those who do not have knowledge of bookkeeping can easily perform payroll calculation, payslip creation, year-end adjustment, etc. Since you can easily create various documents, even beginners can use them with confidence.
Income tax is something you can’t avoid.
Income tax in Japan is very high, and the percentage increases as income increases. If you are a salaryman, you will be automatically deducted from your salary, but if you have to pay it yourself, check the tax payment amount and pay it appropriately. We also recommend you use an accounting software.
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