Let me wish you “Akemashite omedetou gozaimasu. (formal): あけましておめでとうございます” a Happy New Year in Japanese. Let us proceed with our learning of the latest developments in Japanese taxation for the tax year 2022.
Due to initiation of Japanese taxation in my earlier articles, let me narrate the steps taken by Jetro, Japan external trade organization (web page with official tax information), and National Tax Agency to update our knowledge for the tax year 2022, particularly in view of G 20 Taxation compilation merging with Indian presidentship of the same.
With Japan inviting experts from India in high tech areas to help cope with their advanced economy, this article meets their basic understanding of tax position in Japan.
Individual Income tax
What is the income?
(All information from government websites with reference at the end)
The filing period of taxable income in the period of the calendar year 2022, is just closed; From February 16 (Wed.) through March 15 (Thursday 2023).
Yes, online filing, posting by postal system, or posting into the reception box of the competent tax office kept outside the office are the systems to submit tax return. Full payment of tax should have been done by March 15th while prepayments were to be done by the end of July and November 2022.
What is the income to be used for calculating income tax?
Both residents as well as non-residents pay income tax.
Persons having a domicile in Japan and persons having a residence in Japan for one year or more are termed residents. The worldwide income of residents, regardless of the location of the source of income, is subject to income tax.
Persons not qualifying as residents are termed non-residents. Japanese income tax for non-residents will be assessed on income sourced within Japan.
How do I term income?
Income is defined as under:
Employment income
Real estate income like rent, leasing etc.
Interest income
Dividend income
Miscellaneous income like public pensions
Retirement income
Capital gains from other assets (over 5 years)
Occasional income
Timber revenue
Revenue from business
Prize money, lottery winnings,
Aggregate Taxation Income derived from certain lump-sum payments from endowment life insurance policies or lump-sum payments from casualty insurance policies where the term of insurance or mutual relief is 5 years or less.
What are the deductions available before application of tax?
Donations to eligible institutions, with the actual amounts or total amount of income*40% which ever is less.
Casualty losses
Medical expenses
Social insurance premiums
Small business mutual aid premia
Life insurance
Earthquake insurance
Special exemption for spouses: If your total annual income is not more than 10 million yen and your spouse’s income exceeds 380,000 yen but is less than 760,000 yen.
Widow’s deductions if one is a widower
Working students
Persons with disabilities
Dependents Basic exemption: The basic exemption is 380,000 yen if the total income of the tax- payer receiving deduction is 9 million or less. It goes up to 480,000 for an elderly spouse of 70 years or more.
One can see the complete list on the website nta.go.jp.
The above deduction goes down as the income increases.
How about employment income deductions?
Let me cover this now than done earlier in my articles (EI is employment income)
| Employment income (yen) Up to 1,625,000 | Deductions allowed (yen) 5,50,000 |
| 1625001 – 18,00,000 | EI*40% – 100000 |
| 1800001 – 3600000 | EI*30% + 80000 |
| 3600001 – 6600000 | EI*20% + 440000 |
| 6,600,001 – 8500000 | EI*10% + 1100000 |
| Over 8500000 | 1950000 |
What is the withholding tax in Japan?
Income tax in Japan adopts the withholding tax system for specific incomes along with the self-assessment system. Under the withholding tax system, the payers of salaries and wages, retirement allowance, interest, dividends, and fees etc. withhold the certain amounts of income tax etc. at the time of payment and pay them to the national treasury. It varies between 15% and 22%.
The income tax system is found on the principle of the “self-assessment system,” whereby an income earner spontaneously calculates his/her income for the year and the corresponding amount of tax by submitting a return.
For certain types of income, the payer of the income is required to get income tax withheld at the time the income is paid under the “withholding tax system.”
Under the withholding tax system, (1) a payer of certain types of income, such as salary, interest, dividends, and tax accountants’ fees, (2) calculates the amount of income tax payable pursuant to prescribed methods at the time the income is paid, and (3) withholds the amount of income tax from the income payment and pays it to the government.
About special income tax for reconstruction, the withholding tax system has been adopted for the income subject to income tax withholding among the income arising between January 1, 2013 and December 31, 2037, in which special income tax for reconstruction is withheld when withholding income tax and is paid with the income tax withheld.
Income tax and special income tax for reconstruction withheld under this system is settled through a year-end adjustment or by filing a final tax return for the year, except for forms of income such as income from interest.
What are the tax reforms proposed for 2022?
Review of the Existing Tax Measure to Promote 5G Network Technology.
In order to accelerate the investment related to 5G technology in local areas, extend the measure by 3 years to FY 2024, but make the tax credit phase down as below.
| Measures | tax credit current Year 2022 | special depreciation |
| Depopulated areas | 15% | 30% |
| 15% | 30% |
Is there any change in income tax applicable for payment?
Income tax rates
| Brackets of taxable income(yen) | Tax rates (%) |
| Up to 1,950,000 | 5 |
| Over 1,950,000 Up to 3,300,000 | 10 |
| Over 3,300,000 Up to 6,950,000 | 20 |
| Over 6,950,000 Up to 9,000,000 | 23 |
| Over 9,000,000 Up to 18,000,000 | 33 |
| Over 18,000,000 Up to 40,000,000 | 40 |
| Over 40,000,000 | 45 |
What is consumption tax in Japan?
Let me quote directly from the website of jetro.go.jp.
“The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject to consumption tax. In principle, the consumption tax rate is 10% (inclusive of local consumption tax rate of 2.2%). The reduced tax rate of 8% (inclusive of local consumption tax rate of 1.76%) will be applied to sales of food and beverages, except for alcoholic drinks and dining out, and sales of newspapers published more than twice a week (under subscription contracts).
1. (1)
Domestic transactions: the transfer or rental/lease of assets or the provision of services as a business in Japan by an enterprise for consideration.
2. (2)
Import transactions: foreign cargo retrieved from a bonded zone
Financial transactions, capital transactions and certain transactions in the areas of medical care, welfare and education are deemed non-taxable. Export transactions and export-like transactions such as international communications and international transport are exempt from consumption tax.” Consumption tax on taxable purchases may be deducted from consumption tax on taxable sales when calculating the amount of consumption tax to be paid.
Let us deviate our attention to corporate income tax.
My earlier articles have clearly infused our knowledge with the following information on corporate income tax in Japan. There is no change in instructions issued earlier but the latest tax rate will be quoted.
Let me recapitulate the same for our memory.
Japan is one of the earliest countries which enabled branding, growth of big companies and standardization of products as a right for a customer. Some of them like Sony, Mitsubishi or Toyota are not unknown names. Corporate Tax:
Nothing enlightens the expectations of governments than substantial income tax from corporates since most of the industrial policies enable the industries to perform better.
Let us learn the details of corporate tax in Japan with open minds.
National corporate tax is to be paid to central government, local tax to local government bodies, while Inhabitant tax and enterprise tax are to be paid to the eagle eyes of the local bodies.
A certain percentage of national tax is paid additionally to local bodies, other than national payment of income tax. Inhabitant tax is paid both on income and per capita basis of employees engaged.
Corporations having paid-in capital of 100 million yen are subject to enterprise tax on prorate basis. Corporation tax system hinges on the following information on tax required to be paid by corporates.
Just wipe your tears with the lowest tax rate for corporates in USA/India being enforced at the same time.
Actual corporation tax to be paid in Japan
The following para taken from the booklet published by Japan tax authorities is intended for a tax personnel from India.
“Accounting Profits and Taxable Income.
The “accounting profits” are calculated by subtracting expenses from revenues. The “taxable income” is calculated by subtracting deductible expenses from gross profits.
There is a difference between accounting “revenues” and “gross profits” for tax purposes. Similarly, there is a difference between “expenses” and “deductible expenses.”
These differences are treated as exclusion from gross profits, inclusion in gross profits, exclusion from deductible expenses, and deductible expenses, which are added to or subtracted from the “accounting profits” to calculate the “taxable income.”
Popularly known in accounting/taxation matters, permanent differences/temporary differences, a concept well understood by tax accountants throughout the world.
The actual rate of corporate tax as prescribed from government/taxation authorities of Japan are as under:
From April 1, 2021 till March 31, 2025.
| Size of the corporate | Tax rate % |
| Up to 4 million yen | 21.37 |
| Over 4 million up to 8 million Yen | 23.17 |
| Over 8 million Yen | 33.58 |
Corporate inhabitant tax(prefectural) is 0.15% up to 8 million yen, 0.23% for over 8 million yen.
Corporate inhabitant tax(municipal) is0.9% up to 8 million yen, and 1.39% for over 8 million yen.
Enterprise tax is 3.5% up to 4 million yen, 5.30% for over 4 million – 8 million, and 7.0% for over 8 million.
Other interesting titbits of corporate tax.
Final tax return and tax payments We already know that corporations pay various taxes. Therefore, they must file final tax return within two months from the day following the last day of each taxable year. Some of them, however, do obtain extension for filing of returns with the director of Taxation office.
The income and tax amounts to be entered in the tax return needs approval from general meeting of stockholders. It is obvious that calculated tax amount must be paid within the period prescribed and any extension will result in interest tax and overdue tax.
Corporates do file white form and blue form, the later enjoying a variety of tax Benefits. This is one of the finest advantages for corporates working in Japan. I have never come across this unique feature in any other country’s taxation system. I have covered in detail these aspects in my earlier articles in taxguru.
Conclusion
Widest range of opportunities are available to our youngsters to visit Japan, both on short term, or long-term basis. Various sign boards indicating teaching of Japanese language in India emphasize this statement. Highly skilled professionals for 5 years, their dependent spouse or their children, the spouse who wants to work in Japan for 5 years, parents of skilled persons to take care of children up to 7 years age and house servants for one year visa etc.
Like anywhere in the world, Indians are welcome with open hands for their highly skilled talents, their mergence with local society and enormous contribution to their economy/nation.
Japan has unique features as under:
Complex and violent geography, longevity of its people, some of them above century, complex tax form to be filed in Japanese language, paternalistic nature of their government, and the longest working hours for employees who refuse to move out.
Though enormous quotations and reference have been made, I tried to make this article as simple as possible. But one needs to avail tax consultants available in Japan to file complex forms. But do read, understand, and appreciate one of the oldest civilizations which appreciates nature, art and living itself as an art.
Japan ranks among the nations as the top investor of India and has enormously contributed towards of Indian industrial growth.
Reference
https://www.nta.go.jp/english/taxes/individual/pdf/incometax_2019/00.pdf
https://www.jetro.go.jp/en/invest/setting_up/section3/page1.html
https://www.nta.go.jp/english/taxes/corporation/pdf/outline.pdf
Some of the best maintained government web sites among the nations. I immensely thank them.
*****
Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.
Author Bio
