Japan is in the process of shifting its goal post for Olympic Games 2020 to 2021. But its income tax details for 2019 are already out and helping millions to understand, and implement by filing tax returns at point of need.

Yes, let us understand Japan Income Tax, 2019 in details for a common man.

Income tax, 2019

Being a complex tax system with paternalistic attitudes and substantial seniors (you are right, 65 years may look like young in Japan!), to understand its nuances, let us go step by step.

One is classified, irrespective of nationality, as either residents or non-residents. Individual income tax comprises self-assessed income tax and withholding income tax. Self-assessed income tax is assessed on the individual’s income for the calendar year which is presumed to run through January 1, to December, 31.

Yes, can one explain the terms” resident” and “non-resident”.

I would like present the explanation from the web site itself.

Page 5 under the caption “taxpayers and scope of taxable income” from following web site:

https://www.nta.go.jp/english/taxes/individual/pdf/incometax_2019/05-09.pdf

“Any individual who has a “JUSHO (domicile)” or owns a “KYOSHO (residence)” continuously for one year or more is classified as a resident.

Among residents, any individual of non-Japanese nationality who has had a domicile or a residence in Japan for an aggregate period of five years or less within the preceding ten years is classified as a non-permanent resident.”

Yes, your assumption is similar to me when the income of non-permanent is presumed to non-include income earned from outside Japan and is not remitted to Japan.

But income earned for the work done in Japan but paid outside falls under income from Japan.

Time has come to us to learn the basic terms income, deductions or credits, normal basic items used in all income tax of comity of nations.

Filing period for the tax return for the calendar year, 2019 is February 17, 2020 to March 16, 2020.

To receive a tax refund, the tax office may expect filing of tax return before February 14 (Fri), 2020.

Domestic source income

  • Real estate income like rent, leasing etc.
  • Interest income, dividend income, income from bonds
  • Public pensions
  • Partnership income either active service or silent partnership arrangement
  • Capital gains
  • Occasional income like lottery income, lump-sum payments from insurance policies
  • Lump sum payments from casualty insurance policies
  • Partnership income
  • Timber income if it arises from owned for 5 years or more and harvested forestry

Like any one, I am interested to know the deductions available for a tax person. Let us not forget that with a large number of largest living population in the world, Japan is an interesting nation.

Deductions

  • Earthquake insurance
  • Casualty losses
  • Social insurance premia
  • Life insurance
  • Medical expenses
  • Special exemption for spouse (One’s total annual income not more than 10 million yen and spouse’s income not exceeds 380,000 yen but less than 760,000 yen.
  • Widow’s deductions, if one is a widower
  • Working students
  • Dependents
  • Basic exemption is 380,000 yen.
  • Disable deduction
  • Withholding tax paid from time to time

Tax credits

  • Dividends
  • For loans related to dwelling units’ development
  • Donations to public interest incorporated association
  • For improving existing dwelling unit to meet earthquake resistance by suitable adjustments
  • For building a new one, duly certified by authorities
  • Foreign taxes paid
  • Special credit for contributions to political parties

The publication correctly points out to exclude claim received from insurance companies deducted from loss incurred to calculate deductions.  Great East Japan Earthquake has been mentioned in this regard.

It is sad to mention here the carelessness of many governments like State government of Louisiana, USA which failed to protect the interest of residents when they faced many natural disasters.

Having looked at some basic concepts which are unique to each nation in calculating income tax, let us see how does one calculate self-assessed tax on residents.

How to calculate self-assessed income tax on residents-some basic guidelines

Income is assessed using various methods established for various income classifications. The total income minus deductions/credits resulting in a figure multiplied by progressive income tax results in the tax to be paid after deducting the withholding tax already paid. This is a common practice among all comity of nations adopting modern income tax practices.

Self-assessed income tax on non-residents  

Non residents are classified as under:

1. Non residents having an office in Japan

2. Continuously engaged in construction or assembly in Japan for one year or more

3. Other non-residents.

Individual income tax rates (keep US $ 0.91 equivalent to 100 Japanese yen)

Let me calculate the income tax as specified in the booklet of Japan income tax agency.

How to calculate your tax imposed on the taxable income ( C is the taxable income)

Amount of C the taxable income Amount of tax imposed on
0-yen 0 yen
1,000 yen to 1,949,000-yen C×0.05 = yen
1,950,000 yen to 3,299,000-yen C×0.1-97,500 yen = yen
3,300,000 yen to 6,949,000-yen C×0.2-427,500 yen = yen
6,950,000 yen to 8,999,000-yen C×0.23-636,000 yen = yen
9,000,000 yen to 17,999,000- yen C×0.33-1,536,000 yen = yen
18,000,000 yen to 39,999,000-yen C×0.4-2,796,000 yen = yen
40,000,000 yen or more C×0.45-4,796,000 yen = yen

Let us admit that even though I have actually shown how to calculate the tax, with income tax form in Japanese, one expects tax experts from Japan will file your tax return or approach the tax department to help you.

Filing and payment of taxes

Persons who are residents whose total income does not exceed total deductions and persons who receive salary income subject to withholding tax at source(year-end adjustment) from only one payer not exceeding 20 million yen in that year and who have no other income exceeding 200,000 yen do not, as a rule, need to file a return.

Non-residents file and pay the taxes follow the same tax regulations. However, non-residents leaving Japan without designating a tax agent and reporting this fact to the director of taxation office must submit income tax return and pay the tax owing prior to leaving Japan.

Other types of Income taxes   

Restoration Income Surface Tax

From January 1, 2013 till December 31, 2037, individuals and corporations will be subjected to a 2.1% restoration income Surface tax on the amount of withholding tax on income and self-assessed tax. Obviously, tax treaties with other nations may obviate this tax for relevant persons.

Individual inhabitant tax

A collective term for prefectural tax and municipal tax for domicile individual tax payers. It consists of an income-graded component and a flat rate component. Yes, it is to help local bodies.

Enterprise tax

Exclusively applicable to those engaged in certain trade and based on income tax paid. Returns must be paid by March 15 every year and taxes to be paid by August/November. Normally it ranges from 3% to 5%.

Inheritance tax and gift tax

No other country charges 10% to 55% on inheritance tax as Japan. Being a complex exercise, one is expected to engage a tax expert for this work.

Japan is one of the cradles to 100 plus society with a large number of centurions never intending to leave for greater place like heaven. Hence all types of taxes fill up the void.

Tax Treaties

Tax treaties got prominence due to IRS, the treasury wing of American government woke up one fine morning to listen to the cry of wilderness from an individual tax payer who paid among the highest taxes in USA found big companies like Amazon, Apple industries and the list a long one to conveniently avoid taxes.

This anomalous situation made IRS to ensure all other countries have a wake up call and force the individual/corporate bodies to pay taxes regularly. Tax treaties enable exchange of information, payment of taxes in one country get tax credit and also global income concept among the nations. Japan adherently follows Tax Treaties among nations.

Withholding tax

This provision almost available in all countries except perhaps, Middle East, enables pay as you earn periodically and account for at the end by paying the left over by filing of income tax.

For a particular income bracket, the corporate dealing with the withholding tax for employees file the income tax also in case of certain provisions are adhered to by employees. This has been explained in this article earlier with sufficient data.

Anyway, payments made to residents for following attract withholding tax:

  • Interest
  • Dividends
  • Salary, wages, bonus and /or similar compensation
  • Retirement allowance

Yes, I agree that these early stopped payments enable a tax payer to pay little at the end since they get tax credit and wipe out tax outstanding.

Corporates do withhold for payments of interest, dividends etc.

Having ushered in individual tax, time has come to look at provisions for corporate tax. 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 moistens the hearts of governments as huge income tax from corporates as if they only enabled them to earn the income. However, I just report the corporate tax, one of the highest in the world as under:

  • National corporate tax to be paid to central government
  • Local tax to be paid to local government bodies
  • Inhabitant tax and enterprise tax 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 enforced in time in the same manner.

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 aware by tax accountants throughout the world. (m in million yen)

Period    Small and medium industries  large industries

Ap 2019    Upto4M        4+M   8M+

                                           8M

25.9%           27.5%             33.6%            29.7%

Let us not celebrate the lower rates shown above.

Exactly how much one pays over all in Japan for a small or medium industry. I have collected for an industry with 8 M yen income (tax rate in %)

Corporate tax  23.2
15.00%
15.00%
23.20%
Local corporate tax  1.02
0.66%
0.66%
1.02%
Corporate Inhabitant taxes 1. Prefectural  0.74
0.48%
0.48%
0.74%
Corporate Inhabitant taxes 2. Municipal  2.25
1.46%
1.46%
2.25%
Enterprise tax  6.70
3.40%
5.10%
6.70%
Special local corporate tax  2.89
1.47%
2.20%
2.89%
Total tax rate 36.81
Yes, a cradle to 100 + year country has to tax to survive.
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.
They may however, 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 stock holders.
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.
Conclusion
Widest range of opportunities are available to our youngsters to visit Japan short term or long-term basis. Various sign boards indicating teaching of Japanese language assure this statement.
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
  • 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 avail enormous 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.
Reference
https://www.nta.go.jp/english/taxes/individual/pdf/incometax_2019/00.pdf
22.46%
24.90%
36.81%

My earlier article on income tax in Japan for 2018 was more elaborate and informatory in nature. Yes, available in taxguru.in.

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Qualification: Post Graduate
Company: subramanian natarajan cpa firm
Location: NEW DELHI, New Delhi, IN
Member Since: 09 May 2017 | Total Posts: 86
A banker with 27 years of experience, a CPA from USA with specialization in US taxation, individual, partnership, S corporation or LLC taxation etc View Full Profile

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