One of the major countries in Asia, Japan ranks high amongst the largest producers in the world. Famous for its electronics, one of the factors that provide the citizens with a good standard of living is the quality infrastructure in cities such as Tokyo. This is made possible due to the taxes paid by taxpayers within the territory. Taxes deducted from citizens whether residents or non-residents, locals or foreigners, are used to provide quality healthcare, social amenities, public education, etc. This is why taxes are important and taken seriously by the Japanese government.
Requirement for Tax payment
Depending on the residence status of an individual, he or she has to pay tax on the income earned. In addition, corporate bodies have to pay taxes too on revenue generated from all business activities carried out in Japan. For foreign businesses with branches, taxes are only paid when income is generated in the country.
Types of Tax
There are three basic forms of tax namely; individual income taxes, withholding tax, and corporate income tax. Individual income tax is, however, of two types: national income tax and local inhabitant tax. Each type of tax has its specific tax rates and the persons it applies.
Individual income tax
Individual income taxes comprise the national income tax and local inhabitant tax. The former is directly deducted from the salaries and wages of individuals monthly, depending on the income band of an employee. Nationals who are currently working have to file a tax return at the beginning of a tax year. Its tax rate of 10% only applies to persons and not companies. A special surcharge for reconstruction assistance, as regards the Tohoku earthquake disaster, was introduced in 2013. The levy rate of 2.1% is deducted from the amount of national income tax leading to a tax rate for the highest bracket at 45.945%.
Local inhabitant tax comprises a flat rate of 4% plus ¥1,500 per capita charge and public tax, which has a flat rate of 6% plus ¥3,500 of per capita charge. This is levied on persons who are registered in a city as of 1 January.
| Taxable income band ¥ | National income tax rates |
| 1,950,001 to 3,300,000 | 10% |
| 3,300,001 to 6,950,000 | 20% |
| 6,950,001 to 9,000,000 | 23% |
| 9,000,001 to 18,000,000 | 33% |
| 18,000,001 to 40,000,000 | 40% |
| 40,000,001 and above | 45% |
Withholding Tax
In general, a withholding tax rate of 20% is imposed on non-residents, with no further deductions made. It applies to persons who earn income in Japan alone, exempting them from the national income tax. However, subject to the type of income, other taxes might be charged at gradual rates. Sources of income such as dividends and salaries earned from locally based companies, interest income, annuities, and prizes are subjected to the 20% withholding tax rate when they are paid to non-residents.
Corporate income tax
This is imposed on corporate bodies such as companies, factories, or permanent establishments with registered offices operating within the territory. For a business to file a tax return, it has to generate revenue from business activities conducted here. Branches of foreign companies do not pay this tax except on income made in the nation.
Tax year
This is a one-year mandatory period when taxpayers have to file their tax returns. Also known as the calendar or financial year, it starts from the 1st of January to the 31st of December. The tax return has a due date of the 15th of March. It is not compulsory to file a return when a person’s taxable income only comprises money from which the employer has withheld the proper amount of wage income tax.
