If you are planning your move to Japan, it is essential to be aware of the various expenses and taxes related to living in the country that are mandatory for all residents. Here is an easy guide to start understanding resident taxes.
What is Residence Tax?
Residence tax is a local tax paid by anyone with an address in Japan as of January 1 who earns a certain amount of income. This applies to foreigners as well. Even if you leave Japan after January 2, you must still pay this tax. Not paying your residence tax can result in the denial of your visa renewal application.
How to Pay Residence Tax
The amount of residence tax you need to pay is based on your income from January 1 to December 31 of the previous year. There are two main methods to pay residence tax:
Withholding from Salary (Special Collection):
Your employer deducts the residence tax from your salary in advance and pays it to the municipal office. This is the standard method for employees, so you don’t need to handle the payment yourself.Self-Payment (Ordinary Collection):
Around June each year, you will receive a notice (tax bill) from the municipal office asking you to pay the residence tax. You must take this notice and the specified amount to a financial institution to make the payment.
Important Situations to Note
If You Leave Your Job:
If you pay residence tax through the special collection and leave your job, you must pay the remaining residence tax through the ordinary collection. Alternatively, you can ask your employer to deduct the unpaid residence tax from your final salary or severance pay and pay it to the municipal office on your behalf (lump-sum collection).If You Leave Japan:
If you cannot pay the residence tax before leaving Japan, you need to appoint a tax agent (tax payment manager) from among the people living in Japan to handle your tax affairs and notify the municipal office where you live.
General Information about Residence Tax
Corporate Residence Tax vs. Individual Residence Tax:
Residence tax is divided into “corporate residence tax,” borne by companies, and “individual residence tax,” borne by individuals who have an address in a municipality or prefecture.
Residence Tax Rates:
The residence tax consists of two components: the income-based component and the per capita component.
- Income-based component (standard tax rate): Calculated based on the previous year’s income and deductions.
- Per capita component: A fixed amount charged to everyone with a certain income level.
Calculation Method for Residence Tax
- Total Annual Income: Annual Income( from 1/1 to 12/1 of the previous year) – Deductions and Loss Carryforward
- Income Deductions:
- Various deductions are allowed, such as casualty losses, medical expenses, social insurance premiums, small business mutual aid contributions, various insurances, family & health related deductions.
- Taxable Income Amount: Total Income Amount – Total Income Deductions
- Income-based Component: Taxable Income × Standard Tax Rate (10%)
- Tax Credit (if any): applicable ones to be substracted
Taking all the above into consideration, the final resident tax amount is calculated by merging Income-Based Component after Tax Credits application and the Per Capita Tax.
Conclusion
Understanding these basics allows you to manage your tax obligations better while living and working in Japan. Make sure to stay informed and compliant to avoid any issues with your residency status. Reach out to learn more, and always consult with professionals when in doubt to ensure your daily life in Japan remains smooth and worry-free.
Sources:
- https://www.tufs.ac.jp/english/insidetufs/jumizei_nenkin.html
- https://www.nta.go.jp/english/taxes/individual/12006.htm
