Tax Guide for Foreigners Working in Japan: From Basics to Application

Taxes are the collection of money from people living in a country to support it.

Taxes are necessary to protect people's lives.

The complexity of the Japanese tax system makes it difficult to understand.

This article provides a detailed explanation of Japanese taxes for foreigners working in Japan, from basic knowledge to what you need to know.

About the Japanese Tax System

In Japan, paying taxes is required by law.

If you fail to pay taxes or pay only a small amount, you are violating the law.

Foreigners are also obliged to pay taxes

Foreign residents in Japan are also obliged to pay taxes.

However, the rules change for "residents" and "non-residents.

Note: For more information on residents and non-residents, please consult the following websites.

🔗 国税庁　納税義務者となる個人　
(Individuals who are taxpayers)

Types of Taxes and How They Work

There are many types of taxes in Japan.

There are various taxes such as the "消費税(consumption tax)" on everyday purchases and the "自動車税(car tax)," which must be paid by those who own a car.

This section explains the "income tax" and " resident tax" that foreign nationals working in Japan should be aware of.

所得税(Income Taxes)

Income is the amount of income minus certain deductions and other items.

The tax on that income is the income tax. It is paid to the national government (Japan).

In Japan, all income earned in Japan is subject to tax.

This covers not only your salary, but also the income from your investments.

Tax rate

The tax rate is determined by the total amount of income earned during the year.

Income tax rates range from 5 to 45%. The tax rate is determined by a system of "progressive taxation" in which the higher the income, the higher the tax rate.

For more information, check out the tax tables put out on the  website.

国税庁　所得税の税率
(Japan's National Tax Agency Tax Rates)

Inhabitant tax

Resident tax is also a tax on income.

What is the difference from income tax?

Unlike income tax, residence tax is paid to the municipality in which you live, not to the national government.

Tax rates and calculation methods vary by municipality. For more information, check the website of the municipality in which you live.

Deductions and Exemptions available to foreigners

Deductions available to foreigners

Foreign nationals with residency status can deduct taxes in the same way as Japanese nationals.

For example, if you pay more than a certain amount of medical expenses in a year, you can receive a "医療費控除(deduction for medical expenses)," and if you pay life insurance premiums, you can receive a "生命保険料控除(deduction for life insurance premiums)".

If you and your family have residency status, you may also be entitled to "扶養控除(dependent exemption)".

The deduction for dependents is a system under which a person who financially supports a family can be deducted from income and inhabitant taxes based on the number of family members and their circumstances.
(Source: ：国税庁　所得税のしくみ、国税庁　扶養控除、国税庁　国外居住親族にかかる扶養控除等の適用について）

Tax exemptions available to foreigners

Foreign nationals with residency status can be exempted from consumption tax when making purchases at tax-exempt stores in Japan.

However, there are some conditions, such as that the status of residence must be "Temporary Visitor" and the period of stay must be less than 6 months after entry into Japan.

(Source: 観光庁「消費税免税制度改正のお知らせ」）

Tax Treaty

A tax treaty is an arrangement that prevents people or companies earning money between different countries from paying double taxes or from not paying taxes.

You can avoid paying taxes, reduce your tax rate, or lighten your burden.

Japan has tax treaties with various countries, including the United States, the United Kingdom, and Canada.

Reference:財務省　我が国の租税条約等の一覧
Ministry of Finance List of tax treaties, etc. in Japan

Tax Return Procedures and Deadlines

What is 確定申告?

確定申告 is the process of settling overpaid or underpaid taxes.

You calculate the amount of income tax for the period from January 1 to December 31 by yourself, and then file it with the tax office.

If the tax return results in insufficient taxes owed, they must be paid.

On the contrary, you will receive the amount you have overpaid.

Who needs to file a tax return

Those who work for a company do not need to file an income tax return because the company basically performs a "year-end adjustment.

Year-end adjustment is the process by which a company settles an employee's income tax over/underpayment at the end of the year.

However, those who work for two companies or have income in addition to their salary must file a tax return.

How to report

Tax returns can be filed online as well as on paper.

Online filing does not require printing or mailing, so it can be done without hassle or time-consuming.

If you prefer to file your return on paper, submit the designated tax return form.

Documents required by foreigners to file a tax return

The following documents are required for foreign nationals to file a tax return.

• Tax certificate slip
• Copy of residence card (or foreign resident registration card)
• Documents that can verify my number (My number card or notification card)
• A copy of your bankbook

Additional documentation is also required if you wish to deduct medical expenses or dependents.

For more information, check National tax agency's website.

Summary

Payment of taxes is required by law.

Not only Japanese but also foreigners working in Japan are eligible.

Income tax and inhabitant tax are paid from the company's wages, but please be careful not to get into trouble such as not paying taxes in case you have to pay them.

Tax notices come in the mail, so be sure to read your mail carefully.

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