Worldwide personal tax guide 2013 – 2014 Japan
Local information
Tax Authority Ministry of Finance
Website www.mof.go.jp
Tax Year 1 January to 31 December
Tax Return due date 15 March Is joint filing possible No Are tax return extensions possible No
2013 National Income Tax Rates
Taxable Income Band ¥ National Income Tax Rates
0 – 1,950,000 5%
1,950,001 – 3,300,000 10%
3,300,001－6,950,000 20%
6,950,001－9,000,000 23%
9,000,001－18,000,000 33%
18,000,001 + 40%
Individual income taxes consist of national income tax and local inhabitant tax. Individuals are also subject to a local enterprise tax on income derived from businesses or professions at rates ranging from 3% to 5%.
Normally, a 20% withholding tax is levied on non-residents, with no deductions available; however, depending on the type of income, tax may be levied at progressive rates through self-assessment.
Dividends and salaries paid by Japanese companies, interest income, annuities and prizes are subject to a 20% withholding tax if paid to non-residents.
A special tax is for reconstruction assistance with respect to the Tohoku earthquake disaster is imposed from 2013 to 2037. The tax rate of 2.1% is applied to the amount of national income tax.
This document has been prepared based on the legislation and practices of the country concerned as of 1 July 2013 by EY and published in its Worldwide personal tax guide, 2013-14.
Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your circumstances. It is your responsibility to disclose your income to the tax authorities.
This information is provided by EY in accordance with their Terms and Conditions. Neither HSBC nor EY accepts any responsibility for the accuracy of any of this information. By using this information you are accepting the terms under which EY is making the content available to you.
Who is liable?
In Japan, the tax liability of individuals is determined by their residence status.
Permanent residents are subject to income tax on their worldwide income, regardless of source. Non- permanent residents are subject to tax on income earned in Japan plus any non-Japan source income that is paid in or remitted to Japan. Non-residents are subject to tax on their Japanese-source income only.
Residence status for tax purposes
Individual taxpayers are classified into the following 33 categories:
• A permanent resident is an individual who is a Japanese national or has been present in Japan for at least 5 years within the past 10 years.
• A non-permanent resident is an individual of non-Japanese nationality who has not resided or maintained their domicile in Japan for more than 5 years within the past 10 years.
• A non-resident is an individual who does not meet the requirements for qualification as a permanent resident or a non-permanent resident.
Foreign nationals arriving in Japan are considered to have established residence in Japan, unless employment contracts or other documents clearly indicate that they will stay in Japan for less than 1 year.
Income subject to tax
Employment income and deductions - Employment income includes salaries, wages, directors’
fees, bonuses and other compensation of a similar nature. Benefits in kind provided by the employer, including the private use of an employer-provided automobile, tuition for dependent children, private medical insurance premiums and private pension contributions, are included in employment income.
However, certain employer-paid benefits, including moving expenses and home-leave expenses, are excluded from taxable income.
Taxable employment income equals gross receipts minus an employment income deduction, as computed in the following table.
Taxable compensation band ¥ Employment income deduction
650,000 – 1,800,000 Gross receipts x 40% (minimum ¥650,000) 1,800,001 – 3,600,000 ¥720,000 + [(Gross receipts – ¥1,800,000) x 30%]
3,600,001－6,600,000 ¥1,260,000 + [(Gross receipts – ¥3,600,000) x 20%]
6,600,001－10,000,000 ¥1,860,000 + [(Gross receipts – ¥6,600,000) x 10%]
10,000,001 - 15,000,000 ¥2,200,000 + [(Gross receipts – ¥10,000,000) x 5%]*
15,000,001 + ¥2,450,000
* Effective from the 2013 tax year, the employment income deduction is capped at ¥2,450,000.
Self-employment and business income - Taxable income consists of gross receipts, minus reasonable and necessary expenses incurred in connection with the business.
Losses from rental, business and forestry activities may be used to offset income from other ordinary income categories.
The net loss remaining after using all available losses to reduce income may be carried forward for 3 years by a taxpayer filing a blue form tax return. A taxpayer who does not file a blue form tax return is allowed a carry forward of 3 years for certain losses, including the loss of business assets due to a natural disaster.
Investment income - Dividends from unlisted shares and dividends received by shareholders who own 3% or more of listed shares are included in taxable income and taxed at progressive rates.
Dividends from listed shares are taxed at a flat rate of 20% (15% national tax plus 5% local inhabitant tax). A reduced tax rate of 10% (7% national tax plus 3% local inhabitant tax) applies until 31 December 2013. For dividends from listed shares that are received through a Japanese paying agent (securities company or trust company in Japan), a withholding tax is deducted by the Japanese paying agent. A taxpayer does not need to report the dividends as income on the tax return if the dividends are from listed shares and are received through a Japanese paying agent.
Interest on public bonds and deposits paid in Japan is taxed separately from other income and is subject to a final 15% withholding tax (plus a final 5% local withholding tax) at source. Interest on public bonds and debentures issued overseas is subject to a 15% final withholding tax (plus a final 5% local withholding tax) if received through a paying agent in Japan. Otherwise, interest earned overseas is taxed at progressive rates.
Interest up to certain amounts on postal savings and deposits, public bonds and securities investment trusts is exempt from income tax if such income is received by qualified taxpayers. Qualified taxpayers include spouses qualifying for survivors’ or widows’ annuities and handicapped persons.
Under the workers’ savings program, interest on employees’ savings for pensions and for housing acquisitions is exempt from tax, up to a maximum principal amount of ¥5.5 million.
Directors’ fees - Directors’ fees paid by a Japanese corporation to non-residents are considered Japanese-source income and are subject to tax in Japan, even if the services are performed outside Japan.
Capital gains
Capital gains from the sale of assets other than securities, land and buildings are divided into short- term and long-term gains and are then included in ordinary income and subject to tax at the normal income tax rates. Gains derived from the disposal of property held longer than 5 years are considered long-term and only one-half of the gain is taxable. A ¥500,000 deduction is available from the total of short-term and long-term gains.
Capital gains derived from the sale of shares are generally taxed at 20% (15% national tax plus 5%
local inhabitant tax). If a taxpayer sells certain listed shares through a securities company or bank in Japan, a reduced tax rate of 10% (7% national tax plus 3% local inhabitant tax) applies until 31 December 2013.
Losses from the sale of shares can offset only gains from the sale of shares. However, the losses from the sale of listed shares through a securities company or bank in Japan may offset dividend income from listed shares. The net loss remaining after using all available losses to reduce dividend income from listed shares may be carried forward for 3 years by a taxpayer filing a tax return.
Capital gains derived from the sale of land and buildings are taxed separately from other income and at different rates. Gains from the sale of land and buildings held for no longer than 5 years are considered short-term, and gains from the sale of similar assets held for longer than 5 years are treated as long-term gains. Long-term gains are defined as income from the transfer of land and buildings that have been owned for more than 5 years as of 1 January of the year of transfer.
Short-term gains are taxed at a rate of 30%, plus a 9% inhabitant tax on taxable gains. Long-term gains are taxed at a rate of 15%, plus a 5% inhabitant tax on taxable gains.
Gains derived from the sale of residential property held longer than 10 years are taxed at a rate of 10% (plus a 4% local inhabitant tax) on taxable gains of up to ¥60 million and at a rate of 15% (plus a 5% local inhabitant tax) on gains in excess of ¥60 million. This favourable treatment applies to sales of residential property that have been held for more than 10 years as of 1 January of the year of transfer. A special deduction of ¥30 million is available on gains from the sale of residential property if specified conditions are met.
Proceeds from the sale of land and buildings held by non-residents are subject to a 10% withholding tax unless the property is purchased by individuals for residential use and the sales value does not exceed ¥100 million.
Inheritance tax
Inheritance tax is levied on heirs and legatees who acquire properties by inheritance or bequest. If a decedent was domiciled in Japan at the time of death, individuals, whether or not domiciled in Japan, are subject to tax on all properties, regardless of location. If the decedent was not domiciled in Japan at the time of death, individuals domiciled in Japan are subject to tax on all properties, regardless of location. Individuals who are not Japanese nationals and not domiciled in Japan are taxed only on properties located in Japan. However, Japanese nationals not domiciled in Japan are generally subject to inheritance tax on all inherited properties, regardless of location.
Certain exemptions and allowances are permitted in the computation of total net taxable property.
Inheritance tax rates range from 10% to 50%, with a 20% surtax on transfers to heirs, other than the parents and children of the decedent. Tax credits are allowed for surviving spouses, minors, gift taxes, and foreign estate and inheritance taxes paid on property located outside Japan. The credit for a spouse is the amount of inheritance tax payable on the spouse’s statutory share of the estate or on an estate of ¥160 million, whichever is higher.
Japan has entered into an estate tax treaty with the United States.
Gift tax
Gift tax is levied on individuals receiving gifts from other individuals. If a donor is domiciled in Japan at the time of the gift, the donee, whether or not domiciled in Japan, is taxable on all gifts of property, regardless of their location. If the donor is not domiciled in Japan at the time of the gift, a donee domiciled in Japan is subject to tax on all properties, regardless of location. A donee who is not Japanese national and not domiciled in Japan is taxable only on gifts of property located in Japan.
However, a Japanese national not domiciled in Japan is generally subject to tax on all gifts of property, regardless of location.
Social security
Social security programs in Japan include health insurance, nursing care insurance (for employees 40 to 64 years of age), welfare pension insurance, unemployment insurance and workers’ accident compensation insurance. The rates described below are the applicable rates as of 1 May 2013.
The premium for health insurance is 9.97% of monthly remuneration and bonus, up to a maximum premium of ¥120,637 (bonus ceiling of ¥538,380 per year). The premium for nursing care insurance is 1.55% of monthly remuneration and bonus, up to a maximum premium of ¥18,755 (bonus ceiling of
¥83,700 per year). For welfare pensions, the premium is 16.766% of monthly remuneration and bonus, up to a maximum premium of ¥103,949 (bonus ceiling of ¥251,490 per month). Costs are borne equally by employers and employees for the types of insurance mentioned in this paragraph.
The premium for unemployment insurance is 1.35%, of which 0.85% is borne by the employer and 0.5% by the employee. The premium for workers’ accident compensation insurance is borne entirely by the employer at a rate of 0.3% of total compensation paid to employees.
Tax filing and payment procedures
Individual income taxation in Japan is based on the principle of self-assessment. In general, taxpayers must file tax returns to declare income and deductions and to pay the tax due. However, national income tax liability of individuals compensated in yen at gross annual amounts not exceeding
¥20 million is settled through employer withholding if income other than employment income does not exceed ¥200,000. If tax is withheld from payments to non-residents and if the amount withheld satisfies the Japanese tax liability, the non-residents need not file income tax returns.
For those taxpayers who filed tax returns for the preceding year and who reported tax liabilities of
¥150,000 or more after the deduction of withholding tax, prepayments of income tax for the current year are due on 31 July and 30 November.
Under the “blue form” tax return system, a taxpayer is required to keep a set of books that clearly reflects all transactions affecting assets, liabilities and capital in accordance with the principle of double-entry bookkeeping and to settle accounts on the basis of those books. Financial statements must be attached to the tax return under the blue form system. Blue form taxpayers receive certain benefits.
Double tax relief and tax treaties
A foreign tax credit is allowed, with limitations, for foreign income taxes paid by a resident taxpayer if the income is taxed by both Japan and another country. The credit is generally limited to the lesser of foreign income tax paid or the Japanese tax payable on the foreign-source income. If the foreign tax paid exceeds the limit, the excess may be carried forward for 3 years. A taxpayer may elect to deduct foreign tax from taxable income under certain conditions.
If a non-resident is resident in a country with which Japan has entered into a tax treaty, income may be either exempt from tax or subject to a lower tax rate. Japan has entered into double tax treaties with 64 countries.
