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Japan: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are classified into two categories: permanent and non-permanent residents.

• A permanent resident, someone who has stayed in Japan for more than 5 years, or has the intention to live in Japan permanently, is subject to Japanese income tax and inhabitant tax on worldwide income at progressive tax rates shown below.
• A non-permanent resident of Japan is subject to tax on Japanese-sourced income and foreign source income paid or remitted in Japan, at similar rates. A non-permanent resident is generally someone who has been present in Japan for 5 years or less.

INCOME TAX

Individual income tax in Japan consists of national income tax and local inhabitant tax. Inhabitant tax is assessed by the prefectural and municipal governments.

Ordinary income consists of interest income, dividend income, real estate income, business income, employment income, miscellaneous income, occasional income, and capital gains other than capital gains derived from real estate and securities.

National Income Tax

Income tax is levied at progressive rates, from 5% to 40%.

Inhabitant Tax

Inhabitant taxes are levied by prefectural governments and municipal governments in Japan. The prefectural inhabitant tax is levied at a flat rate of 4% and the municipal inhabitant tax is levied at a flat rate of 6%.

ALLOWANCES
The following allowable deductions can be deducted from taxable income to reduce income tax and inhabitant tax liability. Reliefs are separately applied to each individual taxpayer.

CAPITAL GAINS TAX
Gains realized from selling short-term real properties (i.e., properties held for less than five years) are taxed at 30% of the net gains. If the property is the taxpayer’s personal residence, JPY30,000,000 (US$281,133) is deducted from the gross sales price.

The taxable gain is computed by deducting the acquisition costs and related expenses, improvement costs, and transfer costs from the gross sales price.

Net gains from the sale of properties held for more than five years will be taxed at 15%.

Gains realized from selling real property used by the taxpayer as his private residence is taxed at special rates if that property is held by him for at least ten years. After the basic deductions, the first JPY60,000,000 (US$562,266) of the net taxable gains is taxed at 10%, and any excess is taxed at 15%.

PROPERTY TAX

Property Tax

A municipal tax is levied at 1.4% of the assessed value of the land or building. For land used for a residential purpose, one third of the assessed value is excluded from taxation. For residential land up to 200 square meters, one sixth of the assessed value is deducted from the taxable amount.

To be excluded from property tax, the assessed value of the land must be not more than JPY300,000 (US$2,811), whereas for a house, the threshold is JPY200,000 (US$1,874).

City Planning Tax

City planning tax is levied at a flat rate of 0.3% on the assessed value of the land or building. The property is exempt if its value is less than certain thresholds. City planning tax is levied together with the property tax. For both taxes, the owner of the land or building is liable.

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