Income tax in Japan

October 29, 2018

INDIVIDUAL TAXATION

Taxpayers are divided into residents and nonresidents. A resident is further classified into either a non-permanent or a permanent resident.

  • Resident. A resident is an individual whose domicile is in Japan or who has resided in Japan continuously for one year or more. In addition to national income tax described below, a resident is also subject to inhabitant tax at a flat rate of 10% on the taxable income of the previous calendar year if he or she has a domicile or stays in Japan on 01 January.
  • Non-permanent resident. A non-permanent resident is an individual who is not a Japanese citizen and has maintained domicile or a residence in Japan for 5 years or less in the past 10 years. A non-permanent resident is subject to national income tax for (1) Japan source income and (2) foreign source income either paid in or remitted to Japan, i.e., foreign source income of a non-permanent resident, which was paid outside Japan and was not remitted to Japan, is not subject to income tax.
  • Permanent resident. A permanent resident is a resident other than a non-permanent resident and is subject to national income tax on worldwide income.
  • Nonresident. A nonresident is an individual other than a resident and is taxed only on Japan source income.

Married couples are assessed and taxed separately.


INCOME TAX

Japan homes for sale

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

Taxable income consists of employment income, retirement income, rental income from real property, forestry income, business income, interest income, dividend income, capital gains from real estate, capital gains from securities, ordinary capital gains, occasional income, and miscellaneous income.

National Income Tax

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

NATIONAL INCOME TAX 2015

TAXABLE INCOME, JPY (US$)
TAX RATE
Up to 1,950,000 (US$17,890) 5%
1,950,000 - 3,300,000 (US$30,275) 10% on band over US$17,890
3,300,000 - 6,950,000 (US$63,761) 20% on band over US$30,275
6,950,000 - 9,000,000 (US$82,569) 23% on band over US$63,761
9,000,000 - 18,000,000 (US$165,138) 33% on band over US$82,569
18,000,000 - 40,000,000 (US$366,972) 40% on band over US$165,138
Over 40,000,000 (US$366,972) 45% on all income over US$366,972
Source: Gobal Property Guide

NATIONAL INCOME TAX 2014

TAXABLE INCOME, JPY (US$)
TAX RATE
Up to 1,950,000 (US$17,890) 5%
1,950,000 - 3,300,000 (US$63,761) 10% on band over US$17,890
3,300,000 - 6,950,000 (US$62,613) 20% on band over US$63,761
6,950,000 - 9,000,000 (US$82,569)) 23% on band over US$62,613
9,000,000 - 18,000,000 (US$165,138) 33% on band over US$82,569)
Over 18,000,000 (US$165,138) 40% on all income over US$165,138
Source: Gobal Property Guide

Inhabitant Tax

Inhabitant taxes are levied by prefectural governments and municipal governments in Japan. The aggregate local inhabitant tax rate is 10%.

A nonresident is not subject to inhabitant income taxes.

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.

ALLOWANCES
INCOME
TAX, JPY (US$)
INHABITANT
TAX, JPY (US$)
Basic deduction
380,000 (US$3,486)
330,000 (US$3,027)
Spouse
380,000 (US$3,486)
330,000 (US$3,027)
Spouse, 70 years or older

480,000 (US$4,403)

380,000 (US$3,486)
Disabled, less than 70 years of age
730,000 (US$6,697)
560,000 (US$5,137)
Disabled, over 70 years of age
830,000 (US$7,614)
610,000 (US$5,596)
Dependent
16-18 years of age
380,000 (US$3,486)
330,000 (US$3,027)
19-22 years of age
630,000 (US$5,780)
450,000 (US$4,128)
23-69 years of age
380,000 (US$3,486)
330,000 (US$3,027)
70 years old or older and living with the taxpayer
580,000 (US$5,321)
450,000 (US$4,128)
70 years old or older and not living with the taxpayer
480,000 (US$4,403)
380,000 (US$3,486)
Source: Gobal Property Guide

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, with an additional 9% of inhabitant tax, which results to an aggregate rate of 39% for residents. If the property is the taxpayer’s personal residence, JPY30 million (US$275,229) can be deducted from the gross sales price, if certain conditions are met.

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%, with an additional 5% inhabitant tax, which results to an aggregate rate of 20% for residents.

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 million (US$550,459) of the net taxable gains is taxed at 10%, and any excess is taxed at 15%.


PROPERTY TAX


Property Tax

Municipal tax is levied at 1.4% on 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$2,752), whereas for a house, the threshold is JPY200,000 (US$1,835).

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.

CORPORATE TAXATION

INCOME TAX

Corporate income tax is generally levied at a flat rate of 23.20% for companies with share capital exceeding JPY100 million (US$917,431). A special tax rate of 19% is available to small and medium sized enterprises, which are generally defined for corporate tax purposes as companies with share capital of JPY100 million (US$917,431) or less. Income-generating expenses are deductible when calculating taxable income.

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