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Japan  Income Taxes and Tax Laws

Japan Tax Rates 2013

Last partial update, August 2013

Taxation of an individual's income in Japan is progressive.
In other words, the higher the income, the higher the rate of tax payable.
The tax rate for an individual in 2013 is between 5% - 40% There are reduced rates of tax for certain income earners.
Japan corporate tax in 2013 is currently ,as from 1.4.2012, 25.5%.
There is a reduced rate of tax for certain corporations it is important to point out that the effective tax, for individuals and corporations, is higher as a result of the other local taxes that exist in Japan.

Japan Individual Income Tax
An individual pays tax on his income as a wage-earner or as a self-employed person. Tax for an individual who meets the criteria of a "permanent resident" in Japan will be calculated on his income in Japan and abroad. A foreign resident who is employed in Japan pays tax only on income earned in Japan.
Generally speaking there are three classes of tax payers:
  • Permanent resident.
  • Non-permanent resident (those who have been living in Japan for less than five years).
  • Non-resident.
The following table shows Japan individual income tax rates for 2013:

Tax Base (Yen) Tax
1 - 1,950,000 5%
1,950,001-3,300,000 10%
3,300,001 - 6,950,000 20% of base exceeding 3,300,000
6,950,001-9,000,000 23% of base exceeding 6,950,000
9,000,001 - 18,000,000 33% of base exceeding 9,000,000
18,000,001 and over 40% of base exceeding 18,000,000

From 1.1.2013 a 2.1% surtax is added to the national tax.
   1. The rates above are before 6% Japan municipal tax. And 4% prefectural tax, 10% in total.
   2. Japan's individual income tax rates including local taxes are among the highest tax rates in the world. The effective top marginal tax rate is around 50%.
   3. Non residents pay for salary, interest, dividend and royalty income in Japan 20% plus additional 2.1% surtax.

Japan Capital Gains, Companies
Capital gains for companies in Japan are added to regular income. The rate of tax imposed on capital gains is identical to the tax on regular income.

Capital Gains, Individuals

Japan Capital gains from the sale of real estate
For individuals , gains from sale of real estate are taxed at 39% for short term gains and at 20% for long term gains .

Japan Capital gains from the sale of shares
The tax rate for listed shares is 10% (7%-income tax, 3%-local tax).The tax rate for sale of other shares is generally 20%.

Japan Reporting Dates
The tax year in Japan is the calendar year ending on December 31st.

An Individual
An employee - as the individual's tax is deducted by his employer, there is no obligation to file an annual return for an income of less than 20 million yen per annum.
When an employee earns income from two sources, or additional income as a self-employed person in excess of 200,000 yen, he is obliged to file an annual return.
A self-employed person - is obliged to report and pay tax on income for the current year no later than March 15.
When the results for the previous year show a net tax obligation (as against tax deducted at source) of at least 150,000 yen, two advance payments must be made in the following year on July 31st and November 30th, each advance payment being 1/3 of the total net tax for the previous year.

A Company
  • A company is bound to report and pay within two months of the end of the tax year (it is usually possible to request an extension of an additional month).

Japan Corporate Tax
  • In 2013, as from 1.4.2012 Japan national corporate tax is 25.5% compared to the previous 30% rate. There is also a 10% surtax which applies till 31.3.2015 resulting in a 28.05% tax rate.
  • Corporate tax on income of SMEs below 8 million yen is 15% on condition that the total equity is less than 100 million yen. An additional 10% surtax applies for three years ending 31.3.2015 resulting in a 16.5%tax rate.
  • In addition to corporate tax (a national tax) there are two classes of local tax paid by the corporation:
          1) Inhabitant Tax.
          2) Enterprise Tax.
    These two classes of local tax significantly increase the rate of Japan corporate tax, so that it may, in actual fact, reach 38% in Tokyo.
  • While Inhabitant Tax is not recognized as a deductible expense, "Enterprise Tax" may be deducted as an expense.
  • Income from a dividend is not classed as regular income. A dividend received by one company from another Japanese company, when the holding in the payer's equity is 25% or more, held for more than 6 months is tax exempt.

    • Japan Deduction of Tax at Source

      Japan Taxation of Employees
      Japan Income Tax
      The employer is obligated to deduct tax at source from a salaried worker in accordance with the tax tables. The employer is obligated to pay the income tax to the authorities by the 10th of the month after the month of payment. When paying a salary to a foreign resident, 20% should be deducted at source.

      Japan Social Security
      The social security covers matters such as health insurance, pension insurance, unemployment insurance and more. The rates are as follows:
      • Employer - 15.448%
      • Employee - 14.643%

      Dividend, Royalties and Interest in Japan
      When payments of the following sorts are made to non- residents, deductions must be made at source at the following rates:

      Dividend 20
      Royalties 20
      Interest 20
      Technical Fees 20

      Note: Starting January 1, 2013 an additional 2.1% surtax is imposed on the above mentioned payments resulting in a 20.42% rate.

      Japan Other Deductions

      • Benefits to senior employees - mainly bonuses and compensation paid to employees are allowable as an expense. Nevertheless, payments of unreasonable amounts to directors will not be allowed as an expense.
      • Entertainment expenses - the allowance on these expenses is calculated according to a formula that takes account of the amount of the company equity; the percentage allowed as an expense shall in no case exceed 90% of the expense, or a maximum of 3.6 million yen a year.
      • Donations - as a general rule, donations to public or government institutions are allowable as an expense up to 40% of the income.
      • Research and development - a credit of 20% is given for research and development plus additional credit for the excess of R&D expenses over those of the previous years. In any event, the total combined credit is limited to 30% of the corporation tax.
      • Transactions between affiliated parties - such transactions are defined as being between 2 parties when the percentage holding, whether direct or indirect, between the companies is 50% or more. Reasonable proof of the price of the transfer between the affiliated parties is demanded from the taxpayer. As a rule, the law specifies 3 methods of calculating the reasonability of the price of the transfer.
      • Interest expenses - there is a limit to the interest allowable to companies with an overseas obligation to foreign shareholders of 50% or more when the amount of the obligation is more than 3 times the amount of the equity.
      • Offsetting losses - a company that meets the requirements of the blue form return is eligible to offset the loss forward, up to 80% of the current year's income, for the following nine years. SMEs can carry back losses for one year.
      • Consolidated Returns - Companies in the same group may file a consolidated return and offset losses in the group under certain terms.

        • Japan Depreciation of Fixed Assets

          In most cases either the straight line method or the declining balance method are allowed.
          Depreciation is allowable at the following rates:

          Class of Asset No. of years depreciated
          Buildings 50
          Air conditioners 15
          Sailing vessels 12-15
          Aircraft 5-10
          Computers 4-5
          Machinery and equipment 6-22
          Patents 3-10
          Goodwill 5
          Mining rights 5-8

          • An asset that costs less than 200,000 yen shall be depreciated over 3 years.
          • An asset that costs less than 100,000 yen shall be fully depreciated in the year of purchase.

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