Japan Tax Rates 2020Last partial update, May 2020.
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 2020 is between 5% - 45% There are reduced rates of tax for certain income earners.
Japan corporate tax in 2020 is 23.2% for companies with share capital above 100 million yen.
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 TaxAn 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).
The following table shows Japan individual income tax rates for 2020:
|Tax Base (Yen)||Tax|
|1 - 1,950,000||5%|
|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 - 40,000,000||40% of base exceeding 18,000,000|
|Over 40,000,000||45% of base exceeding 40,000,000|
From 1.1.2013 a 2.1% surtax is added to the national tax.
1. The rates above are before Japan municipal tax and prefectural tax.
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 55%.
3. Non residents pay for salary income in Japan 20% plus additional 2.1% surtax.
Japan Capital Gains, CompaniesCapital 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 estateFor individuals , gains from sale of real estate are taxed at 30% for short term gains and at 15% for long term gains.
Japan Capital gains from the sale of sharesThe tax rate for listed shares is 15%.
Japan Reporting DatesThe tax year in Japan is the calendar year ending on December 31st.
An IndividualAn 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 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 2020 Japan national corporate tax is 23.2%.
- Corporate tax on income of SMEs below 8 million yen is 15% on condition that the total equity is less than 100 million yen.
- 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 33.06% 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.
- Employer - 16.23%
- Employee - 15.69%
- 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 is eligible to offset the loss forward, up to 50% of the current year's income, for the following nine years.
- The limit does not apply to small & medium companies.
- 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.
- 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.
Japan Deduction of Tax at Source
Japan Taxation of EmployeesJapan 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:
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:
Note: Starting January 1, 2013 an additional 2.1% surtax was imposed on the above mentioned payments resulting in a 20.42% rate.
Japan Other Deductions
Japan Depreciation of Fixed AssetsIn 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|
|Machinery and equipment||6-22|
Note: The information in this site is for general guidance only. Users of this site are advised to take professional advice before taking practical tax decisions.
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