Taxes

Understanding Tax Residency

If you're a foreigner living in Japan, understanding your tax residency status is crucial for meeting your legal obligations and planning your finances effectively. Japan's tax system distinguishes between tax residents and non-residents, and this classification significantly impacts how much tax you'll owe and what income you must report.

Tax Resident vs. Non-Resident

Tax Resident: Someone with a permanent residence or center of vital interests in Japan. This includes having a long-term lease, family connections, or regular employment in Japan. Tax residents pay worldwide income tax, on all income globally.

Non-Resident: Someone without a permanent residence in Japan who is temporarily staying. Non-residents pay limited income tax on Japanese-source income only (salary, rental income from Japanese property, etc.). Foreign income is not taxed.

The 183-Day Rule

If you spend 183 or more days in Japan during a calendar year, you're a tax resident and must report all worldwide income; if you spend fewer than 183 days, you're a non-resident and only pay tax on Japanese-source income.

Important: This rule is not absolute. Japanese tax authorities also consider your permanent residence, family ties, employment, and pattern of stays. Even with fewer than 183 days, you may be classified as a tax resident if you have established a permanent home in Japan.

Income Tax (Shotokuzei / 所得税)

Japanese income tax applies to ten different categories of income.

• Employment: Income from salaries, bonuses, etc.
• Business: Income from business, freelance work, etc.
• Real Property: Income from real estate, ships, aircrafts, etc.
• Interest: Income from interest on bonds and saving accounts.
• Dividend: Income from dividends from corporations, etc.
• Retirement: Income from retirement and other benefits
• Capital gains: Income from the transfer of assets.
• Timber: Income derivedfrom logged forest.
• Occasional: Income from lump-sum payments from life insurance policies, prize-money, lottery winnings, etc.
• Miscellaneous: Income of retirement allowances, lump-sum pensions, etc.

Tax Brackets and Rates for Residents

Japan uses a progressive tax system, meaning your tax rate increases as your income increases. Tax residents must pay national income tax based on their total worldwide income.

National Income Tax Brackets (2024): The following brackets apply to your total taxable income after deductions:

Filing Requirements and Deadlines

Tax residents must file if you have self-employment income, rental income, dividend income, or want to claim deductions. You don't need to file if your only income is employment with proper tax withholding.

Non-residents must file if you earned Japanese-source income or are entitled to a tax refund.

Deadline: File by March 15 of the year following the tax year. For example, for 2024 income, file by March 15, 2025. You can request an extension from your local tax office (kokuzeicho / 国税庁) for valid reasons.

Three ways to submit:

1. In-person: Visit your local tax office during tax season (staff can assist)
2. Online (e-Tax): File from home using the NTA's online system (requires My Number Card)
3. By mail: Mail the completed form to your local tax office (must arrive by deadline)

Tax Deductions and Exemptions

Tax residents in Japan can claim the following standard deductions and exemptions. These apply to all residents equally, regardless of nationality:

Standard Deduction (Kisokoujo / 基礎控除)

Everyone gets a basic deduction:

• ¥480,000 for most taxpayers (2024)
• Automatically deducted from your gross income

Employment Income Deduction (Kyuuyoshotoku / 給与所得控除)

If you have employment income:

• Salary up to ¥1,625,000: 40% of salary (minimum ¥550,000)
• Salary ¥1,625,001 – ¥1,800,000: ¥650,000
• Salary over ¥1,800,000: Additional calculations apply
• Automatically applied

Business Expense Deduction (Jigyoushotoku no Keihikoujo / 事業所得の経費控除)

If self-employed or running a business, deduct:

• Office supplies and equipment
• Rent for a home office (percentage of your rent)
• Internet and phone bills (business portion)
• Professional development and training
• Travel expenses related to business
• Employee salaries
• Insurance and professional fees

Keep detailed receipts and records.

Dependent Deduction (Fuyoukoujo / 扶養控除)

Support dependents and deduct ¥380,000 per dependent:

• Children, parents, or other qualifying relatives
• Must show proof of financial support
• Dependent must be a resident of Japan or have Japanese tax residency

Spouse Deduction (Haiguushakoujo / 配偶者控除)

If married with spouse having little or no income:

• ¥380,000 deduction if spouse earns under ¥900,000
• Must be married and live together
• Applies to both same-sex and opposite-sex spouses

Medical Expense Deduction (Iryouhikoujo / 医療費控除)

Deduct qualifying medical expenses exceeding ¥100,000:

• Hospital bills and doctor visits
• Prescription medications
• Dental work (basic treatment only)
• Eyeglasses and contact lenses (with prescription)
• Pregnancy and childbirth expenses

Keep all receipts.

Charitable Donation Deduction (Kifukinkoujo / 寄附金控除)

Donations to recognized organizations are deductible:

• Amount: Donations minus ¥2,000
• Religious, educational, welfare, disaster relief, and political organizations
• Requires proof of donation

Social Insurance Deduction (Shakaihokenryoukoujo / 社会保険料控除)

Deduct 100% of Japanese social insurance premiums:

• Health insurance premiums
• Pension contributions (kokumin nenkin)
• Unemployment insurance (if self-employed)

Mortgage Interest Deduction (Jyuutakuroonkoujo / 住宅ローン控除)

If you bought a home in Japan with a mortgage:

• Deduct interest portion of mortgage payments (not principal)
• Available for up to 10-13 years depending on purchase date
• Requires proof of loan and property purchase

Life Insurance Deduction (Seimeihokenryoukoujo / 生命保険料控除)

Deduct life insurance premiums:

• Up to ¥40,000 for general life insurance
• Up to ¥40,000 for nursing care insurance
• Up to ¥40,000 for individual pension insurance
• Maximum total deduction: ¥120,000

Seismic Insurance Deduction (Jishinhokenryoukoujo / 地震保険料控除)

Earthquake insurance premiums are deductible:

• Up to ¥50,000 per year
• Must be for your primary residence

Foreign Tax Credit

If you paid income tax to a foreign country on the same income:

• You may be eligible to claim a foreign tax credit
• This prevents double taxation on the same income
• Requires proof of foreign tax payment
• Consult a tax professional about your specific situation

Important Note for Foreigners

While these deductions apply equally to all residents, foreigners may face additional considerations when claiming them:

• Dependent deductions may be difficult to claim for family members living outside Japan
• Spouse deductions may require additional documentation proving your marriage and living arrangement
• Foreign income reporting requires careful currency conversion and documentation of foreign-source earnings
• Social insurance contributions may differ if you're from a country with a tax treaty with Japan

Residence Tax (Jūminzei / 住民税)

Residence tax is a local tax levied by prefectures and municipalities in Japan on individuals who maintain a residence in their jurisdiction. Unlike national income tax, which is calculated and withheld throughout the fiscal year, residence tax operates on a delayed system based on the previous year's income.

How Residence Tax Works

Residence tax has two components: a prefectural tax and a municipal tax. The combined standard rate is approximately 10% of your taxable income (6% municipal + 4% prefectural, though rates vary slightly by location). The tax is calculated using your income from the previous calendar year, meaning the residence tax you pay in 2025 is based on your 2024 income.

Calculation Example

If your 2024 taxable income was 2,000,000 yen after national deductions:

• Approximate residence tax = 2,000,000 yen × 10% = 200,000 yen
• Paid in installments (typically 4 payments) during the following year

Who Must Pay

Tax residents who had a residence in Japan on January 1 of the tax year must file and pay residence tax, even if you move away later that year. Non-residents are not required to pay residence tax.

Filing and Payment

File with your local municipal office by March 15 of the year following the income year. Payment is typically divided into four installments (June, August, October, December). Your employer may handle payment if you have employment income.

Deductions Applied to Residence Tax

Residence tax uses the same deductions as national income tax, including dependent deductions, spouse deductions, and social insurance contributions. However, some deductions have different limits or are not applicable at the local level.

Tax Treaties and Agreements with Your Home Country

Tax treaties (also called tax conventions) are bilateral agreements between Japan and other countries. They are designed to prevent double taxation and reduce tax evasion when individuals or businesses have income in both countries. These treaties modify how each country taxes certain types of income earned by residents of the other country.

Key Benefits of Tax Treaties:

Reduction of Double Taxation: If you paid income tax to your home country on income also taxed by Japan, a treaty may allow you to claim a foreign tax credit or exemption on that income in Japan, preventing you from paying tax twice on the same earnings.

Relief from Withholding Taxes: Certain types of income (dividends, interest, royalties) may have reduced withholding tax rates under a treaty. For example, dividend withholding may be reduced from 20% to 5-10%.

Clear Tax Jurisdiction Rules: Treaties establish which country has the right to tax specific types of income. For example, employment income is typically taxed where the work is performed, while rental income is taxed in the country where the property is located.

Provisions Against Tax Evasion: Treaties include information-sharing provisions between tax authorities and anti-abuse clauses to prevent tax avoidance schemes.

Which Countries Have Tax Treaties with Japan

Japan has comprehensive tax treaties with over 140 countries and territories, including:

• North America: United States, Canada, Mexico.
• Europe: United Kingdom, Germany, France, Italy, Netherlands, Spain, Belgium, Switzerland, Sweden, Norway, Poland, Portugal, Austria, Denmark, Finland, Greece, Ireland, Luxembourg, Romania.
• Asia-Pacific: China, India, South Korea, Australia, New Zealand, Thailand, Vietnam, Malaysia, Singapore, Indonesia, Philippines, Hong Kong, Taiwan.
• Other: Brazil, Chile, Russia, South Africa, United Arab Emirates, Israel.

For a complete and current list, visit the National Tax Agency (NTA) website.

Helpful Resources

National Tax Agency: The official website of the National Tax Agency (NTA).
Japan Federation of Certified Public Tax Accountants: Register of Certified Public Tax Accountants.
RetireWiki.jp: Great Resource for residents of Japan.
Local Tax Office: Located in your municipality