- Taxes in Japan
Taxes in Japan
As we help our clients with real estate in Hokkaido, we get a lot of questions about taxes in Japan for foreigners. In this article, we will review some common Japanese tax topics.
Japanese Tax System
If it is normal for locals to be confused by the tax regulations in their home country, of course it is expected that visitors to Japan would be uncertain about Japanese tax laws and practices.
Both companies and individuals are required to pay Japanese income taxes and file Japanese tax returns (the specific Japanese tax deadlines depend on the type of tax). Foreigners in Japan should pay on time and stay in compliance; the visa and residency status of foreigners will often require that their taxes are in good standing.
While it is possible to manage your taxes by yourself, there is added risk and complication for non-residents (particularly for those that don’t speak Japanese). For help with tax preparation in Japan, we can introduce you to Japanese tax advisors that speak English (and other languages). We have helped many clients find professionals to help with individual or corporate tax in Hokkaido. As always, our service is free to you.
Japanese Income Tax for Individuals
Not everyone living in Japan is required to personally file a Japanese tax return.
Most corporate employees are not required to file individual tax returns. If you work for a company, your employer is responsible for your basic year-end tax reporting in Japan.
There are some instances when your employer will submit your tax details to the Japanese government for you, but you may still want file a return. Individuals who make charitable donations or have medical expenses can sometimes be eligible for tax deductions in Japan, and might choose to file a separate, personal tax return in Japan.
In some cases, a person’s main source of income is reported by the employer, but they have other income that may require a tax return. There may be taxes on real estate, or income from a side business. In cases like these, even an individual employed by a corporation may require the expertise and guidance of a Japanese tax accountant.
The personal income tax rate in Japan depends on the individual’s income, and operates in a range of approximately 5% to 45%. To use some USD examples for reference: For someone earning ¥6,350,000 (~$50,000 USD) the Japanese tax rate would be ~20%. For someone earning ¥25,400,000 (~$200,000 USD) the tax rate in Japan would be ~40%.
Simple returns can often be done without help from a professional. For more complicated circumstances, a local tax preparer in Hokkaido may be desired.
Some Specific Japanese Tax Filing Requirements
While most company employees are not required to file a Japanese tax return, there are some instances where traditionally employed persons are required to file a tax return in Hokkaido:
- Your total earnings from employment exceeds 20 million yen.
- You receive salaries and wages from one source, and your total income (excluding employment income and retirement income) from that source exceeds 200,000 yen.
- You have two types of income from the same sources (salaries and some kind of additional compensation), and that additional compensation which is subject to tax withholding (excluding employment income and retirement income) exceeds 200,000 yen.
- You are a director of a family company or a relative of the director thereof, and receive interest on loans or rent for properties from the company concerned.
- The withholding of income tax, etc., is postponed under the Disaster Exemption Act.
- You receive salaries and wages from those who are not obliged to withhold income tax at source.
- If the income tax amount corresponding to retirement income were calculated by a regular method, it would exceed the amount of tax withheld from the retirement income.
The examples above are from the Japanese National Tax Agency (国税庁). For more specific details, it may be appropriate to have a consultation with a local Japanese tax consultant. Contact us for more information.
Tax Returns for the Self-Employed in Japan
If you own a business in Japan (as a sole proprietor), or work as a freelancer, there is a strong possibility you will need to file a Japanese tax return.
A local Japanese tax agent can help you calculate what income is taxable, which of your expenses are eligible for deductions, etc. For more complex companies, some of the work for employee tax contributions and payroll are managed as well.
If you need advice on the timing of incorporation, or the advantages and disadvantages of doing business as a corporation or as a sole proprietor, you can consult a licensed tax accountant on an hourly basis, or sometimes based on a monthly retainer.
For foreigners trying to manage a business, a local Japanese tax adviser is usually a good investment. We have relationships with many tax professionals and tax accountants in Sapporo and Hokkaido. We can introduce you to prescreened Japanese tax advisers any time. To begin, contact us.
Corporate Taxes in Japan
Japanese corporate taxes are much more complicated and in all likelihood will require help from a Japanese tax accountant.
The basic corporate tax rate in Japan is 15% – 23%, and that rate depends on corporate revenues (with a lower tax rate for companies with less revenue). In addition to general taxes for corporations in Japan, there are additional assessments for local corporate tax, inhabitant’s tax, enterprise tax, special enterprise tax, etc. Some aspects of the taxes themselves may be deductible.
An accountant can help you determine your tax responsibilities, will make adjustments for deductions, and will determine an effective tax rate for Japan (which will exceed the corporate tax rate, nearing ~30% or higher in some cases).
For introductions to Japanese corporate tax consultants contact us.
Real Estate Taxes in Japan
If you have real estate in Hokkaido, you may be subject to Japanese tax law and consequences. In many cases, a tax return for real estate is required, or could be beneficial (in the case of deductions, etc). There can also be tax consequences when you buy, own, rent, or sell real estate in Hokkaido.
If the property is owned under your own name, the tax will be assessed as personal income tax in Japan. If the property was purchased by a corporation, the tax will be assessed as corporate tax in Japan.
When you buy property in Hokkaido there is a real estate acquisition tax (不動産取得税) of 3 – 4% of the property tax assessment (roughly 70% of the purchase price). A local government entity will send a bill for the tax approximately four to six months after the sale is completed.
If you own real estate in Japan (condominium, house, land, etc.), you are required to pay property tax. As the owner, you pay this regardless of where you live (in Japan or otherwise). On the other hand, property tax in Japan can be deducted as an expense (in some cases), and may lower your total taxes for the year when claimed in a annual tax filing.
If you sell property in Hokkaido in a given year, you will also likely have to file a tax return. The government will not generally issue a request for taxes due. If there is income from the sale, an income tax return where you declare the income is required. In some cases, you may be eligible to file for an exemption. A real estate tax specialist in Japan may be able to offer more clarity.
If you have rental property in Japan that is generating income (as a traditional rental, or via a service like AirBnB – called 民泊 or minpaku in Japan), you will likely have to file a return. You may have deductions that can be applied to offset that income as well. A tax accountant can help you prepare a tax return for rental income in Japan.
If you retain a property, and it is not generating income, you won’t pay income tax on that property, but may also be able to use real estate expenses to create deductions and offset income from other sources. If you have a real estate loan in Hokkaido and purchased the property with a mortgage, you may be able to take deductions there as well.
In some cases, a property management company in Hokkaido that is familiar with monthly real estate income may be able to file a tax return in cooperation with a tax accountant.
Another instance where you might file a tax return for property in Japan is when you inherit real estate. In many cases an inheritance tax (相続税) may need to be declared. As the owner, it will be your responsibility to take care of any real estate tax liabilities in Hokkaido.
If you own real estate, it may be better to get the support of a licensed Sapporo tax accountant. When you’re ready to start, contact us. We can make introductions – there are many tax professionals that can help you with tax returns and real estate taxes in Hokkaido.
Tax Agents in Japan
If you own property in Hokkaido while residing in another country (or if you will be away from Japan for an extended period of time), you must appoint a tax manager (納税管理人) to pay taxes related to your real estate.
There are accountants that you can hire that will manage your taxes and act as your agent for tax matters when you are outside of Japan. We can also introduce you to tax accountants who can function as a tax agent.
Both companies and individuals should make sure that they are aware of the relevant Japanese tax deadlines, that they pay their taxes on time (with no delinquent or erroneous payments), and they file any annual, or semi-annual returns as needed.
If you are looking for a foreigner-friendly tax accountant in Hokkaido, contact us anytime. We are happy to help.
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— Our How It Works page
— Our Guide to Buying a House in Hokkaido
— How to Find a Hokkaido Real Estate Agent
— Buying Property in Hokkaido as a Foreigner
— Find Lawyers in Hokkaido
— Tax Offices in Sapporo
— Real Estate Acquisition Tax in Japan