Tax is one of those complicated things that we all have to deal with, yet few of us have an in-depth understanding of. I used to share the sentiments of comedian Billy Connolly, who once quipped: “What do the tax office and a penguin have in common?”
They can both stick their bills up their…
And I’m sure you get the picture.
However, these days as a supposedly responsible adult, paying tax is an obligation I have to carry wherever I live. But how exactly is tax calculated in Japan? How much do we have to pay and how often? It’s certainly not an easy question to answer but here are some of the basics to help you make sense of all those numbers.
Taxes and Tax Returns
In Japan, we pay taxes in a number of ways. Some tax elements are deducted at source, others we have to pay ourselves. The exact makeup of these tax obligations varies from person to person and depends on the type of work you do, your residence status, how long you have been here, whether or not you have any dependents and also where you live.
Much like back home for many of us, income tax forms the primary deduction we all see coming off of our paychecks each month. It’s called a gensen-choshu-hyo in Japanese and looks like this.
The exact percentage of tax payable varies depending on your income level, in some ways similar to the PAYE system employed in the UK.
The current income tax rates for Japan are as follows:
- For those earning under 1.95 million yen per year: 5% of your taxable income
- For those earning 1.95-3.3 million yen per year: 10% of your taxable income above 97,500 yen
- For those earning 3.3 to 6.95 million yen per year: 20% of your taxable income above 427,500 yen
- For those earning 6.95 to 9 million yen per year: 23% of your taxable income above 636,000 yen
Above this there is a sliding scale with the top tax rate maxing out at 45% for those who earn 40 million yen per year of more. But let’s face it, if you’re on that kind of money, you can afford it!
On top of this an additional flat fee of 4% will be deducted for prefectural taxes.
It should also be noted that the taxes deducted for this year will actually be based on last year’s assessed tax liability. In other words, you pay tax in 2017 based on your salary in 2016. This can create something of a problem if circumstances force you to accept a hefty pay cut when moving from one job to the next. In this case, it may be a good idea to go to your local tax office (usually in the city hall) and see if you can negotiate a fairer rate.
Ordinarily, most employees in Japan don’t actually have to file a tax return. Your company will probably do that for you, though you may be asked to sign a couple of forms confirming your status, e.g. relationship status, living address and number of dependents. Variations in these factors can, in some cases, qualify you for exemptions.
Ordinarily, most employees in Japan don’t actually have to file a tax return.
Exemptions are also available to cover insurance premiums, medical costs and business operating expenses, in the event that you are self-employed.
As I said almost everyone is not required to do their own tax return but there are a few exceptions to this. You will be required to file your own tax return if:
1) Your annual salary exceeds ¥20 million
2) You have more than one employer
3) You have secondary income, be it a second job, share dividend or so on that exceeds 200,000 yen per year
4) You are working for an employer based outside of Japan
Additionally, you will also be required to file a tax return if you decide to leave Japan during the course of the financial year.
Income tax is however just one facet of our tax obligations. Another, and the one that many of us tend to overlook, is the municipal or city tax. Unless you work for a government agency, such as being a direct hire city board of education ALT, chances are this tax will not be deducted at source.
Instead, you will receive a bill from your local city tax office which you can then take to a local convenience store to pay. Typically it is calculated based on 6% of your annual income. However, as was the case with income tax, it is calculated based on your previous year’s earnings. As such, you will generally not be charged municipal tax during your first year in Japan.
With a typical English teacher having to pay out between ¥100-150,000 per year for this tax, it can seem a scary prospect. However, there is the option to break it down into three manageable installments payable in June, August and January of the following year. Again, you’ll have to sort this out with your local tax office.
Be sure not to fall behind with this one if you are a non-permanent resident. In recent years, the government has been stepping up enforcement of municipal tax collection and failure to pay up can jeopardize one’s visa renewal chances.
Please also note that the municipal tax is charged based on the city where you live, not the place where you work. For example, I live in Osaka City, but work in Sakai City. So my taxes are paid towards Osaka City.
Another tax, which we all pay every day without even noticing is the consumption tax. Working the same way as the VAT does in the U.K., the consumption tax is a tax levied on goods and services that we pay for in our daily lives. At the moment it sits at 8 percent. This is why you pay ¥108 for each item you buy in the 100 yen shop.
Finally, there are other taxes that you may need to pay, such as automobile tax if you buy a car, depending on your personal spending habits!
What’s been your experience with taxes in Japan? Any advice, tips or recommendations for others out there? Let us know in the comments!