Taxes in Japan are typically straightforward for employees, as employers generally take care of the process. However, for those with non-traditional income sources, such as freelancers, real estate investors, or business owners, filing taxes becomes a more involved task. Here’s a breakdown of tax returns in Japan, their differences and when you should file each one.
What Are Tax Returns in Japan?
For many employees in Japan, filing taxes is a simple process. Most employers handle the tax return (確定申告, Kakutei Shinkoku) on behalf of their employees, submitting the tax returns for them each year. This is often referred to as Tax Return A (確定申告Ａ, Kakutei Shinkoku A) and is the simplest type of return.
Tax Return A is typically used by salaried employees who do not have additional sources of income. The process is automatic, and for most individuals, the employer submits the necessary documents to the tax office on their behalf.
However, not everyone is in a traditional employment situation. If your income comes from freelance work, side jobs, or investments, you’ll likely need to file a Tax Return B (確定申告Ｂ, Kakutei Shinkoku B). This is where the tax filing process becomes more complex.
Japan’s National Tax Agency provides forms and more info here.
Tax Return A (簡易申告 A, Kakutei Shinkoku A)
- Who files?: Employees with a single income source and no complicated deductions.
- How it works: Employers typically file taxes for employees, deducting taxes at source.
- What it includes: No need for itemized deductions or complicated paperwork.
- Ideal for: Employees with no additional income or deductions (like freelancers or property owners).
Tax Return B (確定申告 B – Kakutei Shinkoku B)
- Who files?: Freelancers, self-employed individuals, business owners, and anyone with additional income sources (e.g., side jobs, investments).
- How it works: Individuals are responsible for reporting all income, filing taxes themselves, and paying taxes directly to the government.
- What it includes: Requires documentation of income and expenses. You need to provide supporting records for things like business costs, freelance income, and investments.
- Ideal for: Freelancers, business owners, and those with multiple income sources.
Who Needs to File a Tax Return in Japan?
Certain individuals are required to file their own tax returns in Japan, even if they have a permanent address outside the country. These include:
- Multiple employers: If you have more than one job, you must file a tax return.
- Side income above ¥200,000: Real estate investors or individuals earning significant side income need to file.
- Leaving Japan: If you plan to leave Japan before December 31, you must file a tax return for that year.
- No tax withheld: If your employer doesn’t withhold taxes from your salary, you must file a return.
- High income: If your annual income exceeds ¥20,000,000, you are required to file a tax return.
In most of these cases, Tax Return B is needed. Tax Return B is for those with more complex tax situations, such as freelancers, business owners, or investors. If you are unsure, it’s always a good idea to consult with a tax professional or accountant.
Blue Tax Form vs. White Tax Form
Once you decide that Tax Return B is the right option for your situation, the next step is choosing between the Blue Tax Form (青色申告, Ao Iro Shinkoku) and the White Tax Form (白色申告, Shiro Iro Shinkoku). Each form has its own pros and cons, depending on your financial situation.
White Tax Form
The White Tax Form is simpler and can be used by anyone who has basic tax filing needs.
Pros:
- Simplicity: It’s straightforward and requires no advanced accounting knowledge.
- Dependents: It provides deductions for dependents, such as ¥850,000 for a spouse and ¥500,000 per child or dependent relative.
- No prior approval needed: You can file the White Tax Form without prior permission, making it easier for individuals who need to file quickly.
Cons:
- No business-related deductions: While it provides deductions for dependents, it doesn’t allow for the business-related deductions available on the Blue Tax Form.
- Limited deductions: The deductions available are more basic, making it less advantageous for those who need a wider range of tax benefits.
Blue Tax Form
The Blue Tax Form is more complex but offers more advantages for those with business expenses or multiple income sources.
Pros:
- More deductions: The Blue Tax Form allows deductions for a wider variety of expenses, including home office costs and utility bills.
- Special deductions: You receive an automatic ¥650,000 deduction and an additional ¥100,000 if you use simplified accounting methods.
- Loss carryover: If you incur a loss in one year, you can carry it over to offset income in the next three years, potentially reducing your tax burden in the future.
Cons:
- Complexity: The Blue Tax Form requires more documentation, such as profit and loss statements and balance sheets.
- Pre-approval needed: You must apply for approval to use the Blue Tax Form by March 15th of the year you wish to file it. If you miss the deadline, you’ll have to wait until the following year.
Can I Start with the White Tax Form and Switch to the Blue Tax Form?
Yes, you can start with the White Tax Form and switch to the Blue Tax Form in subsequent years. However, be aware that switching to the Blue Tax Form requires pre-approval by March 15th of the year you intend to use it. It’s a good idea to plan ahead if you anticipate needing the additional deductions and benefits that come with the Blue Tax Form.
How to File the Blue Tax Form
If you choose to file the Blue Tax Form, you’ll need to be prepared for a more involved process. You’ll need to keep detailed records of your income and expenses, and you may need to create balance sheets and profit and loss statements.
While this form is more complex, the rewards are often worth the effort, particularly for freelancers, business owners and those with substantial business expenses. There are accounting software programs, such as Yayoi and freee, that can simplify the process for you, though these tools are only available in Japanese.
If you’re unsure about the process or need help, it’s advisable to consult with a tax professional who can guide you through the filing process and help you make the most of your tax return.
Summary
Filing taxes in Japan can be a straightforward process for employees. Still, for those with additional income sources or business expenses, it’s essential to understand the differences between the tax return forms available. Tax Return A is for employees with simple income, while Tax Return B is for individuals with more complex financial situations, such as freelancers and real estate investors.
Between the two options under Tax Return B, the White Tax Form is simpler, while the Blue Tax Form offers more deductions and benefits for those willing to navigate the more complex filing process. Whichever form you choose, understanding the differences and planning accordingly can help ensure you’re paying the correct amount of tax while maximizing your deductions.
What is your experience with tax returns in Japan? Easy? Difficult? Let us know in the comments below.
This site is protected by reCAPTCHA - Privacy Policy - Terms of Service