Japan101

Taxes, Pensions and Health Insurance

It's all fun and games until somebody retires.

Tax overview

Your taxes in Japan are collected in a number of ways. Some are deducted from your pay, others you have to pay yourself. The taxes you are obliged to pay vary for each individual depending on:

  • your income
  • your status of residency
  • the length of time you’ve lived in Japan
  • your dependents and your address

Income tax

The income tax (shotokuzei, 所得税) you pay makes up the bulk of the deductions from your salary submitted on your behalf by your employer each month. It is a progressive tax system based on your level of income — the more money you earn, the more you will have to pay.

These are the current basic tax rates (as of 2018):

Taxable Income (per year) Tax Rate
Less than ¥1,950,000 5%
¥1,950,000 –- ¥3,300,000 10%
¥3,300,000 – ¥6,950,000 20%
¥6,950,000 – ¥9,000,000 23%
¥9,000,000 – ¥18,000,000 33%
More than ¥18,000,000 40%

Beside the above rates for yearly taxable income, an additional levy of 4 percent is deducted at source for prefectural taxes.

Taxes paid for the current year are based on last year’s assessed income. For example, you will pay tax in 2019 based on your total income in 2018.

Tax returns

Unless you are self-employed, you will generally not have to fill out and file tax returns on your own — your employer will take care of that for you.

At most, your employer may ask you to fill out forms confirming your relationship (if you are married), your number of dependents and your current address.

These forms are for your nenmatsu chosei (年末調整, year-end adjustment), a special adjustment at the end of the year to see if you need to pay any additional tax or if you are eligible to receive a refund of overpayment of taxes based on your monthly deductions.

The tax adjustments — refunds or payments — will be applied to your last paycheck of the year.

You will be required to manually file a tax return if:

  • Your annual salary exceeds ¥20 million
  • You have more than one employer
  • You have secondary income such as another job, dividends, company shares or other that exceeds ¥200,000 per year
  • You are working for an employer based outside of Japan

Tax returns must be filed by March 15 each year.

Residence tax

Your residence tax (juminzei, 住民税) is a “city” tax paid to your municipal government and is not a tax deducted from your paycheck (unless you are a direct hire ALT of a city board of education, for example).

Your local city tax office will send you a bill that you can take to a local convenience store to pay. The tax is equal to 6 percent of your annual income, based on the previous year. In the very first year of living in Japan, you will not be charged a municipal tax.

As an example, based on the typical salaries of full-time English teachers, you can be expected to pay between ¥100,000 to ¥150,000 per year. There is an option to pay installments in June, August and January of the following year. Visit your local ward office for more information.

Municipal tax payments are based on the city in which you live and not the city where you work (if you are a commuter, for example).

Consumption tax

You pay Japanese consumption tax (shohizei, 消費税) each and every time you purchase (or consume) goods and services in Japan. It’s a federal sales tax similar to the VAT or GST in Australia, Canada, some European countries, New Zealand and the U.K.

Currently, the sales tax in Japan is 8 percent and is applied at the time of purchase to the amount of the goods you buy. Products are usually displayed with the price before tax, or sometimes with both with the added tax amount shown in brackets.

Health insurance in Japan

A visit to the hospital in Japan, as a resident, means that most of your upfront payments will be significantly discounted due to the country’s National Health Insurance (NHI) scheme. This is a fund created by workers’ insurance premiums, employers’ copayments, taxes and is designed to cover most basic medical costs.

Health insurance and their requisite premiums are mandatory for all residents of Japan, regardless of job status.

Full-time employee

  • Shakai Kenko Hoken = 社会健康保険 = Employees’ Health Insurance

Payments will be deducted from your paycheck every month — approximately 10 percent of your salary — by your employer.

Self-employed, part-time worker, unemployed, a student

  • Kokumin Kenko Hoken = 国民健康保険 = National Health Insurance

If you’re not covered by Employees’ Health Insurance, you will need to apply for Kokumin Kenko Hoken. You will usually be asked about this when you first register your address at your local ward office. Fees are based on where you live, your income level and number of dependents.

Enrolment in the the national health insurance plan allows you to access physicians, dentists, pharmacists, nurses or midwives and other healthcare professionals for diagnosis and treatment on a copayment basis. In the copayment scheme, you are required to pay 10 to 30 percent of your medical bill upfront (depending on age and income) and your premiums to NHI help the national fund cover the remaining 70 to 90 percent on your behalf.

Japanese healthcare providers do not normally accept private health insurance. This is only an option for tourists and visitors in Japan less than three months. Some private insurers do work with special hospitals here and can provide a list of those doctors and facilities. You will be required to pay 100 percent of the cost upfront and work through your insurer for reimbursement after.

Pensions in Japan

As the above system of social insurance in Japan points out: while care and assistance for health and general infrastructure for the country are widely available, all citizens must contribute to the monthly or yearly taxes, premiums and fees for it to work. The same can be said for help with retirement.

All working residents of Japan — including foreigners — aged 20 to 59 are required to be enrolled in the national nenkin (年金, pension) plan managed by the Japanese Pension Service, an arm of the government overseen by the Ministry of Health, Labour and Welfare. There are two main categories of the pension fund to which you will be required to contribute:

  1. The kokumin nenkin (国民年金), or National Pension system, provides basic old age benefits for self-employed or part-time employees or those not already paying in to the Employees Pension system and others.The monthly contribution amount is ¥16,340 (as of 2018).
  2. The kosei nenkin (厚生年金), or Employees Pension Insurance system provides old age benefits for every full-time worker employed by a company with more than five employees and is deducted every month from your salary. The amount deducted is 9.15 percent of your salary. Your  company must match this payment so that you are, in effect, contributing 18.30 percent of your monthly salary to the plan

Foreigners cannot opt out of the national pensions system, though only foreigners can receive a lump sum payout (totalling no more than three years worth) when they leave Japan.

You can apply to start collecting your pension benefits when you are 65 years old (you may apply when you turn 60, but your monthly benefits will be significantly less). You can also apply to start receiving benefits if you are unable to work because of an injury or disability.

You can apply to receive the benefits upon filling out a claim form from the pension fund website and submitting it to the Japan Pension Service. Payments can be made monthly to your bank anywhere in the world.

Non-Japanese who have been working in the country and paid into either category of the pension plan for at least six months are eligible to receive up to three years (36 months) of their contributions after leaving Japan in a lump-sum payment.

In the event of your death, your accrued benefits can be withdrawn by your surviving spouse or children under the age of 18.

Resources

Organization Website
National Tax Agency https://www.nta.go.jp/english/index.htm
Tokyo Metropolitan Bureau of Taxation http://www.tax.metro.tokyo.jp/english/index.html
How to read the tax deductions on your monthly pay stub https://www.ipmu.jp/sites/default/files/webfm/pdfs/personnel/Tax%20Statement.pdf
Ministry of Health, Labour and Welfare “Overview of Medical Service Regime in Japan” https://www.mhlw.go.jp/bunya/iryouhoken/iryouhoken01/dl/01_eng.pdf
Japan Healthcare Info “Japanese Health Insurance” http://japanhealthinfo.com/japanese-healthcare-services/japanese-health-insurance/
Japan Pension Service “National Pension System” information http://www.nenkin.go.jp/international/english/nationalpension/nationalpension.html
Japan Pension Service “Application for the Lump-sum Withdrawal Payments” http://www.nenkin.go.jp/international/pamphletenglish/index.files/A.pdf

References

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