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What Are Year-End Taxes in Japan?

A quick guide to understand your year-end tax adjustments in Japan.

By 5 min read 1

As the calendar year draws to a close in Japan, another important milestone is the end of the tax year. Year-end tax adjustments are a significant part of the taxation process. However, ensuring you file your adjustment correctly can seem overwhelming; you must deal with complicated words and even the concept may differ from your home country.

So why does Japan have this system? Simply put, these adjustments are made to reconcile any discrepancies between the income tax withheld by employers throughout the year and the actual Japanese tax liabilities a person must pay based on their income. This will be in your favor for most earners, as the tax taken often doesn’t account for allowances and tax-free earnings. Most people, except those on massive salaries, overpay their taxes.

Here is a simple guide to give you an overview of how year-end taxes work in Japan.

Key Dates

It’s coming up fast.

It is always worth remembering the key dates to do your taxes early. The deadline for the submission of tax returns and necessary documents for year-end adjustments (年末調整, Nenmatsu Chosei) typically falls between February 16 and March 15 of the following year. Generally, it is better to do it earlier rather than later as you can visit your local tax office and get help to fill out the forms if you apply early enough. The taxable period is the full year, starting on Jan. 1 and finishing on New Year’s Eve.

Important Documents

Some essential year-end tax documents (2018).

Every month on your paycheck, you should see that your employer has withheld a certain amount of income tax from your salary (typically 10.21%, but it can be as low as 5% for low earners up to 20% and more for non-residents). This estimates the tax burden, which is usually slightly biased toward the country to reduce the risk of massively underpaying. However, those who overpaid (most of us) should complete a final calculation to ensure they receive the correct amount of their taxes with the final count considering deductions, exemptions, and credits.

At the end of the year, you will be sent a Gensen Choshu-hyo (源泉徴収票), known as a Certificate of Withholding Tax, which details the income earned and the tax withheld throughout the year. For most workers, this will be given directly to you or be sent by your employer in the post. Be careful not to lose it, as they may be impossible to reissue.

The Certificate of Withholding Tax is important for completing the Nenji Shotoku Kakutei Shinkoku (年次所得確定申告), or Annual Income Review form, which contains all the financial matters required for accurate tax assessment. This form reconciles the taxes paid against their liabilities during the year-end adjustment.

Year-end adjustments in Japan consider various deductions and exemptions available to individuals and businesses. These can range from expenses related to dependents and medical costs to social insurance premiums. On the other hand, special payments like bonuses are subject to taxation and should be included in this calculation.

Declare Deductions

Pension is a whole other can of worms…

Japan offers various deductions and exemptions that can significantly reduce taxable income. Common ones to consider are expenses for dependents, medical costs, pensions, home buyer loans and charitable donations. Of course, keeping good records is important to get the most back by keeping track of income sources, receipts for deductible expenses, and other financial documents.

Filling in the dependents is especially important if you are married and/or have kids. Spouses, children, and people classified as dependents can be found on the relevant pages.

Be Aware of Common Mistakes

The tax man cometh.

With the modern “hustle economy,” many workers have income from various sources, which massively complicates things, especially if you work part-time for cash in the gig economy. All these income sources should be declared for taxation purposes. Failing to report these accurately can lead to penalties. Working in the gig economy can be highly variable, as when I was doing it, my salary could vary by as much as ¥200,000 a month. So, what do you do if your income fluctuates? Accurate bookkeeping is necessary, as you must estimate your average monthly income. Also, Japan has strict rules regarding reporting foreign income. Failure to declare income earned abroad or properly disclose overseas assets can result in penalties or legal consequences.

Let’s say an individual works part-time in the gig economy, taking on freelance projects alongside their regular job. In a particular month, they earned ¥150,000 from their normal job and an additional ¥50,000 from freelance work. However, due to oversight or intentional omission, the individual only reports the income from their regular job when filing their tax return. The failure to accurately report the additional ¥50,000 earned from freelance work is a mistake. The tax authorities may consider this underreporting as non-compliance.

Keep Up to Date

When in doubt, contact a professional.

Finally, it is worth being aware that Japan’s tax laws are subject to revisions and updates. It is useful to keep track of these updates, as changes can result in unintentional non-compliance or missed opportunities for tax optimization. If you want to avoid these pitfalls, seeking guidance from tax professionals or accountants familiar with Japanese tax laws and staying updated on regulations can ensure that you comply with the latest rules and maximize your returns. Contact or search the National Tax Agency for specific assistance or if you have complex tax situations.

So, in summary, although it can seem intimidating, making the year-end tax adjustment period an important part of your financial calendar is useful. Learning about the tax system will allow you to fulfill your tax obligations and help you to think about financial management, a skill that is always useful!

Have any tips for year-end adjustments in Japan? Let us know in the comments!

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