tax base | tax rate

up to YJP 30,000,000 | 10%

between YJP 30,000,000 and YJP 70,000,000 | 15%

about YJP 70,000,000 | 20%

Asset in YJP from | to less | Deduction in YJP | Tax Rate

0 | 2.000.000 | 0 | 10 %

2.000.000 | 3.000.000 | 100.000 | 15%

3,000,000 | 4,000,000 | 250,000 | 20%

4,000,000 | 6,000,000 | 650,000 | 30%

6,000,000 | 10,000,000 | 1,250,000 | 40%

10,000,000 | 15,000,000 | 1,750,000 | 45%

15,000,000 | 30,000,000 | 2,5000,000 | 50%

30,000,000 | unlimited | 4,000,000 | 55%

Asset in YJP from | to less | Deduction in YJP | Tax Rate

0 | 2.000.000 | 0 | 10 %

2,000,000 | 4,000,000 | 100,000 | 15%

4,000,000 | 6,000,000 | 300,000 | 20%

6,000,000 | 10,000,000 | 900,000 | 30%

10,000,000 | 15,000,000 | 1,900,000 | 40%

15,000,000 | 30,000,000 | 2,650,000 | 45%

30,000,000 | 45,000,000 | 4,150,000 | 50%

45,000,000 | unlimited | 6,400,000 | 55%

Asset in YJP from | to less | Deduction in YJP | Tax Rate

0 | 10.000.000 | 0 | 10 %

10,000,000 | 30,000,000 | 500,000 | 15%

30,000,000 | 50,000,000 | 2,000,000 | 20%

50,000,000 | 100,000,000 | 7,000,000 | 30%

100.000.000 | 200.000.000 | 17.000.000 | 40%

200,000,000 | 300,000,000 | 27,000,000 | 45%

300,000,000 | 600,000,000 | 42,000,000 | 50%

600.000.000 | unlimited | 72.000.000 | 55 %

What does tax law look like in one of the largest economies in the world, one that more than hardly any other invokes its history? There are both numerous and very old traditions and conventions that go back far into the past, back to a time when feudal lords were still fully determining the fate of the country and industrialization was still far away. We are talking about a country and its people, which used its own isolation from the outside world for centuries as a reason of state, only then within a generation, almost overnight, to develop from a pure agricultural state to a booming industrial nation, which also instilled respect for the established great powers. We want to know how to pay taxes in Japan.

1st Taxation in Japan – Introduction

Japan, an island empire at the opposite end of the landmass, where Europe concludes in the west, has long been a mystery to us Europeans. His culture is too foreign to us, too unique its nature with its many beauties, but also its constantly impending dangers. In addition, it remained largely closed to us for centuries. And when it opened in one fell swoop, the nation turned so rapidly to Western civilization that within a few decades it managed to transform itself from a pure feudal society into a likeness of ours. But the outward appearance is deceiving. Because just as progressive as few other peoples are, Japan has also remained rooted in its preserved traditions.

So the question of how to pay taxes in Japan today is certainly an exciting consideration. So follow us into the realm of the rising sun, because that is exactly what the proper name Nippon means in the local language.

2. About Japan

2.1. General about Japan

Cherry blossoms and robots, Zen gardens and metropolises, palm beaches and ski paradises – can a country be more opposite? Japan is a constitutional monarchy (this alone a paradox) spanning nearly 7,000 large and small islands. Japan has also been inhabited for a long time. Cultural development can be distinguished in phases of isolation and assimilation of foreign influences.

In addition, Japan is also a country with a friction surface in geological terms, as the Pacific Plate in particular has plunged under the islands with enormous energy for millions of years. Even today, dozens of active volcanoes with their lava flows and ash and glow clouds are the backbone of this long island world. Not to mention the work of the extinct.

2.2 Some examples of the mentality of the Japanese

Since Japan’s opening to the west and the subsequent Meiji restoration, industrialization has become vital for the country’s survival. Because Japan has no significant natural resources to export, so it depends on the production of goods. This is all the more true because the country is very populous. Consequently, Japan’s export volume is considerable. It was helpful that Japanese are enthusiastic about mechanical solutions of all kinds. Thus, the mechanical puppets (Karakuri-ningyō) of the Edo period became the industrial robots of the present day. And probably many a future human assistant will find its roots in the mechanical dolls.

Production on a large scale, and thus productivity, was and is typical for Japan. This is also due to the fact that the mentality of the Japanese characterizes a strong commitment to common goals. You serve the Emperor, but you also serve the company where you are employed. You are serving loyally. Honor is therefore also very important in Japan. Unthinkable to give yourself a nakedness by being late at work. No wonder that you also pay meticulous attention to punctuality on the railway. So it can be said that the mechanical timing of the Karakuri dolls through gears, pins and joints has passed to this people in flesh and blood and soul.

Taxes in Japan: Tax Law

3.1. Taxes in Japan: tax liability

But you can also earn a lot with a lot of effort. Let’s now turn to the taxes paid in Japan. It is important to know that taxes in Japan are incurred at different levels. On the one hand, in Japan you pay taxes at national level. Then taxes are still incurred at the level of the prefectures, which administer them themselves. In addition, municipalities are also entitled to levy taxes. Certain taxes can only apply on one level, while others can apply on several.

Furthermore, the tax authorities in Japan wave tax relief for certain types of income if taxpayers comply with certain accounting standards. This alternative assessment is called the blue tax return system. It is applicable only on request at the locally competent tax office, with a period that is annually on the 15. March ends, should be noted. The tax benefits include tax reductions, recognition of certain additional operating expenses relating to employed family members and bad debt, and special benefits in recognition of losses (approval of loss carry-forward and more advantageous loss carry-forward).

Tax liability: who is a resident of Japan?

In Japan, there are three types of residence. On the one hand, you are considered a non-resident (not a resident) if you are resident in Japan for less than a year, in an apartment (more broadly) in which you have no property rights. As soon as this period expires or a person acquires his own apartment, one counts as a resident.

Furthermore, there is the classification of temporary residence in Japan (temporary residents). This status applies regardless of the actual stay in the country, as long as you live in a total of less than five years in your own apartment in Japan over a total period of ten years. This rule applies to persons who are not Japanese citizens. If this ten-year period has expired without the total stay exceeding the five-year limit, you are no longer a resident. But if you live in Japan for at least five years within these ten years, you are considered a resident and pay taxes accordingly. For Japanese citizens, however, no such differentiation takes place.

In summary, a distinction is made on the first level between residents on the one hand and persons who are not residents. Residents still distinguish between temporary residents and those who are not temporary residents. This division is special in that it is in some way a counter-proposal to the classical distinction between residence at home and abroad, which exists both in Germany and in other Western countries. This is also expressed in the consideration of nationality in tax law. It is quite possible that the roots of this regulation go back to the feudal period.

3.3 More assumptions about residence in Japan

In addition, there are some regulations that are based on other conditions. On the one hand, the tax authorities in Japan also accept an apartment if the person to be assessed is either self-employed or employed in Japan. The same applies if a person lives with a spouse or relative. Under certain circumstances, however, other circumstances from the reality of life of the person to be assessed may also be decisive. So it always depends on the individual case. However, this assumption is also made if the circumstances suggest that these can only be realized by a minimum stay of one year (for example, in the case of university studies or other vocational education or training).

3.4 World Income Taxation

In Japan, tax law follows the world income principle. This means that both income from domestic and foreign sources are in principle subject to taxation in Japan. However, there are different taxation approaches depending on the status as a resident of Japan. In the case of foreign sources of income, a distinction is made between whether you as a taxable person get paid out abroad or in Germany. People who are not residents of Japan only pay taxes in Japan if the income comes from that country. Persons who are fully considered residents of Japan, on the other hand, pay taxes on all income, regardless of sources. This, however, applies to temporary residents that they only have to tax the part of the foreign income in Japan that flows to them in Japan (for example, by transfer).

4.Taxes in Japan: Income Tax

4.1. Types of income in Japan

Japan has a progressive income tax rate and a basic allowance. In addition, the tax law in Japan provides for regulations on the separate tax treatment of spouses. However, this differs significantly from the German spouse splitting.

Furthermore, there are a number of very own types of income in Japan. There, too, one knows income from non-self-employment and capital income. However, there is also business income in Japan, which in addition to commercial income also includes those from agricultural management. Income from forestry, on the other hand, falls into a separate category, as do occasional income, other income, retirement income, interest income, dividends and income from assets under management, i.e. from the rental of real estate, aircraft, ships. In addition, there are various internal distinctions within the types of income. They then also determine the type of predisposition.

4.2. Types of investments

So it becomes even more complex when we consider the rules for assessing the individual types of income. For example, there is a separate self-investment in retirement funds and income from a forestry context. In other cases, withholding taxation applies, for example, for certain insurance benefits which originate from insurance with a term of less than five years. However, the majority of income is also taxed in Japan by filing an income tax return and the corresponding income tax assessment.

In Japan, this form of assessment is also called aggregate taxation, because several taxes are taken into account in such an assessment. As already mentioned at the beginning, in Japan there is both a national right to collect taxes and one at the level of prefectures and municipalities. The income tax return records the taxable income for all relevant taxes and subjects it to them.

By the way, the Japanese tax authorities have issued a guide detailing many elements of the income tax return in English. This is also important, for example, because time data in Japan have to be made according to their own time. It is also noteworthy that in Japan a sheet of carbon paper is attached to the mantle sheets, so that a duplicate to remain with the taxpayer is created when filling in.

4.3 Basic allowances and tax rates

4.3.1. Basic allowances

In Japan, an allowance is set for income taxation. However, unlike in Germany, this is not a basic allowance but an income-dependent allowance. However, since the allowance can only be determined once, one can still speak of a basic allowance, albeit a variable one. For income up to an amount of YJP 24,000,000 (about EUR 151,000), a basic allowance of YJP 480,000 applies. If the income is up to YJP 24.500.000, a reduced basic allowance of YJP 320.000 is applied. Another adjustment to the basic allowance concerns income up to YJP 25,000,000. In this case, the basic allowance only amounts to YJP 160,000. In addition, no basic allowance is deducted when determining taxes in Japan.

In addition, it should be mentioned that there are also a number of tax deduction options in Japan, especially in connection with the assessment of income from self-employment.

4.3.2. Tax rates

For the lowest income level between YJP 0 and YJP 1,950,000, 5% of income tax is due, i.e. a maximum of YJP 97,500. At the next income level from YJP 1.950,000 to YJP 3.300,000, it is already 10% tax in Japan. From YJP 3,300,000 to YJP 6,950,000, the tax rate doubles to 20%. Between YJP 6,950,000 and YJP 9,000,000, the tax rate increases to 23%. This is followed by an income level up to YJP 18,000,000, which corresponds to a tax rate of 33%. After that, the second highest income level reaches YJP 40,000,000. Here the tax rate is already 40%. In addition, all income is subject to a tax of 45%.

In order to calculate the tax correctly, you have to add the taxes of the individual income levels except the highest and then show the amount attributable to the highest income level with the corresponding tax rate. This result is added to the sum of the tax from the other taxable income levels.

4.4 Additional tax

Since 2013, Japan has had an additional tax of 2.1% on the amount of taxes due. The background to this additional levy is the solidarity-based reconstruction of the damage caused by the devastating Tōhoku earthquake in 2011 and the subsequent damage caused by the Fukushima reactor accident.

4.5. Social contributions and payroll tax

In Japan, a large number of social contributions accompany taxes. Health insurance and pension contributions and unemployment insurance are particularly important here. In addition, both employers and their employees bear the costs pro rata. The self-employed are also obliged to make these contributions. Incidentally, the individual prefectures themselves determine the amount of health care contributions. It is also interesting that the amount of contribution depends on both income and age.

In the case of employees and workers, employers pay monthly social contributions as well as a wage tax.

In fact, social welfare in Japan has the German system as a model. However, it also contains many peculiarities that are strongly associated with traditions. For example, they take into account that many households span more than two generations.

4.6. Taxation of Companies in Japan

4.6.1. Corporate income tax

Taxation of corporations in Japan is based on income, but also on the amount of capital paid in. If the paid-in capital is less than YJP 100,000,000, you have to distinguish two alternatives.

Normally, the corporate tax rate depends on the amount of income. Up to an income of YJP 8,000,000,000, 15% taxes are incurred in Japan. However, if the average income exceeded YJP 1.5 billion in the three previous assessment periods, a tax rate of 19% is expected instead. Income over YJP 8,000,000, on the other hand, accounts for 23% of corporate taxes. However, these rules apply only to corporations which are not subsidiaries of corporations whose paid-up capital exceeds YJP 500 million. If this is the case, however, such subsidiaries are subject to the tax rate of large corporations (with paid-in capital of more than YJP 100.000.000).

With a paid-up capital of more than YJP 100.000.000, the corporate tax rate is 23.2%.

In addition, there is a special corporate tax at local level. It comes in at a flat rate of 10.3% and flows to the municipalities.

4.6.2. Special corporate taxes

In Japan, companies face further taxes. On the one hand, you know a corporate tax, on the other hand, possibly a special tax for corporations. However, both taxes are deductible when calculating corporate tax.

4.6.2.1. Corporate tax

Corporate tax is taxation based on both paid-in capital and income. As with corporate tax, the limit of YJP 100.000.000 plays a role in the paid-in capital.

Companies below this limit pay a tax of 3.5% on income up to YJP 4,000,000. In the Tokyo metropolitan area, however, a slightly higher tax rate of 3.75 % applies. For income up to YJP 8,000,000,000, the part that exceeds YJP 4,000,000 is expected to have a tax rate of 5.3% (in Tokyo 5.665%). In addition, a tax rate of 7 % applies (in Tokyo 7,48 %). By contrast, subsidiaries wholly owned by a corporation with paid-up capital of more than YJP 500 million and who have branches or permanent establishments in more than two prefectures follow the rules applicable to large corporations.

For companies with a paid-in capital of more than YJP 100.000.000, the calculation of the corporate tax looks different. Because here also other variables are taken into account. This also includes the so-called added value of a company as a basis for assessment. Here, certain company indicators are added together, such as rents and the amount of wages paid. This value is proven by the tax law in Japan with 1.26 % taxes. As a second size, the capital base of a company comes into play. It is subject to a rate of 0,525 %. Finally, the third tax unit is income. Here, the tax is uniform with 1.18%.

Special regulations on tax rates apply to energy suppliers and companies in the insurance industry.

4.6.2.2. Special local corporate tax

In addition to corporate tax, companies in Japan also have to pay taxes at prefectural and municipal level. In a way, it is a counterpart to the German trade tax. However, in Japan they are called special local corporate tax. The basis for this calculation is the company tax. For small and medium-sized enterprises below the threshold of YJP 100.000.000 in paid-in capital, the tax rate is 37 % of the corporate tax. Large corporations, on the other hand, are expected to account for 260%.

4.6.3. Family Corporate Tax

Just as unusual is the so-called family corporate tax. For this, one must know the definition of a family corporation. A legal person in which members of a family either directly or indirectly control at least 50 % of the shares or voting rights is obligated as a family corporation to pay a family corporation tax. However, this only applies if the paid-in capital is above YJP 100,000,000. The tax base for this tax depends on sales, a certain deduction being provided. The height of the deduction shall be determined by the highest value obtained by comparing: