February and March in Japan is tax season. Filing a tax return isn’t easy at the best of times, but doing it in another country can be particularly challenging.
Fortunately, if you work for a company and that’s your sole source of income in Japan, they will take care of everything for you. However, those who are self-employed or have multiple sources of income will have to file a Tax Return "Kakutei Shinkoku - 確定申告".
The two main forms of tax are Income Tax "Shotokuzei - 所得税", and residence Tax "Juminzei - 住民税". The rates you pay for both kinds of tax are calculated according to your earnings.
The national tax is paid to the national government, while the local tax is paid to the local prefectural governments and municipal authorities "ward/city/town/village", where you live. Below is a summary of some of the most relevant types of taxes paid by individuals:
- Consumption Tax – General merchandise and services are subject to consumption tax. It is paid by consumers when they purchase goods and services. The rate currently is eight percent.
- Property Tax - Is a Municipal Tax paid annually by individuals who own land, housing and other types of depreciable assets. Both purchased and gifted properties are taxable. See the Outline of Property Tax and City Planning Tax.
- Enterprise Tax - Is a Prefectural Tax paid annually by self-employed individuals engaged in business activities, and the amount is calculated based on the person's net income. The tax rate currently is 3% to 5% depending on the type of business.
- Vehicle Related Taxes - A municipal light vehicle tax is paid annually by individuals who own motorbikes or other type of light vehicles. A prefectural car acquisition tax is charged on the purchase of both new and second-hand vehicles. Also a prefectural automobile tax is paid annually by individuals who own a car based on the engine's displacement starting with engines below 1000cc, and increasing at 500cc intervals to a top bracket of 6000cc and above. A national motor vehicle tonnage tax is paid by vehicle owners at the time of the mandatory inspections "Shaken - 車検". Personal vehicles pay more than vehicles identified as business use.
- Income Tax – Is paid annually by individuals on the national, prefectural and municipal levels. It is also known as "resident tax" on the prefectural and municipal level. The amount is calculated based on the net income of the individual person.
Employees, who do not need to file a tax return, will have their income taxes withheld from their salaries by their employer, and an eventual adjustment is made with the year's final salary.
Employees only need to file a tax return if at least one of the following conditions is true:
- If they have more than one employer
- If their employer does not withhold taxes "for example; employer outside Japan"
- If they leave Japan before the end of the tax year
- If they have side income of more than 200,000 yen
- If their annual income is more than 20,000,000 yen
- If they bought a house or received a loan
But people who are required to file a tax return, such as self-employed and those who have multiple sources of income, must do so at the local tax office.
The form refers to earnings and expenses for the previous calendar year, from January 1st to December 31st. In addition to calculating your taxable income, the form will be used to determine the rates you pay for residence tax and health insurance.
By filing the tax return, certain individuals who overpaid in tax may qualify for a rebate. Examples include those who changed jobs or had a period of unemployment during the previous year, paid over 100,000 yen in medical fees, made charitable donations or who suffered losses as a result of an accident or crime.
Basically, there are two types of final return from; Form A and Form B.
Those who are self-employed or gain the majority of their income through freelance work may find it advantageous to request the Form B, which allows for special deductions, such as for businesses expenses, including office products, travel and meeting expenses, reference materials, and even part of your rent and utilities if you work from home.
- Non-Resident – Is a person who has lived in Japan for less than one year and does not have his primary base of living in Japan. Non-residents pay taxes only on income from sources in Japan, but not on income from abroad.
- Non-Permanent Resident – Is a person who has lived in Japan for less than five years, but has no intention of living in Japan permanently. Non-permanent residents pay taxes on all income except on income from abroad that does not get sent to Japan.
- Permanent Resident – Is a person who has lived in Japan for at least five years or has the intention of staying in Japan permanently. Permanent residents pay taxes on all income from Japan and abroad.
When To Pay Taxes
If not withheld by the employer, national income taxes are due in full by March 15 of the following year. For example, if you have to pay national income taxes for 2016, they have to be fully paid by March 15, 2017.
If prefectural and municipal income taxes are not withheld by the employer, they are to be paid in quarterly installments during the following year. For example, the 2016 taxes are paid in four installments in June, August and October 2017 and January 2018.
Note: When a taxpayer files his or her return after the statutory due date of filing return or fails to pay tax by the due date of tax payment, the additions to tax will be imposed on the principal tax.
How To File Tax Return
- Submit the return to the reception desk of the Tax Office in the district where you reside. Tax returns may also be submitted in after-hours mailbox at the Tax Office.
- Send the tax return by mail to the Tax Office in the district where you reside. If final tax returns are sent to Tax Offices by mail, the date shown as the date of postage "post mark" will be treated as the date of filing.
- File online by e-Tax.
Documents Required To Submit When Filing Final Return
In addition, when submitting the final return, it is required to present your identification document/passport or attach a copy of such document to the forms, bankbook, Inkan "if you have one", and "Withholding Statement", along with any other documents showing any other sources of income. For an exemption for overseas dependents, proof such as a birth certificate or a marriage certificate along with bank transfer statements are required. For an exemption on medical expenses, all medical statements and receipts are required. For those who purchased a house, all relevant loan documents are required.
For more information about filing final returns, contact your local tax office. And if you could use a helping hand filling it out, note that the tax offices as well as many city and town offices, offer free consultations with tax-office staff around this time of the year.