Japan income tax: a beginners guide

If you live or work in Japan, you’ll probably need to file a tax return, and pay tax on some or all of your income there. Although the Japanese taxation system can be tricky to navigate, understanding your duties is essential.

Get started with this overview of taxes in Japan. And remember — if you’re liable for taxes in Japan, get professional advice to make sure you pay the right amount.

📑 Table of contents
What are the taxes in Japan like? Who has to pay income tax in Japan? What’s the Japan income tax rate? Are there tax deductions and exemptions in Japan? How to pay income tax in Japan Pay for your tax return from abroad with Wise

This guide is a resource for you to get started, but it shouldn’t be taken as financial advice. Seek an accountant or financial advisor for a hassle-free tax filing.

What are the taxes in Japan like?

We’ll get right into the details of Japan’s tax system, and Japan’s tax rates in just a moment. First the basics.

Taxes on income in Japan include:

• Personal income tax
• Surtax
• Local income tax

Social security contributions are also paid by tax residents. Non-residents are taxed at a flat rate on their Japan-sourced income¹.

If you’re wondering about Japan’s foreigner taxes, it’s useful to know that anyone resident in Japan on the 1st January in any given calendar year — even if they’re not considered a tax resident normally — may be liable for the local income tax, which comes in at 10% of taxable income. More on Japanese tax rates, exemptions and deductions coming up later.

Tax filing in Japan is done annually — and joint filing is not allowed.

What’s the Japanese tax year?

Before we move on to Japan’s income tax rate, it’s important to know when you’ll need to file your tax return. The Japanese tax year runs from the 1st of January to December 31st, with tax returns typically due by mid-march of the following calendar year¹.

What income is taxable in Japan?

For tax purposes in Japan, you’ll need to report income from your salary, benefits and bonus payments. Many non-monetary benefits like employer provided accommodation are also treated as taxable.

Additionally, you’ll need to report income from other sources such as rental income and capital gains, however, tax rates vary by type of income, and where in the world it originated.

Like most things concerning tax, it’s relatively complicated, so if you’re unfamiliar with the Japanese income tax system, taking professional advice is essential.

Who has to pay income tax in Japan?

What income tax you’ll be required to pay in Japan depends on your residence status.

This is a little more complex in Japan than in many other countries, as there’s a third category in addition to the common resident and non-resident options. In basic terms, you’ll be classified as either¹:

• A resident taxpayer
• A non-permanent resident taxpayer
• A non-resident taxpayer

Resident income tax

You’re considered a resident for tax purposes if you have a permanent home — a Jusho in Japan — or if you have a temporary home — a Kyosho in Japan — for a period of one year or more.

That means that your intention is as important as where your home address is, at least for the first year. If you intend to stay in Japan on a permanent basis then you’ll likely be considered to be a resident².

As a resident taxpayer, you have to pay tax on worldwide income to the Japanese authorities.

Do Japanese residents working abroad need to pay income tax?

Residency for tax purposes is usually decided by your ‘domicile’ — the place you’re considered to have the strongest links to. That means that even if you’re working away from Japan you could still be liable for tax there.

Each case could be slightly different, so it's definitely worth taking some personalized advice about your situation.

However, if you maintain a home in Japan, while you’re working away, the chances are that you could be liable to declare some or all of your income to the tax authorities in Japan.

Non-permanent resident income tax

Unlike many other countries, Japan also has a half-way house between being a non-resident taxpayer and a resident taxpayer, known as being a non-permanent resident for income tax purposes.

This applies if you’re a foreigner living in Japan as an expat, but you have been there for under five years in total over the preceding ten years.

If you’re a non-permanent resident for tax purposes, then you won’t have to pay tax in Japan on income sourced outside Japan, if that income isn't paid within Japan or isn't remitted to Japan. All other income — including money you earn abroad but then remit to Japan — is taxable in Japan.

Non-resident income tax

If you don’t fit either of the other categories above, then you’ll be deemed to have non-resident tax status. This means you pay tax in Japan only on the income you’ve earned in Japan.

What’s the Japan income tax rate?

Japan has a progressive tax system. That means that a progressively higher tax rate is applied based on how much you earn.

If you’re self-employed, you might be taxed on a slightly different basis, through what’s called the enterprise tax. Make sure you know which tax is relevant to you.

The most up to date rates available for resident, employed taxpayers in Japan are as follows:

Salary range (JPY and approximate USD values)	Applied tax (%)¹
Up to 1,950,000 JPY (Approx 15,000 USD)	5%
1,950,000 JPY - 3,300,000 JPY (15,000 USD - 26,000 USD)	10%
3,300,000 JPY - 6,950,000 JPY (26,000 USD - 54,000 USD)	20%
6,950,000 JPY - 9,000,000 JPY (54,000 USD - 70,000 USD)	23%
9,000,000 JPY - 18,000,000 JPY (70,000 USD - 140,000 USD)	33%
18,000,000 JPY - 40,000,000 JPY (140,000 USD - 310,000 USD)	40%
Over 40,000,000 JPY (310,000 USD+)	45%

There are also a couple of other taxes you need to know about — an extra surtax of 2.1% of earnings, above the amount in the table, plus a local inhabitants tax which is usually a flat rate of 10%.

Non-resident taxpayers are treated differently. Their Japan-sourced income is taxed at a flat rate of 20.42% with no deductions available. This rate includes the 2.1% surtax described above.

Japan tax rate vs US

Japan's taxes vs US are generally considered to be pretty high. In part this is because of the Japan tax brackets which look quite different to what we’re used to at home.

To put this into context, the US top federal tax rate in 2021 is 37%, compared to Japan’s 45%. This top rate kicks in at the equivalent of around 310,000 USD income per year — while the top US taxes aren’t paid until you’re earning well over half a million dollars a year³.

Add into that local taxes and an extra surtax on income, and you’re quickly racking up a far higher tax bill in Japan compared to the US.

Are there tax deductions and exemptions in Japan?

The Japanese tax system has a number of available exemptions and deductions. Exemptions mean that, according to your circumstances, you might be able to remove some of your gross income from your calculations before you figure out your tax burden.

Deductions usually have to be claimed via your tax return, and you’ll need to provide evidence, like receipts, to support your claims.

Not all exemptions are offered to non-resident taxpayers, though, so you’ll need to check what you’re entitled to according to your status.

Here are some of the exemptions, deductions and credits that you might need to know about.

Earned income deduction

There’s an earned income deduction which is available for both local and national income taxes.

The amount that's deducted is calculated according to a sliding scale formula, using a fixed percentage of earned income, plus a flat amount, which changes according to your income level.

The latest figures, for 2021 income, are as follows:

Income range (JPY and approximate USD values)	Formula for calculating exclusion	Salary exclusion (JPY and approximate USD values)⁴
Up to 1,625,000 JPY (12,650 USD)	0	550,000 JPY (4,300 USD)
1,625,000 JPY - 1,800,000 JPY (12,650 USD - 14,000 USD)	40% of income - 100,000 JPY	550,000 JPY - 620,000 JPY (4,300 USD - 4,800 USD)
1,800,000 JPY to 3,600,000 JPY (14,000 USD - 28,000 USD)	30% of income + 80,000 JPY	620,000 JPY - 1,160,000 JPY (4,800 USD - 9,000 USD)
3,600,000 JPY to 6,600,000 JPY (28,000 USD - 51,000 USD)	20% of income + 440,000 JPY	1,160,000 JPY - 1,760,000 JPY (9,000 USD - 13, 700 USD)
6,600,000 JPY to 8,500,000 JPY (51,000 USD - 66,000 USD)	10% of income + 1,100,000 JPY	1,760,000 JPY - 1,950,000 JPY (13, 700 USD - 15,000 USD)
Over 8,500,000 JPY (66,000 USD)	0	1,950,000 JPY (15,000 USD)

Personal exemption

If you’re a resident taxpayer you could be entitled to a personal exemption of up to 480,000 JPY (around 3,700 USD) set against your income for national income tax purposes, and up to 430,000 JPY (around 3,350 USD) for local inhabitants tax purposes. Exemptions are calculated on a sliding scale based on your income — with no exemption available for the highest earners⁴.

As a resident taxpayer, you could also get an exemption for your non-dependent spouse and any dependents who are over 16 years old. The deductions are calculated based on the individual situation — with higher amounts for elderly dependents or if you’re caring for someone who is handicapped in any way.

None of these exemptions usually apply to non-resident taxpayers, though.

Professional deductible items

Some business expenses are tax deductible. For example, if you have to move for work, and your employer provides financial support to allow this, then you might be able to deduct the extra payment from your earned income⁴.

However, there are limits to how much you can actually deduct, and in what circumstances.

Other deductible items

You can remove the costs of some things, including life and earthquake insurance, and some charity contributions, from your taxable income⁴.

There are caps and limits in place for some of these items — make sure you understand the details when you complete your tax return.

Does the US have a taxation agreement with Japan?

Double taxation agreements are important if you could be liable to pay tax in two countries during the same tax year. These agreements mean that you can offset the tax paid in one country against the bill for the other, so you don’t have to pay tax twice on the same income⁵.

Japan’s Ministry of Finance has a double taxation agreement with the US. This means — broadly — that US citizens living in Japan should never have to pay more than the higher of the 2 applicable tax rates, with the actual taxes owed depending on where the income originates⁶.

If you think you’re going to be liable for tax in more than one country, it’s worth getting professional advice to make sure you don’t pay more than you have to.

How to pay income tax in Japan

Most employers in Japan will withhold tax from their employees’ salaries (PAYE), which might mean that you’ve paid everything you owe during the tax year and don’t have to submit a tax return at all.

However, if you want to claim some deductions then you’ll probably have to submit a tax declaration.

There are also a few personal circumstances, under which you definitely have to fill out a tax return⁷:

• if you plan to leave Japan before the end of the tax year

• if you’re not taxed under the PAYE system

• if you’ve got more than one employer, or you’re paid from overseas

• If you hold foreign assets of over 50,000,000 JPY

• if you earn more than 20,000,000 JPY

If you find you need to submit a tax return you can do so in person at the local zeimusho (tax office), by mail or online.

Paying your income tax Japan online in Japan

If you need to pay taxes in Japan you’ll be able to do so online for convenience.

However, remember that paying Japanese taxes using a bank account held in a different country or currency can be more expensive than making a domestic bank transfer in Japan, as bank fees tend to push up the overall costs.

Pay for your tax return from abroad with Wise

To avoid paying extra fees on exchange rate, try Wise. Wise uses the mid-market rate — the one you usually see on Google — and shows you upfront how much transferring your money overseas will cost.

No surprises, no hidden charges — and you can save up to 6x compared to sending money with your bank.

With Wise you can make a fast, cheap and secure transfer to Japan and get your money where you need in just a few clicks.

Send money
to Japan 🌏

---

Taxes aren’t something most people enjoy — but getting them wrong can be an expensive mistake. Take professional advice if you need it, and make sure you understand the law and how it’s applied to your situation.

Wherever you’re paying your taxes, you don’t want to lose out because of unfair fees added when you change your currency.

The good news is that Wise might be able to help you save money on cross-border transactions. See if you can get a better deal from Wise if you find yourself needing to pay your taxes abroad.

---

Sources:

1. Tax Summaries - Personal taxes in Japan
2. Tax Summaries - Taxes on residence
3. Tax Summaries - Personal taxes in the US
4. Tax Summaries - Japan tax deductions
5. MOF - Tax conventions
6. Bright!Tax - US expat taxes for Americans living in Japan
7. Japan Guide - Taxes in Japan

Sources checked on 05.03.2022