As March arrives in Japan, many people across the country are wishing away the brisk air and looking forward to flowering cherry-blossom trees. But it’s not all pastel dreams. Lurking behind the spring air, Uncle Samurai wants you to pay your income taxes, and do so by March 15.
I got used to the American system, where you could comfortably postpone your tax activities until April 13 or 14, knowing that friendly postal workers would be there to hand stamp your IRS-bound envelope up until midnight on April 15. But despite the deadline being a month earlier here in Japan, there isn’t that much hand stamping or even hand wringing when taxes come due. The reason is that most people have already finished up everything they need to do for tax season by January. But what about you? Do you need to prepare your tax documents, or even pay taxes?
Before reading further, be aware that I am not a tax expert. I’m just an American living in Japan who pays income and other taxes to the Japanese government. This article is based on my own experiences in working through my annual taxes, and I am writing this primarily to those who, like me, are foreigners who live or work in Japan. Before accepting any details in this article, be sure to do your own research and contact a real tax expert to ensure you are doing things correctly.
Much of the information in this article comes from the official English translation of the 2021 Income Tax Guide, issued by 国税庁, the Japan National Tax Agency. You can find this guide on the nta.go.jp web site.
Do You Owe Income Taxes?
If you have any kind of income beyond ¥200,000, then yes, you likely owe income taxes, either to Japan or to your home country. Your tax residency status determines which country you pay. Assuming you were a resident of Japan during the 2021 tax year:
- If you have resided in Japan for five years or more within the past ten years, you are a “resident” for tax purposes. Your worldwide income is taxable in Japan.
- If you have resided in Japan between one and five years during the past ten years, you may be a “non-permanent resident” for tax purposes, even if you are permanent resident in all other respects. All income paid within Japan is taxed by Japan, but only that portion of foreign-sourced income that you “remit” to Japan is taxable here. The rest is taxed by your home country. You may need to claim a foreign-tax exemption in one of the countries to make sure you don’t double pay on the same income.
- If you have resided in Japan less than one year, and especially if you have no plans to remain beyond that year, you are a “non-resident.” All of your foreign-source income is taxable back in your home country, and while Japan prefers that you pay taxes on domestic income, you may be able to shift that tax burden back home as well.
For more details, see Section 1-3, “Taxpayers and the scope of taxable income,” in the Income Tax Guide.
Do You Have to File?
If it turns out that you have to pay income tax in Japan, you still might luck out and not have to fill out much, if any, paperwork. If your household derives its income from a single Japanese employer and your total income is below ¥20,000,000 for the year, there is a good chance that your company has already done the paperwork for you. Apparently, most taxpayers are in this situation, and it is one reason why you can walk into a Japanese tax office even a few days before the March 15 deadline and get almost immediate answers to your questions.
That being said, if you make more than the ¥20 million annual boundary, have more than one source of income (including side-hustle freelance work), have foreign-source income, had substantial medical or other deductible expenses during the year, are self-employed, or in any other way had tax-impacting situations that are not automatically calculated by the National Tax Agency, you need to submit a “Final Tax Return” (確定申告書).
What Forms Do You Fill Out?
There are three primary types of forms that individuals fill out for their Final Tax Return submission. The most basic is Form A, which is designed for those with simple tax-payment needs. If you have one source of income and didn’t make advance tax payments during the year, this is likely the form for you.
If you did make prepayments, or if your income or deductions are more complicated, or if you just want the full tax-paperwork experience, use Form B instead. Because the National Tax Agency collects two prepayments from me each year, this is the form I fill out.
If you own a company and wish to take business-level deductions, you must use the Blue Form system. This system is much more complicated and requires a separate application process that must be approved by the tax office before you can fill out the Blue Form. You might also need to establish a business license through your municipal government office.
Getting back to Form B: It has two primary pages, plus additional forms that are triggered by different types of economic activity. I must tell you that filling out these forms is difficult, not just because they are written in Japanese—the English Income Tax Guide is a competent translation of the original Japanese instructions—but because those instructions are both terse and make assumptions about how much tax-related knowledge the reader has. I expect this is a side effect of having most people paying taxes through their employers. Most individuals don’t need to care about how complicated the instructions are. This may also explain why there is a dearth of third-party tax software packages and web sites in Japan, something that almost everyone in America uses.
Where Do You Submit the Forms?
Now that you have filled out your forms, it’s time to turn them in. The easiest way is to forgo paper forms altogether and use the e-Tax system available on the National Tax Agency web site. I am hoping to use this method next year, but for now I am still putting pen to paper. From what I can tell, you need to have your physical My Number card handy to use the e-Tax system, or at least one of the passwords you set up when you received your card.
If you would rather stick with paper, you can submit the forms (and all your money!) to your assigned tax office. Usually, your tax office is the one that is closest to where you live. But if your “domicile” (where your family’s koseki is established) is different from where you have your “residence,” you might need to select your domicile’s office. There are additional rules for those who have left Japan or have other special circumstances. See section 1-7, “Place for Tax Payment,” in the Income Tax Guide for a handy chart.
If you are in Japan, you can find the right office by using the search form on the right-hand side of the Japanese-language home page for the tax agency, in the block with the title “税務署を検索.” Enter your postal code and click the 検索 search button to find the office.
You can also mail your return to the correct tax office; registered mail is best. If you owe money, you can take cash directly to the tax office, or set up a transfer from your bank account. Credit card and convenience store payment methods are also available.
If you do set up the bank transfer method and later move to a new residence that is in a different tax office jurisdiction, be sure to submit the appropriate change of address form to the old tax office. On that form, check the はい (Yes) box for Item Number 4, “振替納税を引き続き希望する,” to have the tax agency continue using your same bank account for payments.
Is That All You Owe?
Of course not! Beyond income taxes, you are probably already paying your health insurance and retirement insurance premiums (both deductible from your income taxes, by the way). The income tax form itself includes a temporary 2.1% “Special Income Tax for Reconstruction” charge (Line 44) that is helping to pay for the Tōhoku earthquake and tsunami disaster from March 2011.
The biggest extra tax is the residence tax that is exactly ten percent of your “total income.” It is paid to your local municipality; you should receive a bill around June each year.
[Image Credits: craftbeermania/photo-ac.com]