Tokyo
EY Tax Co
Hibiya Mitsui Tower
Tokyo Midtown Hibiya
1-1-2 Yurakucho
Chiyoda-ku, Tokyo 100-0006 Japan
EY Immigration Co.
Hibiya Mitsui Tower
Tokyo Midtown Hibiya
1-1-2 Yurakucho
Chiyoda-ku, Tokyo 100-0006 Japan
Executive contacts
Megumi Fujii
+81 (70) 3769-9088
Fax: +81 (3) 3506-2412 Email: megumi.fujii@jp.ey.com
Makiko Okada +81 (90) 2480-4769 Fax: +81 (3) 3506-2412 Email: makiko.okada@jp.ey.com Ken Saga-Hardie +81 (70) 4577-1368 Fax: +81 (3) 3506-2412 Email: ken.saga-hardie@jp.ey.com
Toshinobu Takiguchi +81 (80) 2003-8587 Fax: +81 (3) 3506-2412 Email: toshinobu.takiguchi@jp.ey.com
Immigration contacts
Megumi Fujii
+81 (70) 3769-9088 Fax: +81 (3) 3506-1268 Email: megumi.fujii@jp.ey.com
Yoshito Kijima +81 (70) 2478-0144 Fax: +81 (3) 3506-1268 Email: yoshito.kijima@jp.ey.com
A. Income tax
Who is liable. In Japan, the tax liability of individuals is determined by their residence status. Individual taxpayers are classi fied into the following three categories:
• A permanent resident is an individual who is a Japanese nation al or a non-Japanese national who has been present in Japan for at least 5 years within the past 10 years.
• A nonpermanent resident is an individual of non-Japanese nation ality who has not resided or maintained his or her domicile in Japan for 5 years or more within the past 10 years.
• A nonresident is an individual who does not meet the require ments for qualification as a permanent resident or a non permanent resident.
Foreign nationals arriving in Japan are considered to have estab lished residence in Japan, unless employment contracts or other
documents clearly indicate that they will stay in Japan for less than one year.
Permanent residents are subject to income tax on their worldwide income, regardless of source. Nonpermanent residents are sub ject to tax on income earned in Japan (for example, employment income from services performed in Japan, regardless of payroll location) plus any non-Japan source income that is paid in or remitted to Japan. Also, for securities acquired on or after 1 April 2017 and within the period in which the individual was a nonper manent resident in the past 10 years, the capital gains derived from such securities are included in the scope of taxable income for the nonpermanent resident, even if the transaction is made via a foreign stock exchange. Nonresidents are subject to tax on their Japanese-source income only.
Income subject to tax. The taxation of various types of income is described below.
Employment income and deductions. Individuals with employment income are subject to income tax. Employment income includes salaries, wages, directors’ fees, bonuses and other compensation of a similar nature. Benefits in kind provided by the employer, including the private use of an employer-provided automobile, tuition for dependent children, private medical insurance premi ums and private pension contributions, are included in employ ment income. However, certain employer-paid benefits, including moving expenses and home-leave expenses, are excluded from taxable income.
Favorable tax treatment is available for employer-provided hous ing if the following conditions are satisfied:
• The lease is in the employer’s name.
• The employer pays the rent directly to the landlord.
• The individual pays to the employer an amount equal to the “legal rent” for the premises from after-tax monies.
For purposes of the last condition above, the legal rent is com puted using different formulas for directors and employees. For directors, the legal rent is the greater of one-half (35% if also used for business purposes) of the monthly rent paid by the employer or an amount computed by a formula involving the area and assessed value of the rented property. If the private living space exceeds 240 square meters, if amenities are located on the premises such as a swimming pool, tennis courts or other similar facilities, or if luxury amenities are provided that cater to the director’s personal tastes, the favorable tax treatment does not apply, and the director’s housing is taxed at full value. For other employees, the legal rent equals one-half of an amount computed by a formula involving the area and assessed value of the rented property. Experience indicates that this amount is approximately 5% to 15% of the rent actually paid by the employer.
Taxable employment income equals gross receipts minus an employment income deduction, which is progressive. The maximum
amount of such deduction is JPY1,950,000 for income exceeding JPY8.5 million.
Self-employment and business income Individuals who derive income from business and professional activities are subject to income taxes at the rates set forth in Rates. Taxable income consists of gross receipts, minus reasonable and necessary expenses incur red in connection with the business. Certain advantages are available to individual taxpayers filing a “blue form” tax return if they meet the necessary bookkeeping requirements.
Investment income Dividends from unlisted shares and dividends received by shareholders who own 3% or more of listed shares are included in taxable income and taxed at progressive rates (see Rates). Dividends from listed shares are taxed at a flat rate of 20% (15% national tax plus 5% local inhabitant tax). For divi dends from listed shares that are received through a Japanese paying agent (securities company or trust company in Japan), a withholding tax is deducted by the Japanese paying agent. A taxpayer does not need to report the dividends as income on the tax return if the dividends are from listed shares and are received through a Japanese paying agent.
Interest income includes interest on public bonds, corporate debentures, deposits and postal savings, as well as interest on distribu tions of earnings of joint operation trusts, public bonds and debenture investment trusts. No deductions are allowed for expenses. Interest on public bonds, corporate debentures and deposits paid in Japan is generally taxed separately from other income and is subject to a 15% withholding tax (plus a 5% local withholding tax) at source. Interest from “specified bonds” is taxed separately from other income through a tax return if received through a paying agent outside Japan. “Specified bonds” include, but are not limited to, Japan government bonds, local government bonds, foreign government bonds, listed or publicly offered corpo rate bonds, and bonds issued on or before 31 December 2015. Interest from deposits and “general bonds” is taxed at progressive rates through a tax return if received through a paying agent outside Japan. “General bonds” are bonds that are not specified bonds, such as privately placed bonds.
Directors’ fees. Directors’ fees paid by a Japanese corporation to nonresidents are considered Japanese-source income and are subject to tax in Japan, even if the services are performed outside Japan.
Capital gains. Capital gains derived from the sale of shares are generally taxed at 20% (15% national tax plus 5% local inhabitant tax).
Capital gains derived from the sale of land and buildings are taxed separately from other income and at different rates. Gains from the sale of land and buildings held for no longer than five years are considered short-term, and gains from the sale of simi lar assets held for longer than five years are treated as long-term gains. Long-term gains are defined as income from the transfer of land and buildings that have been owned for more than five years as of 1 January of the year of transfer.
Short-term gains are taxed at a rate of 30%, plus a 9% inhabitant tax on taxable gains. Long-term gains are taxed at a rate of 15%, plus a 5% inhabitant tax on taxable gains.
Losses from the sale of listed shares and specified bonds (see Investment income) can offset gains from the sale of listed shares and specified bonds. In addition, losses from the sale of listed shares and specified bonds through a securities company or bank in Japan may offset dividends from listed shares and interest from specified bonds. The net loss remaining after using all available losses to reduce dividends from listed shares and interest from specified bonds may be carried forward for three years by a tax payer filing a tax return.
Losses from the sale of unlisted shares and general bonds (see Investment income) can only offset gains from the sale of unlisted shares and general bonds.
Deductible expenses. Typically allowable deductible expenses include the expenses listed in the following table.
Expenses
Deductible amount
The greater of (amount of loss, including expenditure incurred in relation to the casualty) –(insurance reimbursement) –(10% of adjusted total income), or (expenditure incurred in relation to the casualty – JPY50,000) Medical expenses (Medical expenses) – (insurance reimbursement) – (the lesser of 5% of adjusted total income or JPY100,000); maximum deduction is JPY2 million
Casualty losses
Insurance premiums. Social insurance premiums are fully de ductible. Life insurance premiums are deductible, up to a maxi mum JPY40,000. Individual pension premiums are deductible, up to JPY40,000. Nursing care insurance premiums are deduct ible, up to JPY40,000. For casualty insurance premiums, the maximum deductible amount is JPY50,000 for earthquake insur ance contracts and JPY15,000 for long-term insurance contracts entered into by 31 December 2006. The maximum total deduc tion for earthquake and long-term casualty premiums is JPY50,000.
Contributions. Contributions to the government or local authori ties, to institutions for educational, scientific or other public purposes designated by the Ministry of Finance, and to institu tions for scientific study or research specifically provided for in the tax law are deductible. The deductible amount is the lower of total contributions, or 40% of adjusted total income reduced by JPY2,000.
Personal deductions and allowances. The following personal deductions are available for national income tax purposes.
JPY
Spouse 380,000 (a)
Senior spouse (70 years of age or older) 480,000 (a)
Dependent (16 years of age or older) 380,000 (b) Basic deduction 480,000 (c)
(a) This is the maximum amount. The amount of the spousal deduction varies in accordance with the taxpayer’s income and the spouse’s income. (b) For eligible dependents who are at least 19 years of age but less than 23 years of age, an additional education deduction of JPY250,000 is allowed. (c) This is the maximum amount for the basic deduction. If the total income exceeds JPY24,000,000, the basic deduction is reduced gradually and indi viduals with total income exceeding JPY25 million are not allowed to utilize the basic deduction.
Other personal deductions are available if some conditions are met.
Personal deductions for inhabitant tax purposes are lower than those for national income tax purposes.
Rates. Individual income taxes consist of national income tax and local inhabitant tax.
Normally, a 20% withholding tax is levied on nonresidents, with no deductions available; however, depending on the type of income, tax may be levied at progressive rates through self-assessment. Dividends and salaries paid by Japanese companies, interest income, annuities and prizes are subject to a 20% withholding tax if paid to nonresidents.
National individual income tax rates National income tax rates are progressive. The rates range from 5% (on taxable income of up to JPY1,950,000) to 45% (on taxable income exceeding JPY40 million), as shown in the following table.
Taxable income
Tax on lower Rate on Exceeding Not exceeding amount excess JPY JPY JPY % 0 1,950,000 0 5 1,950,000 3,300,000 97,500 10 3,300,000 6,950,000 232,500 20 6,950,000 9,000,000 962,500 23 9,000,000 18,000,000 1,434,000 33 18,000,000 40,000,000 4,404,000 40 40,000,000 — 13,204,000 45
Special surtax for reconstruction assistance. A special surtax for reconstruction assistance with respect to the Tohoku earthquake disaster is imposed from 2013 to 2037. The surtax at a rate of 2.1% is applied to the amount of national income tax. As a result, the effective tax rate for the highest bracket is 45.945%.
Local inhabitant tax rates (prefectural and municipal). Local inhabitant tax consists of prefectural tax (a flat rate of 4% plus JPY1,500 of per capita levy) and municipal tax (a flat rate of 6% plus JPY3,500 of per capita levy). Local inhabitant tax is imposed on individuals who are registered at a municipality as of 1 January.
B. Other taxes
Inheritance tax. Inheritance tax is levied on heirs and legatees who acquire properties by inheritance or bequest. Because the determination of taxability is a complicated issue, professional advice should be sought.
Gifts made within three years before death are treated as inherited property and are included in taxable property for purposes of inheritance tax. Certain exemptions and allowances are permitted in the computation of total net taxable property. A basic exemption of JPY30 million, plus JPY6 million multiplied by the number of statutory heirs, is deductible from taxable properties. The inheritance tax is calculated separately for each statutory heir. The aggregate of the calculated tax is then prorated to those who actually receive the property.
Inheritance tax rates range from 10% to 55%, with a 20% surtax on transfers to heirs, other than the spouse, parents and children of the decedent, as shown in the following table.
Taxable amount
Tax on lower Rate on Exceeding Not exceeding amount excess JPY (millions)
(millions) JPY (millions)
10
15
20
30
23 40
63 45
108 50
258 55
Japan has entered into an estate tax treaty with the United States. Gift tax. Gift tax is levied on individuals receiving gifts from other individuals. Because the determination of taxability is a complicated issue, professional advice should be sought.
following table presents the gift tax rates.
Taxable amount
on lower Rate on Exceeding Not exceeding amount excess
10
15
20
30
40
45
50
55
C. Social security
Social security programs in Japan include health insurance, nurs ing care insurance (for employees who are 40 to 64 years of age), welfare pension insurance, unemployment insurance and work ers’ accident compensation insurance. The rates described below are the applicable rates as of 1 May 2021.
The premium for health insurance is 9.84% of the monthly remu neration and bonus, up to a maximum premium of JPY136,776 (bonus ceiling of JPY563,832 per year). The premium for nurs ing care insurance is 1.8% of the monthly remuneration and bonus, up to a maximum premium of JPY25,020 (bonus ceiling of JPY103,140 per year). For welfare pensions, the premium is 18.3% of the monthly remuneration and bonus, up to a maximum premium of JPY118,950 (bonus ceiling of JPY274,500 per month). Costs are borne equally by employers and employees for the types of insurance mentioned in this paragraph.
The premium for unemployment insurance is 0.9%, of which 0.6% is borne by the employer and 0.3% by the employee. The premium for workers’ accident compensation insurance is borne entirely by the employer at a rate of 0.3% of total compensation paid to employees (for general office workers).
D. Tax filing and payment procedures
Individual income taxation in Japan is based on the principle of self-assessment. In general, taxpayers must file tax returns to declare income and deductions and to pay the tax due. However, national income tax liability of individuals compensated in yen at gross annual amounts not exceeding JPY20 million is settled through employer withholding if income other than employment income does not exceed JPY200,000. If tax is withheld from pay ments to nonresidents and if the amount withheld satisfies the Japanese tax liability, the nonresidents need not file income tax returns.
Married persons are taxed separately, not jointly, on all types of income.
Income tax returns must be filed, and the final tax paid, between 16 February and 15 March for income accrued during the previ ous calendar year. For those taxpayers who filed tax returns for the preceding year and who reported tax liabilities of JPY150,000 or more after the deduction of withholding tax, prepayments of income tax for the current year are due on 31 July and 30 November. Each prepayment normally equals one-third of the previous year’s total tax liability, less amounts withheld at source. To the extent that prepaid and withheld payments exceed the total tax due, they are refundable if a return is filed.
E. Double tax relief and tax treaties
A foreign tax credit is allowed, with limitations, for foreign income taxes paid by a resident taxpayer if the income is taxed by both Japan and another country. The credit is generally limited to the lesser of foreign income tax paid or the Japanese tax payable on the foreign-source income. If the foreign tax paid exceeds the limit, the excess may be carried forward for three years. A tax payer may elect to deduct foreign tax from taxable income under certain conditions.
If a nonresident is resident in a country with which Japan has entered into a tax treaty, income may be either exempt from tax or subject to a lower tax rate. Japan has entered into double tax treaties with the following jurisdictions.
Armenia Hungary Portugal
Australia Iceland Qatar
Austria India Romania
Azerbaijan Indonesia Saudi Arabia
Bangladesh Ireland Singapore
Belarus Israel
Slovak Republic
Belgium Italy Slovenia
Brazil Jamaica South Africa
Brunei Kazakhstan Spain
Darussalam Korea (South)
Sri Lanka
Bulgaria Kuwait Sweden
Canada Kyrgyzstan Switzerland
Chile Latvia Taiwan
China Mainland Lithuania Tajikistan
Croatia Luxembourg Thailand
Czech Republic Malaysia Turkey
Denmark Mexico Turkmenistan
Ecuador Moldova Ukraine
Egypt Netherlands USSR*
Estonia New Zealand United Arab
Fiji Norway Emirates
Finland Oman United Kingdom
France Pakistan United States
Georgia Peru Uzbekistan Germany Philippines Vietnam
Hong Kong Poland Zambia
* Japan honors the USSR treaty with respect to the Russian Federation only.
The Convention on Mutual Administrative Assistance in Tax Matters and Information exchange agreement is not included.
Most of the above treaties reduce the tax rates on Japanese-source interest, dividends, royalties and similar income, and also provide relief from double taxation through tax credits.
F. Entry into Japan
If the foreign national is not intending to work in Japan, he or she may enter Japan for the purposes listed in Section G.
For foreign nationals who intend to engage in activities that are for a duration of 90 days or less and that do not directly involve remuneration, see Section G for temporary visitor visa status.
If the activities are longer than 90 days or have remuneration involved, see Section H for mid- to long-term resident visa status.
G. Visitor visas
“Temporary visitor” status allows foreign nationals to stay in Japan for a short period without a residence card. The following activities that do not directly involve remuneration are allowable under “temporary visitor” status:
• Sightseeing
• Recreation
• Sports
• Visiting relatives
• Participating in observation tours
• Participating in lectures or meetings
• Liaison activities
• Any activities similar to the above
If the foreign national is listed as an executive in the Japanese company registration certificate while receiving remuneration, he or she needs to obtain a work visa status regardless of the period of stay.
To obtain a “temporary visitor” visa, the foreign national must apply at a Japanese embassy or consulate overseas before entering Japan if he or she is not from one of the 68 jurisdictions with a visa exemption agreement, as listed in the Ministry of Foreign Affairs of Japan website (www.mofa.go.jp/j_info/visit/ visa/short/novisa.html).
H. Work visas and self-employment
Residence status, as defined by the Immigration Control Act, refers to the status of the foreign national under which he or she is permitted to conduct certain activities while residing in Japan. The following are the three steps to obtain a work-type, mid- to long-term residence visa status for foreign nationals who intend to work in Japan:
• Step 1: The foreign national applies for a Certificate of Eligibility (CoE) from the Japanese Immigration Services Agency in Japan that meets the criteria of a certain type of residence status. The standard processing time of the Immigration Services Agency is 4 to 12 weeks. However, in many cases, the processing time usually is 2 to 3 weeks.
• Step 2: Once the CoE is obtained, the foreign national needs to apply for a visa at the Japanese embassy or consulate with the original CoE. The processing time of the Japanese embassy or consulate is usually two to seven business days.
• Step 3: Once the visa is issued, the foreign national must enter Japan with the visa and the CoE before the expiration date (in general, within three months from the CoE’s issuance). The applicant will be given landing permission at the border of entry, and the residence card corresponding to the approved residence status on the CoE will be issued.
Obtaining a work visa status under self-employment is also pos sible with additional considerations.
I. Residence permits
No separate process is required for the residence permits in Japan if the foreign national obtained residence by following the steps outlined in Section H. However, the foreign national will be required to register his or her permanent address at his or her local municipality within 14 days from the date such address is obtained.
Categories of residence. The categories of the typical statuses of residence and the activities in which the individuals in each cat egory are authorized to engage in are summarized below.
Engineer/Specialist in Humanities/International Services. Individuals in this category are authorized to engage in activities that require skills or knowledge in the field of physical science, engineering or other natural science fields, or in the field of
jurisprudence, economics, sociology or other humanities fields, or in duties that require ways of thinking or sensitivity founded on foreign culture, based on a contract entered into with a public or private organization in Japan.
Intra-Company Transferee. Staff members transferred to a busi ness office in Japan for a limited period of time from a business office established in a foreign country of a public or private organization that has a head office, branch office or other busi ness offices in Japan are authorized to engage in activities listed in the Engineer/Specialist in Humanities/International Services section.
Business Manager. Individuals in this category may engage in activities to operate a business of international trade or other businesses, or to engage in the management of those businesses, in Japan.
Highly Skilled Professional. The Highly Skilled Professional (HSP) category is an upgraded version of the other categories of residence. The following are the are three types of HSP:
• “Advanced academic research activities” for researchers and professors
• “Advanced specialized/technical activities” for general foreign workers
• “Advanced business and management activities” for business managers.
Depending on the nature of the activities, points are allocated according to academic background, employment background and annual income. Because the ways of calculations are different, an individual may pick the type that best fits his or her ability to earn points according to his or her background. To promote the acceptance of highly skilled foreign professionals to Japan, pref erential immigration treatment is granted if a person scores 70 points or higher.
Dependent. Individuals in this category may engage in daily activities of a spouse or child supported by the foreign national staying in Japan with the status of residence. De facto/same-sex spouses, adopted children/stepchildren and parents might fall into a different residence depending on the specific cases.
Other rules. Foreign nationals with a valid passport and residence card may leave and return to Japan without holding a re-entry permit if the period of absence from Japan is less than one year.
The period of stay granted for those with a residential status is a maximum of five years.
Extension
Process. If a foreign national wants to remain in Japan beyond the authorized period of stay, he or she must apply for the extension to their local immigration office within three months prior to the expiration date. A maximum grace period of two months will be given automatically once the application is submitted. The decision will be made within this period.
Eligibility. The Immigration Services Agency grants permission only under reasonable grounds based on the strength of documents
submitted by the applicant. Applications are not approved if the applicants have already attained the purposes of their visit or if the applicants’ continuous stay in Japan is found to be detrimen tal to the interest of Japan.
Other. Anyone who stays in Japan beyond his or her authorized period of stay may be subject to punishment and/or deportation.
Permanent residence. The Minister of Justice may grant perma nent residence if a foreign national fulfills all of the following conditions:
• The applicant is of good conduct.
• The applicant has sufficient assets or ability to make an inde pendent living.
• The applicant’s permanent residence is regarded to be in accord with the interests of Japan. This is established by the following:
— In principle, the applicant has stayed in Japan for more than 10 years consecutively. It is also required that during his or her stay in Japan, the person has had a work permit or the status of residence for more than 5 years consecutively.
— The applicant has never been sentenced to a fine or imprisonment and adequately fulfills public duties (duties such as the payment of taxes, the public pension contribution and the public health insurance contribution, as well as noti fication to the Immigration Services Agency).
— The applicant has held a stay of three years or longer with his or her current status of residence.
— There is no possibility that the applicant could do harm from the viewpoint of protection of public health.
The first and second above requirements do not apply to spouses and children of Japanese nationals, special permanent residents or permanent residents.
Special requirements for 10-year residence are, in principle, the following:
• The applicant is a spouse of a Japanese national, special permanent resident or permanent resident and has been in a real marital relationship for more than three years consecutively and has stayed in Japan more than one year consecutively.
• The applicant is a true child of a Japanese national, special permanent resident or permanent resident and has stayed in Japan more than one year consecutively.
• The applicant has stayed in Japan for more than five years con secutively with the status of long-term resident.
• The applicant has been recognized to have made a contribution to Japan in diplomatic, social, economic, cultural or other fields and has stayed in Japan for more than five years.
• With respect to the points calculation system for the HSP visa status, the applicant could certify a minimum total score of 70 points or more within three years of the application, or the applicant could certify a minimum total score of 80 points or more within one year of the application.
J. Family and personal considerations
Family members. Residence card holders may sponsor a dependent visa status that allows their legal spouse and unmarried minor children to live together with them in Japan. The period of stay would be similar to that of the sponsor, and they may not engage
in work activities without a part-time work permit issued from the Immigration Services Agency.
The following family members may not be eligible for dependent visa status:
• De facto/same-sex spouses
• Adopted children/stepchildren
• Parents
However, they may be eligible for another visa status depending on the situation.
Driver’s permits. To legally drive in Japan, an individual needs either a valid Japanese license or needs to adhere to the first two requirements below. Individuals who fulfill the third and fourth requirements may convert their current license to a Japanese license without starting the process from scratch. The following are the requirements:
• If the individual has an international driver’s license issued by a signatory jurisdiction of the Geneva Treaty, driving is allowed for one year from the date the individual obtained landing per mission in Japan or for one year from the issuance date of the international driver’s license, whichever is earlier.
• If the individual has a driver’s license issued from Belgium, Estonia, France, Germany, Monaco, Switzerland or Taiwan, driving is allowed for one year from the date the individual obtained landing permission in Japan or until the expiration of the driver’s license, whichever is earlier. He or she must also carry a valid translation issued by a designated organization, such as the Japan Automobile Federation (JAF).
• For the conversion process, the individual is exempted from tests and only documentation is required if the individual has a driver’s license issued from Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Korea (South), Luxembourg, Monaco, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovenia, Spain, Sweden, Switzerland, Taiwan, the United Kingdom or the United States (Hawaii, Indiana [an Indiana driver’s license holder is exempt only from the driving test, not the written test], Maryland, Ohio, Virginia and Washington).
• If an individual has a driver’s license issued from a jurisdiction not listed above, a simplified written test and a driving test is required for the conversion process.
• If an individual does not have a driver’s license, he or she must complete the full procedure and complete the same require ments as any other resident in Japan, including the written and driving tests. The written test may be available in English or in the simple hiragana script (the simplest writing method in Japanese, which does not contain Chinese characters), depend ing on location.
A driver’s license is valid for a maximum of five years. Renewal is possible within one month of the expiration date.