Local taxes are an important source of revenue for Japanese local governments, used to support local public services and infrastructure construction and maintenance. Due to Japan’s decentralized system, each region has some autonomy in setting local tax rates and collection methods. This has led to significant differences in local tax rates and calculation methods across different regions. This article will analyze in detail the background of Japanese local taxes, explain the tax rates and calculation methods by region, and further compare the differences in local taxes across different areas.
Background of Japanese Local Taxes
Local taxes refer to taxes collected by local governments (prefectures, municipalities) to support local finances. According to the Local Tax Law, Japanese local taxes are divided into prefectural taxes and municipal taxes, covering individuals and corporations, various types of fixed assets such as land and buildings, as well as some specific purpose taxes.
1.1 Types of Local Taxes
Japanese local taxes mainly include the following types:
Resident Tax: Divided into individual resident tax and corporate resident tax. Individual resident tax is levied on residents living within the local jurisdiction, mainly divided into per capita rate (fixed amount tax) and income-based rate (taxed based on income); corporate resident tax is levied based on the company’s capital and income.
Enterprise Tax: Levied on enterprises within the local jurisdiction based on their income, mainly targeting profitable businesses.
Fixed Asset Tax: Levied on land, buildings, and other tangible fixed assets within the local jurisdiction, applicable to all individuals and corporations owning fixed assets.
City Planning Tax: Mainly targeting land and buildings, levied on fixed assets located within urban planning areas.
Light Vehicle Tax and Automobile Tax: Levied on vehicle owners based on the type, engine displacement, and years of use of the vehicle.
1.2 Purpose and Function of Local Taxes
The establishment of local taxes is mainly to meet the fiscal needs of local governments, used to support local public services and infrastructure construction, including education, healthcare, transportation, public safety, etc. Through the collection of local taxes, local governments can better regulate and guide local economic development and promote the rational allocation of social resources.
Tax Rates and Calculations of Local Taxes in Different Regions of Japan
Due to differences in economic development levels and fiscal needs, there are significant variations in local tax rates and calculation methods across different regions in Japan. The following will explain in detail the local tax rates and calculation methods of major regions in Japan by area.
2.1 Resident Tax Rates and Calculations
Resident tax is an important component of local tax revenue, mainly including individual resident tax and corporate resident tax.
Individual Resident Tax: Consists of per capita rate and income-based rate. The per capita rate is a fixed amount tax, with all taxpayers paying the same amount; the income-based rate is levied based on the taxpayer’s income.
Per Capita Rate: In most regions, the per capita rate portion of individual resident tax is 3,000 yen per person (prefectural tax) and 2,000 yen per person (municipal tax), totaling 5,000 yen per person.
Income-based Rate: Generally levied at a 10% tax rate, with 4% for prefectural tax and 6% for municipal tax.
Corporate Resident Tax: Also includes per capita rate and income-based rate. The per capita rate is determined based on the company’s capital and number of employees; the income-based rate is levied based on corporate income, generally at a rate of around 12%.
2.2 Enterprise Tax Rates and Calculations
Enterprise tax is a type of local tax levied on corporate income, mainly collected by prefectural governments. The tax rate for enterprise tax usually ranges between 3% and 5%, with specific rates varying by region.
2.3 Fixed Asset Tax Rates and Calculations
Fixed asset tax is a tax levied on land, buildings, and other tangible fixed assets, usually the responsibility of municipal governments. The standard tax rate for fixed asset tax is 1.4%, but local governments can adjust it based on actual circumstances.
2.4 Tax Rates and Calculation Formulas by Region
The following table details the local tax rates and calculation methods for different regions in Japan:
| Region | Resident Tax (Individual) Equal Rate | Resident Tax (Individual) Income-Based Rate | Corporate Resident Tax Rate | Enterprise Tax Rate | Fixed Asset Tax Rate | City Planning Tax Rate |
| Tokyo | 5,000 yen | 10% (Prefectural 4% + Municipal 6%) | 12.9% | 3.9% | 1.7% | 0.3% |
| Osaka | 5,000 yen | 10% (Prefectural 4% + Municipal 6%) | 12.4% | 3.7% | 1.4% | 0.3% |
| Aichi | 5,000 yen | 10% (Prefectural 4% + Municipal 6%) | 12.1% | 3.6% | 1.5% | 0.3% |
| Fukuoka | 5,000 yen | 10% (Prefectural 4% + Municipal 6%) | 12.3% | 3.5% | 1.6% | 0.3% |
| Hokkaido | 5,000 yen | 10% (Prefectural 4% + Municipal 6%) | 12.7% | 4.0% | 1.3% | 0.3% |
*Note: The tax rates in the table are examples for some regions; actual tax rates in each region may be adjusted according to local fiscal policies.
Tax Incentives for Japanese Local Taxes
Japanese local tax policies include some tax incentive measures aimed at encouraging development in specific areas, supporting specific groups of people, or addressing specific economic conditions. These tax incentive policies help reduce the tax burden on taxpayers and promote diversification and sustainable development of local economies.
3.1 Tax Incentives for Resident Tax
Exemptions for Low-Income Families: To reduce the economic burden on low-income families, local governments usually offer resident tax exemptions for families with annual incomes below a certain standard. For example, single households with annual incomes below 2.5 million yen or families of four with annual incomes below 5 million yen may apply for partial or full exemption from resident tax. Specific exemption amounts and standards vary by region.
Exemptions for People with Disabilities and the Elderly: For residents with disability certificates or elderly people aged 65 and above, local governments usually provide certain resident tax exemptions. These policies aim to reduce the economic burden on vulnerable groups and provide stronger social security.
3.2 Tax Incentives for Enterprise Tax
Tax Incentives for Emerging Industries: To encourage the development of emerging industries, some local governments offer enterprise tax exemptions for newly established high-tech companies, biotechnology companies, or green energy enterprises. For example, in Osaka Prefecture, newly established environmental protection companies can enjoy a 50% reduction in enterprise tax rates for the first five years.
Tax Incentives for Small and Medium-sized Enterprises (SMEs): To support the growth of SMEs, many local governments offer preferential enterprise tax policies for SMEs with capital below a certain level. For example, in Tokyo, SMEs with capital below 10 million yen can enjoy a 30% reduction in enterprise tax rates.
3.3 Tax Incentives for Fixed Asset Tax
Tax Incentives for Residential Land: To encourage housing construction, many local governments offer fixed asset tax exemptions for residential land below a certain area. For example, for residential land under 200 square meters, its assessed value can be calculated at a 50% reduction, thereby reducing the tax burden of owning residential land.
Tax Incentives for Agricultural Land: To support agricultural development, many local governments offer fixed asset tax exemptions for land actually used for agricultural production. For example, the assessed value of productive agricultural land can be calculated at a 70% reduction to ease the tax burden on farmers.
Comparative Analysis of Local Tax Differences Across Regions
The differences in local tax rates across Japanese regions mainly reflect the varying fiscal needs, economic development status, and policy objectives of each local government. The following analyzes and compares the differences in local taxes across different regions from three aspects: resident tax, enterprise tax, and fixed asset tax.
4.1 Comparison of Resident Tax Differences
Looking at resident tax rates, Tokyo has slightly higher rates than other regions, especially for high-income groups, where the resident tax burden is relatively high. This reflects Tokyo’s status as Japan’s capital, with greater fiscal needs for public services and infrastructure construction, requiring higher tax rates to maintain high-level public services.
In economically less developed regions, such as Hokkaido, resident tax rates are relatively low. These regions often adopt lower tax rate policies to attract population inflow and corporate investment, reducing the tax burden on residents and businesses to promote local economic development.
4.2 Comparison of Enterprise Tax Differences
The differences in enterprise tax rates also reflect the varying economic development and fiscal policies of each region. Economically developed regions like Tokyo and Osaka have relatively high enterprise tax rates, as these areas have greater fiscal needs and require higher enterprise tax rates to increase fiscal revenue. In some economically less developed regions, such as Hokkaido and Fukuoka, enterprise tax rates are relatively low to encourage corporate investment and economic development.
4.3 Comparison of Fixed Asset Tax Differences
Fixed asset tax rates are relatively uniform, but in some specific areas, local governments may adjust them based on actual circumstances. For example, in highly urbanized areas like Tokyo and Osaka, local governments may appropriately increase fixed asset tax rates to control overheating in the land and real estate markets. In some rural or economically less developed areas, such as Hokkaido, fixed asset tax rates are relatively low to encourage rational use of land and resources.
Conclusions and Recommendations
Through the analysis of Japanese local taxes, it can be seen that there are significant differences in local tax rates and calculation methods across different regions, mainly determined by local economic development levels, fiscal needs, and policy objectives. When investing or residing in Japan, companies and individuals should fully understand the local tax policies and tax rate levels, develop reasonable tax planning, ensure tax compliance, and minimize tax risks and costs to the greatest extent possible.
It is recommended to cooperate with tax experts or consultants when making investments or financial planning, to gain an in-depth understanding of specific local tax policies and calculation methods, ensuring that tax expenditures are reasonably optimized while complying with laws and regulations, promoting sustainable development for businesses and individuals.
