Personal income tax in Japan is a direct tax levied on individual income and is an important part of the Japanese tax system. The subjects of personal income tax include both residents and non-residents of Japan, with different tax rates and regulations applying based on different statuses, income types, and sources. This article will provide a detailed introduction to the scope of taxation, tax rates, deductions, calculation methods for Japanese personal income tax, and distinguish between tax requirements for residents and non-residents, helping readers better understand Japan’s personal income tax policies.

Basic Concepts of Japanese Personal Income Tax

Japanese personal income tax is a type of tax levied on various incomes of individuals, including salary income, interest income, dividend income, rental income, capital gains, etc. Taxpayers are classified as residents or non-residents based on their length of stay in Japan and source of income, with different tax rates and regulations applying to different statuses.

1.1 Definition of Residents and Non-Residents

According to the Income Tax Act, taxpayers are classified as residents and non-residents:

Residents: Individuals who have resided in Japan for one year or more, or those who have resided for less than a year but intend to reside in Japan for a long term. Residents are further divided into permanent residents (residing in Japan for more than 5 years) and non-permanent residents (residing in Japan for 5 years or less).

Non-residents: Individuals who do not meet the conditions for residents, i.e., foreigners who have resided in Japan for less than one year and have no intention of long-term residence.

1.2 Scope of Taxation for Residents and Non-Residents

Residents: Taxed on worldwide income (regardless of whether the income is sourced from within or outside Japan), required to declare and pay income tax on all income.

Non-residents: Only taxed on income sourced from within Japan, such as salary income from working in Japan, interest income and dividend income from investments in Japan, etc. Non-residents are not required to declare or pay income tax on income sourced from outside Japan.

Tax Rates and Deductions for Japanese Resident Personal Income Tax

Personal income tax for Japanese residents applies progressive tax rates, ranging from 5% to 45%. When calculating taxable income, residents can enjoy various deductions, including basic deduction, spouse deduction, dependent deduction, social insurance premium deduction, medical expense deduction, etc.

2.1 Resident Personal Income Tax Rates

Personal income tax for Japanese residents adopts progressive tax rates, divided into multiple levels based on the taxpayer’s income level. Below is the progressive tax rate table for resident personal income tax:

Taxable income refers to the net income of the taxpayer after deducting various legal deductions.

2.2 Main Deductions for Residents

When calculating taxable income, residents can deduct the following main items from their total income:

Basic Deduction: Each resident taxpayer can enjoy a certain amount of basic deduction.

Spouse Deduction: Applicable to resident taxpayers with a spouse whose income is relatively low, the deduction amount is 380,000 yen.

Dependent Deduction: Applicable to resident taxpayers supporting children or other family members, the specific deduction amount depends on the age and number of dependents.

Social Insurance Premium Deduction: Social insurance premiums (such as health insurance, pension insurance, etc.) paid by resident taxpayers can be fully deducted.

Medical Expense Deduction: Medical expenses paid out-of-pocket by resident taxpayers exceeding a certain amount can be deducted.

Life Insurance Premium Deduction: Life insurance premiums paid by resident taxpayers can be partially deducted.

Calculation Method and Examples of Japanese Resident Personal Income Tax

The calculation of taxable amount for residents is relatively complex, requiring calculation based on the taxpayer’s total income, various deductions, and applicable progressive tax rates.

3.1 Calculation of Taxable Income

The formula for calculating taxable income is:

Taxable Income = Total Income – Various Deductions

Where total income includes all taxable income (such as wages, interest, dividends, rent, etc.), and various deductions include basic deduction, spouse deduction, dependent deduction, etc.

3.2 Calculation of Tax Payable

Based on the taxable income, apply the corresponding progressive tax rate and deduct the quick calculation deduction. The formula is:

Tax Payable = Taxable Income × Tax Rate – Quick Calculation Deduction

3.3 Example of Resident Income Tax Calculation

Suppose a resident taxpayer’s total income in 2024 is 8 million yen, with deductions including basic deduction of 480,000 yen, spouse deduction of 380,000 yen, dependent deduction of 380,000 yen, social insurance premium deduction of 700,000 yen, and medical expense deduction of 100,000 yen.

Calculate taxable income:

Taxable Income = 8 million yen – (480,000 yen + 380,000 yen + 380,000 yen + 700,000 yen + 100,000 yen) = 5.96 million yen

Determine applicable tax rate and quick calculation deduction:

Based on the taxable income of 5.96 million yen, the applicable tax rate is 20%, and the quick calculation deduction is 427,500 yen.

Calculate tax payable:

Tax Payable = 5.96 million yen × 20% – 427,500 yen = 1,192,000 yen – 427,500 yen = 764,500 yen

Therefore, the personal income tax payable by this resident is 764,500 yen.

Tax Rates and Calculation Methods for Japanese Non-Resident Personal Income Tax

Non-residents in Japan only pay income tax on income sourced from Japan and do not enjoy the deductions available to residents. Non-resident income is usually subject to fixed tax rates, which are simpler and more straightforward compared to the progressive tax rates for resident income tax.

4.1 Non-Resident Personal Income Tax Rates

Non-resident personal income tax applies fixed tax rates, which vary for different types of income. Below are the common non-resident personal income tax rates:

4.2 Calculation Method for Non-Resident Income Tax

The calculation of tax payable for non-residents is relatively simple. The formula is:

Tax Payable = Japan-sourced Income × Fixed Tax Rate

Since non-residents do not enjoy various deductions, there is no need to subtract any deductions during the calculation process.

4.3 Example of Non-Resident Income Tax Calculation

Suppose a non-resident’s salary income in Japan for 2024 is 5 million yen, with no other Japan-sourced income.

Determine applicable tax rate: Non-resident salary income is subject to a fixed tax rate of 20.42%.

Calculate tax payable:

Tax Payable = 5 million yen × 20.42% = 1,021,000 yen

Therefore, the personal income tax payable by this non-resident is 1,021,000 yen.

Personal Income Tax Reduction and Exemption Policies

According to the Income Tax Act, Japan provides personal income tax reduction or exemption policies for certain resident taxpayers to alleviate their tax burden. These policies mainly apply to taxpayers with specific income levels, high medical expenses, or special circumstances. Non-residents generally do not enjoy these preferential policies. Below is a detailed introduction to the main reduction and exemption policies for Japanese resident personal income tax.

5.1 Low-Income Earners Reduction

The low-income earners reduction is designed to alleviate the tax burden of resident taxpayers with relatively low annual income. The specific reduction amounts and conditions are as follows:

Applicable subjects: Resident taxpayers with annual income below a certain standard. Usually, this standard changes with government policy adjustments. For individuals whose annual income falls within a certain range, the government provides a certain amount of tax reduction.

Reduction amount: Depends on the taxpayer’s total income situation. The lower the annual income, the higher the tax reduction amount that can be enjoyed. Specifically, if the taxpayer’s annual income is below a certain amount, that portion of income will be exempt from personal income tax; if the annual income falls within a lower tax rate range, partial tax reduction can also be enjoyed.

Application conditions: Taxpayers need to provide income certificates to prove that their income is below the specified standard. At the same time, they need to fill out relevant reduction application forms and submit them to the tax authorities.

Example: Suppose a resident taxpayer’s annual income is 3 million yen, which is below the specified low-income standard of 5 million yen. Therefore, they can apply for the low-income earners reduction policy and enjoy partial or full tax reduction. The specific reduction amount will be calculated based on the government’s latest regulations and their income situation.

5.2 High Medical Expense Exemption

The high medical expense exemption is a tax preferential policy provided for resident taxpayers who have a heavy life burden due to high medical expenses. The specific contents of this policy are as follows:

Applicable subjects: Resident taxpayers who have paid medical expenses exceeding a certain percentage of their annual income in a tax year. Medical expenses include hospitalization costs, surgery costs, outpatient costs, and other treatment-related expenses.

Exemption amount: The portion of medical expenses exceeding a certain percentage of annual income can be exempted. For example, if a taxpayer’s annual income is 5 million yen and their annual medical expenses reach 1 million yen, the portion exceeding 10% of annual income (500,000 yen) can apply for tax exemption.

Application conditions: Taxpayers need to provide invoices or receipts for all medical expenses and fill out a medical expense exemption application form, detailing all medical expenditure items and amounts.

Example: Suppose a resident taxpayer’s annual income is 6 million yen, and their medical expenses for the year are 1.2 million yen. According to the exemption policy, medical expenses exceeding 10% of annual income (600,000 yen) can enjoy tax exemption. Therefore, the taxpayer can exempt 600,000 yen of taxable income.

5.3 Disability Reduction

The disability reduction is a tax preferential policy provided for resident taxpayers with disability certificates, aimed at alleviating the economic burden of disabled persons and their families. The specific policy contents are as follows:

Applicable subjects: Resident taxpayers holding disability certificates, or family members supporting disabled persons. Different reduction policies apply to different degrees and types of disabilities.

Reduction amount: The reduction amount depends on the severity and type of disability. Generally, severely disabled persons can enjoy higher amounts of tax reduction. For example, severely disabled persons can obtain a maximum tax reduction of 400,000 yen, while mildly disabled persons may only obtain a lower reduction amount.

Application conditions: Taxpayers need to provide valid disability certificates, as well as documents proving their disability degree and related expenses. At the same time, they need to fill out disability reduction application forms and submit them to the tax authorities.

Example: Suppose a resident taxpayer holds a severe disability certificate. According to the reduction policy, they can obtain a tax reduction of 400,000 yen. This means that when calculating their taxable income, first deduct the 400,000 yen reduction amount, then calculate the tax payable based on the remaining taxable income.

5.4 Other Reduction and Exemption Policies

In addition to the main reduction and exemption policies mentioned above, Japan also provides some other reduction policies, including:

Specific Dependent Deduction: Applicable to resident taxpayers supporting elderly persons aged 65 or above or family members with special care needs.

Education Expense Deduction: Applicable to families with high education expenses for children, especially private school tuition fees.

Natural Disaster Loss Deduction: Applicable to resident taxpayers who have suffered property losses due to natural disasters such as earthquakes, typhoons, floods, etc.

The specific applicable conditions and reduction amounts of these policies vary according to the government’s annual policy changes. Taxpayers should apply according to the latest policy regulations.

Notes and Suggestions

When filing and paying personal income tax, taxpayers should pay special attention to the following points:

Ensure the accuracy of reported information: All reported information and materials need to be true and accurate, avoiding tax issues caused by data errors or false reporting. Especially for resident taxpayers, they need to ensure that all overseas income and domestic income have been reported.

Reasonable use of deductions (applicable to residents): Resident taxpayers should fully understand and utilize various deductions to lower taxable income and thus reduce tax burden. Taxpayers should pay special attention to the applicable conditions and amount limitations of various deductions to ensure compliance with policy requirements.

Plan tax payment in advance: Reasonable tax planning can help resident taxpayers legally reduce tax burden and increase after-tax income. Non-residents should understand Japan’s tax policies and requirements before entering the country to ensure completion of all tax matters before departure.

Retain filing and tax payment vouchers: Whether residents or non-residents, all tax-related filing materials and tax payment vouchers should be properly kept for at least 5 years for future inspection by tax authorities.

Consult professional tax advisors in a timely manner: When facing complex tax issues or policy changes, it is recommended that taxpayers consult professional tax advisors or accountants in a timely manner to ensure that filing and tax payment comply with the requirements of the latest tax regulations.

Conclusion

Japan’s personal income tax system has significant differences due to the different status of residents and non-residents. Residents need to report and pay taxes on global income and enjoy various deductions and reduction policies; non-residents only pay taxes on Japan-sourced income and do not enjoy deductions. Through the detailed introduction in this article, it is hoped that taxpayers can better understand Japan’s personal income tax system, reasonably plan their taxes, and ensure legal and compliant fulfillment of tax obligations.