Taxation for individual

Questions and Answers

What is the tax rate on individual salary income?

"National income tax" and "Local inhabitants’ tax" are imposed on individual income. The tax rate is sliding scale according to the individual’s income as follows (progressive taxation system).

"National income tax" and "Local inhabitants’ tax"

Taxable income			Tax rate
			National income tax	Local inhabitants tax	Total
0 yen	to	1,950,000 yen	5%	10%	15%
1,950,000 yen	to	3,300,000 yen	10%		20%
3,300,000 yen	to	6,950,000 yen	20%		30%
6,950,000 yen	to	9,000,000 yen	23%		33%
9,000,000 yen	to	18,000,000 yen	33%		43%
18,000,000 yen	to	over	40%		50%

Assuming the individual’s annual salary is 10mil yen, total of National income tax and Local inhabitants’ tax is around 1.8mil yen. Calculation detail as follows.

	National income tax	Local inhabitants tax	Total
Annual salary	10,000	10,000
Salary income deduction	– 2,200	– 2,200
Standard deduction	– 380	– 330
Taxable income	7,420	7,470
Annual tax	1,070	747	1,817

Assumption:
-No other income than salary
-No spouse / No dependants

When is the deadline of the tax return filing and payment for 2010 income?

	Tax return filing due date	Tax payment due date
National income tax	Mar.15, 2011 (no extension is allowed)	Mar.15, 2011 (Payment due date is extended to around April 20, 2011 without interest charges if the taxpayer uses the “automatic withdrawal system”)
Local inhabitants’ tax	No need of tax return filing. (based on the national income tax return, local tax office compute and notice the tax amount in May-Jun 2011)	1st payment due date: Jun.30, 2011 2nd payment due date: Aug.31, 2011 3rd payment due date: Oct.31, 2011 4th payment due date: Jan.31, 2012 (It is possible to pay all taxes by Jun30)

Is it true that you would be able to save tax when leaving Japan by December 31st?

Yes, it is true.

Local inhabitants’ tax is saved if you leave Japan by December 31st. Local inhabitants’ tax is imposed on your previous year’s income "if" you have a domicile in Japan as of January 1. Than is to say if you leave Japan on December 31st, 2010, Local inhabitants’ tax is not imposed on your 2010 income. However if you leave on January 1, 2011, even a day of residence in Japan in 2011, then it is imposed on your whole 2010 income.

Even a day of lag time will cause you a very big impact on the taxes so the day you leave is a very big issue.

I am expatriated from US to Japan this year. Do I need to report bank interest income in US?

If your tax status is "Non-permanent resident" and you do not remit the US bank interest to Japan, you do not need to report such non Japan source income as US bank interest. (see below).

Classification		Japan source income		Non Japan source income
		Paid in Japan	Paid outside Japan	Paid in Japan	Paid outside Japan
Resident	Non-permanent Resident	Taxable		Taxable	Non taxable (it is taxed if the money is remitted into Japan)
	Permanent Resident	Taxable
Nonresident		Taxable		Non taxable

Who is a "Non permanent resident" which is referred in Q4? Please clarify the definition of tax status.

Classification		Definition
Resident	Non-permanent resident	You are considered to be a "Non permanent resident" if you have: – a "domicile" or "residence in Japan for 1 year or more", (you are regarded to have a "domicile" in Japan if you made a contract with your company to work in Japan for 1 year or more) – no Japanese nationality and – a domicile or residence in Japan for periods in the aggregate 5 years or less in last 10 years.
	Permanent resident	You are considered to be a "Permanent resident" if you are not non-permanent resident.
Non resident		You are considered to be a "Nonresident" if you do not have a domicile or residence in Japan for one year or more.

I work in Japan but my salary is paid outside Japan. Is my salary a non Japan source income?

The source is determined by where you work and not impacted by where the salary is paid. If you worked in Japan for 315 days and outside Japan for 50 days, 50 days / 365 days of your salary is regarded as Non Japan source income.
As we explained in Q4 and Q5, if you are Non permanent resident, your salary which is regarded as Non Japan source income is not taxable unless you remit it to Japan.

I have to leave Japan in the middle of the year. I won’t be in Japan next year in March, so how should I file my income tax return?

In general, you need to file the tax return and pay taxes before the day you are leaving.

However, if you designate tax representative and delegate the tax matters to the tax representative, the due date will be extent to March 15th. In this case, the tax representative will sign the files in behalf of you. In practical, relatives or tax accountants will be nominated as a tax representative.

What is "183 days rule"?

This is a rule regulated in US-Japan tax treaty. Many of other tax treaties Japan made with other countries have same rules.
"183 days rule" says Japan does not impose tax if:
(a) the employee stayed in Japan for less than aggregate 183 days in any 12 month,
(b) the employee’s salary is not paid by Japanese company and
(c) the employee’s salary is not borne by Japanese company

In regard to (a), some of tax treaties calculate 183 days in any 12 month but others calculate it in the calendar year.

If I am transferred to abroad where the tax rate is very high, I guess my net salary be little? How is the adjustment made in practice?

In practical, your taxes imposed abroad are paid by the company.
Instead, the company calculates your taxes as if you are still working in your home country (so called "hypothetical tax") and deduct those amounts from your salary. As a result, you are guaranteed to receive the same salary during your assignment in abroad.
This system is known as "tax equalization system".