Understand Residence Tax In Japan

Understand Residence Tax In Japan

As a foreigner living in Japan, you’re legally required to pay residence tax (住民税, jūminzei). 

However, filling in and filing tax documents can be daunting, especially if you're not sure where to begin. 

We'll walk you through understanding the basics and the two most important things to be wary of with residence tax payment. 

What is a residence tax? 

Residence tax is a general term used to describe the tax that residents staying in Japan need to pay. Residence tax consists of prefectural and municipal individual residence taxes. 

Taxpayers pay residence tax in both the municipality where they have filed a moving-in notification and the prefecture where that municipality is located.

Who needs to pay the residence tax?

Every Japanese resident must pay taxes. You must pay the residence tax if you reside in a Japanese prefecture and municipality as of January 1st. 

In the year you arrive in Japan, you will not be taxed. But you will be taxed for the previous year if you are still in Japan on January 1st of the following year. Even if you leave Japan later in the year, this rule applies.

How is the residence tax calculated? 

The tax is calculated based on your income earned between January 1st and December 31st. 

Your local municipality examines your earnings between this period and calculates the tax amount from your per capita and income-based portions. 

When to make the tax payment? 

There are two types of payment methods for the residence tax. 

If you choose a lump sum payment, you need to make the payment in June. However, if you want to make an installment payment, you can pay it four times in June, August, October, and January.

How to pay the residence tax? 

Special collection 

The "special collection" payment is normally available for employees, also known as the "salary deductions" method. 

Via this collection type, your employer or company must deduct residence tax from the wages paid to you on your behalf and pay it to the municipality. 

Ordinary collection

If you are self-employed or currently unemployed, you still need to pay residency tax, depending on your previous year’s income. 

Around June, you will receive a notice (tax payment slip) from the local municipality asking you to "please pay the resident tax" if you earned any income in the previous tax year. 

You can pay the taxes at the post office, a financial institution, or a convenience store for direct payment. 

Two things to be aware of in paying residence tax 

#1 Make sure you know your due tax amount before leaving employment

If you pay the residence tax by "special collection" but then quit your job, the remaining amount is paid through the ordinary collection

However, some employers deduct the outstanding amount from your last salary or severance money. Hence, if you're thinking about resigning from your job, make sure what your action items are regarding tax payment. 

#2 Pay your tax before leaving Japan 

If you're going to leave Japan, you'll still need to pay the due residence tax. If you cannot pay the taxes in advance before your departure, appoint a tax administrator who is authorized to pay your resident tax on your behalf with the local government office by submitting an authorization notice. 

Can you apply for a tax deduction? 

In Japan, you will need to pay income tax for all your income earned globally. Nevertheless, if you're already paying taxes for income in another country, that amount cannot be taxed again. Hence, you can apply for the already-paid tax to be deducted from your residence tax. 

  1. Foreign tax credit 

You can deduct an amount from your Japanese income tax if you earned money from foreign wages or dividends and paid all the appropriate income taxes and individual resident taxes. 

2. Tax conventions 

Nearly every other country has signed a tax treaty with Japan, and some of them cover the residence tax. You can file an Application Form for Income Tax Convention (租税条約に関する届出書, sozei jōyaku ni kansuru todokede-sho) at a tax office or your local government office if you're a trainee, apprentice, or satisfy certain conditions, which could result in a lower or even waived residence tax. The notification must be submitted by March 15th.

You can find more information on residence tax at Ministry of Internal Affairs and Communications Website

We’ve covered several topics related to filing taxes and tax agencies here: 

Taxes Japan 2021: What to Know for This Year's Tax Season

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