Taxes in Japan

Written by Lais Cattassini Moderated by Oleksandra Dosii

Lais Cattassini

Lais is a Brazilian journalist and copywriter with over 17 years of experience, writing about things she knows really well (travelling, cinema, social media trends) and things she loves learning about.

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Oleksandra is a dedicated marketer with a passion for growing HR-tech products. She believes content marketing is about delivering high-quality content that provides value—not just generating leads. Since 2016, Oleksandra has been involved in tech talent relocation.

Last update: September 14, 2024

Next update: Scheduled for February 1, 2025

Japan's tax system is structured around national, prefectural, and municipal levels. There is a progressive income tax system at the national level, meaning that higher earners pay a higher percentage of their income in taxes.

Local income tax consists of prefectural and municipal taxes, generally calculated as a flat percentage of the national income tax. Both prefectural and municipal income taxes total around 10% of a taxpayer's income, and the amount is typically withheld by employers from salaries.

Many salaried employees in Japan do not need to file a tax return as their taxes are withheld at the source through a system called gensen choshuhyo. However, individuals with multiple sources of income, freelancers, or those earning over a certain threshold are required to file.

What is the income tax in Japan?

National income tax in Japan is levied annually and must be filed in the fiscal year following the income year (April to March).

Taxes range from 5% to 45% and, since the system is progressive, rates vary based on income levels:

These rates are applied progressively, meaning portions of your income fall into different brackets, not the whole income being taxed at the highest rate.

In addition to the national income tax, taxpayers in Japan are subject to local income taxes, which consist of the prefectural income tax levied by the regional government and the municipal income tax levied by the local municipality. Local taxes are typically flat-rate taxes based on the national income tax, adding an additional burden of around 10% of taxable income combined. These taxes are split between 4% to 6% for the prefectural income tax and 6% for the municipal income tax.

For most salaried employees, local income taxes are withheld at the source by employers and remitted directly to the relevant tax authorities. This system, called gensen choshuhyo, ensures that most taxpayers do not need to file their own tax returns unless they have additional sources of income or complex tax situations.

Social Security contributions

Both employers and employees contribute to Japan’s Social Security systems, which are designed to support individuals in areas such as medical care, retirement, and work-related accidents.

Healthcare

Japan’s healthcare system operates on a universal health insurance model, meaning all residents are required to enrol in a healthcare plan. There are two main types of healthcare insurance, one that is applicable to salaried workers (社会保険, Shakai Hoken) and one for self-employed individuals and people who are unemployed (国民健康保険, Kokumin Kenkō Hoken). For both models, contributions are around 10%, with the first one being also paid by the employer.

Pension

Japan's pension system is also divided into two main categories. Employees' Pension Insurance (厚生年金, Kōsei Nenkin) is mandatory for all salaried employees. Contributions are based on the employee’s salary and are typically around 18.3%, shared equally between the employer and employee, each contributing 9.15%.

The National Pension (国民年金, Kokumin Nenkin) is also mandatory for self-employed, unemployed, students, and those who do not qualify for employees' pension. The contribution amount is ¥16,980 per month, subject to annual adjustments.

Insurances

Unemployment insurance in Japan is designed to provide financial support to individuals who lose their jobs and are actively seeking employment. The contribution rate is generally 0.6% of the employee’s salary, with 0.3% paid by the employee and 0.3% by the employer.

Also part of the Social Security System in Japan, the Workers' Accident Compensation Insurance covers injuries, illnesses, or deaths that occur during work or commuting. Employers are required to contribute the entire premium for this insurance. The rate varies by industry but averages around 0.25% to 0.85% of total wages.

Employees aged 40 to 64 must contribute with the Long-term Care Insurance (介護保険, Kaigo Hoken), which supports the elderly (aged 65 and older) and those aged 40-64 with age-related illnesses such as dementia or physical disabilities. It covers services like nursing care, rehabilitation, and home help.

The contribution rate for long-term care insurance is around 1.8% of the employee’s salary, which is split equally between employer and employee.

Foreign residents in Japan are subject to the same social security contributions as Japanese nationals. However, Japan has social security agreements with various countries, which help avoid double taxation.

Online tax calculator for taxes in Japan

To calculate national income tax in Japan, you need to determine your gross income, subtract deductions, and apply tax rates.

You can also calculate your net income here.

Annual tax returns in Japan

While many salaried employees in Japan do not need to file a tax return due to the withholding tax system (源泉徴収, Gensen Chōshū), self-employed individuals, individuals with multiple sources of income, employees who earn more than ¥20,000,000 per year, foreign residents, and people with tax-deductible expenses must file. The tax year in Japan is the same as the calendar year, running from January 1 to December 31. The filing of annual tax returns in Japan is between February 16 and March 15 of the following year.

Taxpayers can choose from three methods to file their tax returns. The online filing e-Tax is efficient and widely used, especially for those who wish to avoid visiting a tax office. To use e-Tax, taxpayers need a My Number Card and a card reader or have to set up the system with a digital certificate.

Taxpayers can alternatively file their returns by filling out paper forms (available at tax offices or downloadable from the National Tax Agency's website) and submitting them to the local tax office. It is also possible to visit your local tax office and receive assistance from tax officials in completing your returns.

How to pay less taxes

There are several ways individuals and businesses can reduce their tax liabilities in Japan.

Basic deduction (基礎控除, Kiso Kōjo)

This is a universal deduction that applies to all taxpayers. The amount is ¥480,000, and it is automatically deducted from your income when calculating your taxes.

Dependent deduction (扶養控除, Fuyō Kōjo)

This deduction applies if you have dependents, including children or elderly family members. For dependents under the age of 16, there is no deduction (but they affect local resident taxes), but for dependents aged 16 to 18, the deduction is ¥380,000.

Spousal deduction (配偶者控除, Haigūsha Kōjo)

If your spouse earns less than ¥1,030,000 annually, you are entitled to a spousal deduction of ¥380,000.

Social insurance premium deduction (社会保険料控除, Shakai Hokenryō Kōjo)

Contributions to social insurance programs such as health insurance, pension plans, and unemployment insurance are fully deductible from your income.

This deduction is automatically reflected for salaried employees whose contributions are deducted from their paychecks. For self-employed individuals, these deductions are claimed at the time of filing their tax return.

Medical expense deduction (医療費控除, Iryōhi Kōjo)

You can claim a deduction for medical expenses that exceed 5% of your total income or ¥100,000, whichever is lower.

Life insurance premium deduction (生命保険料控除, Seimei Hokenryō Kōjo)

You can claim a deduction for premiums paid for life insurance, private pension plans, and medical insurance. The maximum deduction is ¥120,000 (¥40,000 for general life insurance, ¥40,000 for medical insurance, and ¥40,000 for private pensions).

Mortgage loan deduction (住宅借入金等特別控除, Jūtaku Kariirekin Tōtokubetsu Kōjo)

Homeowners who have taken out a mortgage loan can claim a deduction of 1% of the outstanding loan balance annually for a period of up to 10 years.

Donations deduction (寄附金控除, Kifukin Kōjo)

Individuals who make charitable donations to approved organisations or contribute through the hometown tax (Furusato Nozei) program can claim a deduction.

The deductible amount is the portion of your donation that exceeds ¥2,000. For example, if you donate ¥50,000, you can claim a deduction for ¥48,000. There may also be an upper limit on the deduction, depending on your income level and the total amount donated.

Dividend tax credit (配当税額控除, Haitō Zeigaku Kōjo)

This credit is available to individuals receiving dividends from investments in Japanese companies. The amount of credit varies depending on whether the dividends come from listed or unlisted companies:

• For listed companies (publicly traded on stock exchanges such as the Tokyo Stock Exchange), the credit is 10% of the gross dividend.
• For unlisted companies (private entities whose shares are not traded on any public stock exchange), the credit is 5% of the gross dividend.

This credit is available to residents of Japan and reduces their overall tax liability on dividend income.

Research and development (R&D) tax credit (研究開発税制, Kenkyū Kaihatsu Zeisei)

Companies and individuals involved in research and development can receive a tax credit for expenditures incurred in R&D activities.

Talk to a tax advisor

Consulting with a tax advisor or accountant can be extremely beneficial to reduce the amount of taxes paid. These services ensure you pay correctly and can help collect benefits, allowances, and deductions.

For expats, services like these can be even more beneficial, as they help foreigners overcome language barriers and the complicated tax regulations of a new country.

Other taxes in Japan

In Japan, residents are required to pay several types of taxes in addition to income tax. These taxes include local taxes, consumption taxes, and various property and inheritance-related taxes.

Resident tax (住民税, Jūminzei)

Resident tax is a local tax paid to both the prefectural and municipal governments. It is calculated based on the previous year’s income and is divided into Per Capita Resident Tax (均等割, Kintōwari) and Income-based Resident Tax (所得割, Shotokuwari).

Resident tax is typically withheld from salaries, but self-employed individuals must pay it directly through quarterly instalments.

The income-based resident tax is usually around 10% of your income, while the per capita resident tax is a fixed amount, ranging from ¥4,000 to ¥9,000, depending on the region of Japan.

Consumption tax (消費税, Shōhizei)

Consumption tax is Japan’s version of a value-added tax (VAT) and is levied on most goods and services. The rate is 10% for most goods and services and 8% for food and beverages.

This tax is usually included in the price of goods and services, so consumers pay it at the point of sale.

Property tax (固定資産税, Kotei Shisanzei)

Property tax is imposed on owners of real estate, such as land and buildings. It is assessed annually based on the value of the property, which is determined by local authorities. The standard tax rate is 1.4% of the property’s assessed value.

Light vehicle tax (軽自動車税, Keijidōsha Zei)

This is a tax levied on owners of cars with small engine displacements or motorbikes. The annual tax varies depending on the type and size of the vehicle.

Automobile tax (自動車税, Jidōsha Zei)

Owners of standard vehicles must pay an automobile tax based on the vehicle’s engine size and type. The larger the engine displacement, the higher the tax.

Inheritance tax (相続税, Sōzokuzei)

Inheritance tax is applied to the assets inherited by heirs after someone passes away. It’s a progressive tax calculated based on the value of the inherited assets minus any applicable deductions.

Capital gains tax (譲渡所得税, Jōto Shotoku Zei)

When individuals sell certain assets, such as real estate or stocks, they may be subject to capital gains tax on the profit. The tax rate depends on the type of asset.

Tax treaties with Japan

To prevent double taxation of citizens of foreign countries living in Japan and avoid tax evasion, Japan has a number of tax treaties with other countries. You can see the complete list of agreements that are currently in place here.