TAXATION

TAXES LEVIED ON INDIVIDUAL INCOME INCOME TAX RESIDENT TAX RESIDENT TAX Q & A

1.TAXES LEVIED ON INDIVIDUAL INCOME

In Japan, both the income tax (a national tax) and the resident tax (a local tax) are levied on individual income.

1. Classification of Taxpayers

Taxpayers are divided into "Resident" and "Non-resident" categories.

"Resident"

If your residence is in Japan or you have resided continuously in Japan for one year or more regardless of your residence, you are considered a resident for tax purpose.

1. Permanent resident: An individual who is someone who has lived in Japan continuously for more than one year whether or not she/he has an address in Japan. This does not include non-permanent residents.
2. Non-permanent residents: An individual who has no intention of residing permanently in Japan and who has not had a residence in Japan for more than five years.

"Non-resident"

All individuals who are not residents.

2. Taxable Income and Forms of Taxation

"Taxable income" is levied on individual annual income. However, those who begin working part way through the tax year are responsible for the taxes corresponding to the time remaining in the tax year.

Permanent resident : Entire income

Non-permanent resident : Income from domestic sources, income received in Japan, or income sent from abroad.

Non-resident : Income from domestic sources

3. Special Measures provided by International Tax Treaties

The fact that each nation on the world establishes its own tax system and exercises its right to tax may cause the problem of double taxation due to some sort of tax levied by another nation.
To avoid such double taxation, it is necessary to adjust the extent of taxation rights between nations by international agreements. The International Tax Treaty is on of these agreements.
If you are a resident of one of the following countries (a non-resident of Japan), you may be entitled to the exemption provided for by the International Tax Treaty between Japan and your country on income derived from interest, allotment, specified remuneration, etc.
If you qualify for the exemptions or reductions provided by the International Tax Treaty, you must present the application form to the superintendent of the District Tax Office. Please contact your District Tax Office for more detailed information.

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INCOME TAX

Income tax is collected two ways: 1)withholding or 2) self-assessment.

1)withholding

Income tax is collected from employment income (salaries, bonuses, remuneration, wages and similar remuneration paid to employees) by withholding this amount before their salary is paid. However, it is not unusual that the total amount of the tax withhold does not equal that of the regular annual income tax which is calculated upon the total amount of an employee's annual income.

In order to settle this difference, it is necessary to properly calculate the amount of tax you must pay at the end of the fiscal year after your total income for that year has been determined. If there is a difference between taxes collected and taxes owed, you should follow the procedures for paying the amount you owe or for getting a refund. This procedure is called the "year-end adjustment," and most employees take care of this through their places of employment.

2) self-assessment.

The following people are obliged to declare their final return at the district tax office that has jurisdiction over their residence:

1. People who have income sources other than employment
2. People who quit their job during the fiscal year
3. People who does not take care of the year-end adjustment at their place of employment
4. People who want to take deductions for various losses and medical expenses
5. People who have employment income from several companies

The application period for year-end adjustments is from February 16 to March 15. All income from January 1 to December 31 of the previous year must be declared.

Staff at each of the district tax office will help you calculate the tax you owe, so please prepare the following items and take them to the tax office presenting over your residence:

1. Inkan (personal stamp)
2. If you are an employee: a form showing the tax withhold or an affidavit by the person who pays your salary If you are a business owner: particulars for earning and expenses
3. Receipts and certificates necessary for income deductions
4. The application form 5 Your bank passbook (in case you get a refund)

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RESIDENT TAX

Resident tax is divided into prefectural resident tax and municipal resident tax. These taxes are levied on the individual income of the previous year by each local public body. If you live in Japan as of January 1, you are obligated to pay resident tax for that year to the local public body that governs the area of your residence.

1. Tax Liabilities for Foreigners who have recently begun residing in Japan

1) Resident taxes (both per capita and as a percentage of income) are imposed on foreigners who have resided in Japan for more than one year and until the taxation date (January 1). If you depart and reenter Japan within one year of your entry to Japan, this departure is considered to be just a leave in light of the period of stay, purpose, housing situation, etc. The term you reside in Japan includes the period you were not in Japan. Even if you depart after January 1, your liability for tax payment does not disappear.

2) If you are a foreign resident for less than one year (by January 1), and your job requires you to reside in Japan for more than one year on and after January 1, resident taxes; levied per capita as a percentage of your income are imposed. However, if you depart before the year period is up, you are not considered liable for tax thus the resident tax which has been levied on your income is canceled.

2. Methods of Taxation for Resident Tax

Resident Tax is calculated based on declaration documents of municipal and prefectural resident tax, a final return form, a report of employment income by the place of employment (taxes withheld), etc. Resident tax is classified into two types: a) tax levied per capita and b) tax levied as a percentage of income.

3. How to Pay the Resident Tax

There are two ways to pay the resident tax: 1) specific collection and 2) general collection.

1) Specific collection
Based on a notice from the municipality, resident tax is collected from your salary in monthly installments from June to May of the following year.

2) General collection
If you have various kinds of income other than from being employed or if your place of employment does not withhold tax from your salary, you must pay the resident tax in four installments: in June, August, October, and January. You must pay upon notification of taxes due. (We recommend tax payment by bank transfer to the Takayama City bank account. Please ask your banking institution for more information.)

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RESIDENT TAX Q & A

What is the difference between income tax and resident tax?

Q1: I have had tax collected from my salary since I began working in Japan. Nevertheless, I received notification of taxes due again next year. Why does this happen?

A1: The tax collected from your salary every month is income tax levied by the national government. The tax notification for next year is the resident tax levied by municipalities. Resident tax (calculated on total income you received in the previous year) should be paid the year after you received that income.

What is the period of the fiscal year?

Q2: I heard that the fiscal year in Japan is from April to March. Although I filed a final tax return in March, a notification of tax payment due was sent to me in June. Why does this happen?

A2: For example, in the 1998 fiscal year, the period for tax payment due is from June, 1998 to May, 1999. (Be careful that this tax is calculated on your total income received from January 1 to December 31 of the previous year.) Therefore, employees whose resident taxes are withheld from their monthly salaries receive their notification for tax payment in May, and others receive the notice in June.

How do I pay my resident tax?

Q3: I worked until August of this year. After I quit my job, I have not worked for a while. Yet, I received a notification for tax payment due for this year. Why is this so?

A3: There are two ways to pay your resident tax: one is to have the tax withheld from your monthly salary by your employer and the other is to pay the tax yourself. In your case, you have paid the resident tax up to August through your place of employment. However, since you quit your job, it is impossible to withhold tax from your salary. Therefore, you must pay the balance, the tax from September to May, yourself.

If I move to another city, which municipality will levy the tax?

Q4: I moved from City A to City B on January 10, 1999. However, a notification of taxes due came from City A. Why?

A4: Resident tax is levied by the municipality in which you resided as of January 1, 1999. As your residence was in City A on January 1, you must pay the resident tax for 1999 to City A although you moved to City B during the year.

What are the procedures for payment of tax when I go back to my home country?

Q5: I worked in Japan until August of this year (1999). I have now quit my job and am going back to my country in October, 1999. I think it will not be necessary for me to pay the resident tax for the period from September to May. Is it true? I also heard that is I quit my job halfway through the year, the income tax which has been withheld from my salary so far may be returned to me. Is that true?

A5: Resident tax is collected the year after you were paid the income, so you must pay the tax as of January 1, 1999. If returning to your home country prevents you from paying resident tax in the installment method, you will be required to pay the balance in a lump sum before your departure. On the other hand, the amount of income tax withheld from your employment income every month is determined by the estimated sum of your income for the year. Therefore, it is normal for there to be a difference between the sum of tax withheld and that of the calculated amount you must pay. For that reason, the procedure for your-end adjustment should be followed through at your place of employment in order to adjust the amount of income tax. In case you return to your country halfway through the year, you must file a return at the district tax office not at your place of employment. If the tax withheld from your employment income is greater than the amount of tax you owe, you will get a refund.

Do I have to pay tax for a stay in Japan on a sightseeing visa?

Q6: I was first admitted into Japan on a sightseeing visa. I then went through the formalities for visa renewal, and I have now lived in Japan for more than one year. I think I am not liable for resident tax because I am neither a citizen nor a resident of Japan. Is this true?

A6: A person who lives in Japan continuously for more than one year is subject to pay resident tax even if they are not considered a resident and even if they were admitted to Japan on a sightseeing visa. (This applies even if you go back to your country for a vacation, etc.)

How is the tax levied for working students?

Q7: I am a working student, studying agricultural techniques. Are there any types of tax reductions?

A7: There may be a deduction for working students. The conditions for working students to receive a tax deduction are as follows: 1. She/he has employment income from her/his own employment. 2. Her/his total income is 650,000 Japanese yen or less. 3. Her/his income, excluding employment income, is 100,000 Japanese yen or less.

Can I get a tax deduction if I leave my own family in my country?

Q8: I came to Japan alone leaving my family in my country. Can I receive a tax deduction for counting my family members as family dependents?

A8: If you continually send money for your family's living expenses, you are regarded as having family dependents, and you will be allowed a deduction.

What about taxes on my wife's income?

Q9: I came to Japan with my husband, and I am now employed. My husband and I both received notification of taxes due. Since my husband pays the resident tax, do I also have to pay it?

A9: As mentioned before, the resident tax is composed of "tax levied per capita" and "tax levied on income." If your husband pays the "tax levied per capita," you are not required to pay. However, "tax levied on income" is levied on all persons having income. Therefore, you and your husband must pay the "tax levied on income" respectively, in proportion to your income.

Shall I report income from my country?

Q10: I quit my job in my country last March and after that I came to Japan and found work. At the time of the final tax assessment, is it necessary for me, when reporting the total income for the previous year, to include the income that was paid in my country?

A10: You do not need to report income from your country because only income paid in Japan is taxable.

What should I do about taxes of a short-term business trip turns into a long term stay?

Q11: I have been in Japan for three months, since last June, on a business trip. Now, I have been told by our headquarters to remain on after September, and the expected term of stay is one year. Am I under any obligation to pay resident tax?

A11: Even though you have not lived in Japan for more than one year at this point in time, you are obligated to pay resident tax if you have a job that will keep you in Japan for more than one year from now. In this case, however, your income for the three month business trip is not taxable.

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