1. Employment Income Tax System
2. Income Tax
3. Inhabitant Taxes

1. Employment Income Tax System

     Foreign employees working in Japan are subject to income tax (national taxes) and inhabitant tax (local taxes). The income tax is collected by your regional taxation bureau, while inhabitant tax is collected by the municipal offices.
    The employer tax withholding system is adopted in Japan. The employer who pays the wages is obliged in principle to conform to this system. This means that, when the employer pays the wages, the income tax is withheld at source by the employer and paid to the government by him/her on behalf of the employees.
    The taxpayer is not required to file a final return, because the year-end-adjustment of income tax is made by the employer in the final payment for the year. However, some employees need to file a final return in certain cases. Please refer to“ Filing a Final Return” in this Handbook.
    There is also a with holding system for Inhabitant tax, where the employer withholds the inhabitant tax of the employees from their wages and pay it on behalf of the employees to the municipal offices.

2. Income Tax

(1) Tax for Residents
     You are “a resident” for tax purposes, if you have a domicile “( Jusho”) in Japan, or you have resided continuously in Japan for one year or longer. Individual's income from wages is taxed in the same way as Japanese nationals. A person, who is sent to Japan as an employee from his/her home country according to a contract, is presumed to be a resident immediately upon his/her entry into Japan, unless evidence shows that his/ her stay in Japan is to be less than one year.
     Income tax is imposed upon individual's income earned during the previous year from January 1st to December 31st. The tax rate is the same as for Japanese nationals. The net employment income is computed by deducting employment income deductions from the gross employment income. Income tax is computed by multiplying the taxable income by the tax rate. Taxable income is computed after deducting standard basic deductions, Social Insurance Premiums, and deductions for spouse and dependants from the net employment income. The tax rate is between 10 to 37% depending on your income.
In order to get the deduction for spouse and dependants residing in the home country, the employee is required to file “the application for spouse and dependants deduction” to the employer, before his/her first pay day each year. The deduction will be made by the year-end-adjustment. In this case he/she is required to submit a document certifying that he/she sent money to his/her home country and that the remittees are relatives of him/her.

(2) Filing a final return
     A taxpayer, if he/she is an employee, is not usually required to file a final return. This is because the year-end adjustment of withholding income tax is made with the final payment for the year by the employer.
     However, if you meet one of the below listed conditions, you are required to file a final return;
a.　if total employment income receipts exceeded ￥20,000,000,
b.　if employment income was paid abroad,
c.　if employment income was paid by two or more sources or if you received various types of income other than employment and retirement income,
d.　if employment income was exempt from withholding income tax because the person was a domestic employee, etc.
    In addition, there are some cases where you are entitled to a partial or total refund of the withheld tax, when you may claim a tax refund by declaring deductions for great medical expenses or special credit for the purchase of a residence, even if you are not required to file a final return. If you should file a return, you should do so with the tax office which has jurisdiction over your address during the period from February 16th to March 15th.
     An advisory service concerning filing a final return is available at the tax offices. You can also get a tax leaflet from the tax offices.
     However, in case a person who is supposed to be subject to income tax as“ a resident” was subject to taxation as“ a non - resident” at 20 % rate by mistake, is not entitled to a tax refund by“ Filing a final return” In this case, his/her employer is required to claim a refund.

(3) Credit for foreign taxes
     In order to avoid international double taxation on income, a tax payer who pays foreign taxes, national or local, which are similar to Japanese income tax may choose to have the amount of those foreign taxes credited against his/her Japanese income tax. In this case you are expected to file a final return.

(4) Certificate of tax deducted at source
     The employer, who is liable to withhold tax, is legally required to issue every employee with a“ withholding certificate (gensen - chooshuu - hyoo)” by January 31st on which the final and definite amount computed by the year-end adjustment is given. If someone retires in the course of the year, the employer should issue the certificate within one month after the day of retirement (Article 226, Income Tax Act).
     The employer shall issue a certificate for the employee certifying that the employee has made a final and definite payment of income tax for the year.

(5) Liability of Non-residents
     Non-residents are subject to income tax on their“ Income From Sources In Japan” which is paid in Japan or abroad. Gross wages are subject to income tax at a flat 20% rate by means of withholding at source when the payment is made in Japan.
     If salaries, wages and other allowances for employment rendered in Japan are paid abroad and no Japanese withholding tax is imposed, you must file a final return and pay the tax due by March 15th of the year following the year in which you received the payment. In case you leave Japan before the due date, you must file a final return and pay the tax due before you leave.
     With respect to non-residents, the collection of income tax varies depending on the types of income and circumstances. Also, there are some cases where special measures are provided by the tax treaty provisions (concluded with more than 50 countries e.g. The United States of America, The United Kingdom, Australia, The Philippines, Korea and China). Please contact your tax office or regional taxation bureau for further information.
     However, in case a person, who should be subject to income tax as“ a resident” was subject to taxation as“ a non - resident” by mistake, is required to claim a refund through the employer.

3. Inhabitant Taxes

     Inhabitant Taxes include the Tokyo/Prefectural inhabitant Tax and city/town/village tax. Individuals who live in a ward, city, town or village as of January 1st are liable for payment of taxes without regard to nationality.
     The calculating method of Inhabitant tax is based on income tax of previous year, and the amount of tax due is decided in or after April by cities, towns or villages and should be paid by the individual after he/she is notified. Inhabitant tax of company worker is deducted by his/her company each month from his/her salary and paid to the ward, city, town or village office on behalf of the worker during the period from June to May of the following year (special collection). Other tax payers pay their inhabitant taxes in quarterly installments directly to the ward, city, town or village office (ordinary collection).
     Therefore, a person who was paid salary in the previous year is expected to pay inhabitant tax even if he/she changes his/her domicile or leaves Japan after January 1st.
There are some cases where special measures are provided for credit for foreign taxes and the tax treaty provisions. For more details please contact the city office in your district.