Taxes

The tax system in Japan

Learn how the tax system works in Japan, including the latest rates and information about income, corporate, and inheritance tax.

Japan tax
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By Stephen Maunder

Updated 18-3-2024

When moving to a new country, getting your head around the quirks of its financial system can be one of the most tricky challenges. If you’re living and working in Japan (日本, Nihon/Nippon), it’s essential to learn how you’ll be taxed on your income (収入, shunyu) and assets and understand the allowances and deductions you’re entitled to.

To take control of your finances, read on for advice on the following:

The tax system in Japan

The National Tax Agency (国税庁, Kokuzei Cho) oversees taxes in Japan and announces any planned changes in the tax (税金, zeikin) system annually in the National Budget (国家予算, kokka yosan). The tax year runs from 1 January to 31 December, and residents must file their tax returns by 15 March of the following year.

Woman wearing face mask and holding phone walks past shoe shop in Tokyo
Photo: Carl Court/Getty Images

The tax system (税制, zei sei) in Japan is relatively complicated, with taxes levied at the national, prefectural (regional), and municipal levels. Notably, the country has exceptionally high income and inheritance taxes but keeps its Value Added Tax (VAT) or Consumption Tax (CT) – as it is known in Japan – low. Its tax-to-GDP ratio is around 33%, slightly below the OECD average of 34%.

Japanese federal taxes

The Japanese government sets rates and deadlines at a national level on the following taxes:

  • Income tax (所得税, shotoku zei): residents and non-permanent residents pay income tax at rates ranging from 5–45%. Non-residents pay a flat rate of tax on all income.
  • Corporate tax (法人税, hojin zei): most companies in Japan pay corporate tax at a rate of 23.2%. Small and medium-sized companies with lower turnovers pay a lower rate.
  • Inheritance tax (相続税, sozoku zei): rates range from 10–55%, but exemptions are available to reduce your tax bill
  • Consumption tax (CT – 消費税, shohi zei): charged at 10%, though a lower rate of 8% is available for some goods and services

Regional and local taxes in Japan

The government sets Japan’s income tax rates at a national level. However, taxpayers (納税者, nozei sha) must pay an additional local inhabitant’s tax, which is charged as a percentage of their income. This tax is split between the taxpayer’s prefectural and municipal governments. Companies must also pay an enterprise tax to their prefectural government.

If you own a home in Japan, your local municipality will usually charge a ‘fixed asset tax’ (固定資産税, kotei shisan zei) based on your property value. Homeowners in Japanese cities may also pay an additional city planning tax (都市計画税, toshi keikaku zei).

Consumption tax: Japanese taxes on goods and services

As mentioned before, VAT in Japan is called Consumption Tax (CT) (消費税, shohi zei) and the standard rate for goods and services is 10%. However, most food items (excluding alcoholic drinks and meals in restaurants) and biweekly newspapers are subject to a reduced rate of 8%.

Companies must register for CT and file returns if their sales exceed ¥10 million during the base period: the two years immediately before the current financial year. The deadline for filing a CT return is 28 February.

The penalty for failing to file a CT return amounts to 15% of the tax owed, plus an additional 5% on any sum exceeding ¥500,000. Late payments are subject to interest at 7.3% for the first two months and 14.6% after that.

Businesses are exempt from filing their CT return if their taxable sales are the same or less than ¥10 million.

Who has to pay tax in Japan?

If you are employed or run your own company in Japan, you must pay Japanese tax on your income or profits (利益, rieki). The exact rules for income tax vary depending on your residency status (在留資格, zairyu shikaku).

Workers in Japan fall into one of three categories for tax purposes.

  • Permanent residents (永住者, eijusha): must pay Japanese income tax on their worldwide income
  • Non-permanent residents (非永住者, hi eijusha): pay tax on income originating in Japan and foreign income paid in or sent to Japan
  • Non-residents (非居住者, hi kyojusha): only pay tax on income in Japan

You can discover more about the different residency statuses by reading further about Japanese tax returns.

Japanese tax system for internationals

The tax rates for international workers are the same as for Japanese nationals.

If you have an international pension, this may be subject to Japanese law, depending on your residency status. The rules for non-permanent residents accessing pensions from their home country can be complicated and may trigger the need to file a tax return. So, consider seeking expert advice for your specific situation.

Male couple calculating taxes together at home
Photo: Marko Geber/Getty Images

In addition, Japan has double taxation treaties with more than 50 countries, including:

The full list is on the Ministry of Finance (MOF) (財務省, Zaimu Sho) website.

The country also signed up to the Automatic Exchange of Information system (AEOI). It allows authorities in around 100 member countries to crack down on tax evasion by sharing their residents’ tax information.

Income tax in Japan

Income tax in Japan is charged at a national, prefectural, and municipal levels. The current rates are as follows:

IncomeRateDeduction
Up to ¥1.95 million5%None
¥1.95m to ¥3.30m10%¥97,500
¥3.30m to ¥6.95m20%¥427,500
¥6.95m to ¥9m23%¥636,000
¥9m to ¥18m33%¥1.536m
¥18m to ¥40m40%¥2.796m
¥40m+45%¥4.796m
Note: A 2.1% surcharge is also payable on the tax brackets above.

Local inhabitant’s tax in Japan

Residents registered with their municipality have to pay local inhabitant’s tax. It is 10% of their income split between prefectural (4%) and municipal income tax (6%).

Income tax in Japan for non-residents

If you’re considered a non-resident for tax purposes, you’ll need to pay national income tax at a flat rate of 20.42%. No deductions are available when filing your tax return.

If you register as a resident as of 1 January of the following year, you will be charged the local inhabitant’s tax of 10%.

How to file your income tax return in Japan

In Japan, most companies will deduct tax from their employees’ salaries, meaning workers do not need to file a tax return (確定申告, kakutei shinkoku).

If you need to file an annual return, you must submit it between 16 February and 15 March of the following year. You can file your tax return online, in person, or by post. Payments are usually made in installments across the year rather than as a lump sum.

Self-employed income tax in Japan

Self-employed freelancers (個人事業主, kojin jigyo nushi) pay national income tax at the same rates as employed workers.

However, instead of paying local inhabitant’s tax, self-employed workers must pay enterprise tax, which is charged at a rate of 4.8 to 9.6% depending on the type of business. Self-employed workers can also offset business expenses when filing their tax returns.

Tax on property and wealth in Japan

Homeowners in Japan must pay their municipality an annual fixed assets tax (固定資産税, kotei shisan zei) charged at 1.4% the property’s appraised value. Properties valued below certain thresholds are exempt – this amount varies from area to area. The local tax office calculates bills and sends them out between April and June each year.

Homeowners living in urban areas may also need to pay a city planning tax (都市計画税, toshi keikaku zei), ranging from 0.2–0.3% of the home’s value.

If you sell a property in Japan, you may need to pay capital gains tax (譲渡所得税, jodo shotoku zei). How gains are taxed depends on the amount of time you’ve owned the property (不動産, fudosan):

  • Less than five years (short-term): 30.6% national tax, plus a 9% inhabitant’s tax
  • More than five years (long-term): 15.3% national tax, plus a 5% inhabitant’s tax

If you are selling your primary residence, you can benefit from a deduction of ¥30 million before calculating your capital gains tax bill.

Capital gains on shares are usually taxed at 20.31% (15.31% plus a 5% local inhabitant’s tax).

Japanese inheritance tax

Japanese inheritance tax applies to property and other assets in the country.

Heirs can offset a flat exemption of ¥30 million plus a further ¥6 million per heir against the estate’s value. Once the estate’s value is determined, each beneficiary’s share of inheritance tax is calculated individually. However, if the estate is valued at less than the exemption, the inheritor won’t need to file a return or pay inheritance tax.

Grandfather is hugged by grandchildren on the beach
Photo: Ippei Naoi/Getty Images

If you have been in Japan for more than 10 years, you must make tax declarations within 10 months of a death and pay inheritance tax on any assets bequeathed to you, even if the deceased lived abroad.

Inheritance tax rates range from 10 to 55%, as follows:

Amount receivedRate
Up to ¥10 million10%
¥10m to ¥30m15%
¥30m to ¥50m20%
¥50m to ¥100m30%
¥100m to ¥200m40%
¥200m to ¥300m45%
¥300m to ¥600m50%
¥600m+55%

You may be taxed 10–55% on monetary gifts above ¥1.1 million. However, allowances and deductions are available depending on the recipient’s age and relationship to the benefactor. The tax system also allows taxpayers to settle their gift tax and inheritance tax bills later. However, because of the complicated rules, it may be wise to seek expert financial advice. 

To learn more about rates and exemptions, check out PwC’s website.

Business taxes in Japan

Companies based in Japan are taxed on their worldwide income, while foreign corporations are only taxed on income sourced in the country. The standard corporate tax rate is 23.2%, though a lower rate of 15% is available on the first ¥8 million earned by small or medium-sized companies.

Enterprise tax is also levied on company income. Each prefecture sets this based on the business’s number of employees and offices. Employers must further pay an additional local corporate tax at a fixed rate of 10.3% of their liabilities. For more information, visit the Santander Trade website.

Finally, business premises tax (事業所税, jigyosho zei) is levied in Japanese cities with populations of more than 300,000 people. This only applies to companies with business premises above 1,000 square meters or businesses with more than 100 employees. Considering all taxes, companies in Japan pay an average effective tax rate of 30.62%.

Japanese import and export taxes

Japan has one of the lowest customs tariffs (関税, kan zei) in the world, with a rate of just 2.5% charged on most products. The threshold for paying a tariff is ¥10,000. Higher rates may be chargeable on some imports, including agricultural products (15.5%) and clothing (9.2%). You can find out more about the rules from the American International Trade Administration.

Preferential rates may be available for countries with which Japan has a trade partnership. You can find the latest list from the Ministry of Foreign Affairs.

Other taxes in Japan

Vehicle taxes (自動車税, jidosha zei)

If you own a car in Japan, you’ll need to pay an automobile tax. The amount will depend on your vehicle type (e.g., car, truck, bus, campervan) and engine power. If you own a car for private use, the amount charged varies from ¥29,500 to 111,000. Higher rates are charged for vehicles more than 13 years old. You can find a full table on the Okinawa Institute of Science and Technology (OIST) (沖縄科学技術大学院, Okinawa Kagaku Gijutsu Daigakuin) website.

Liquor and tobacco taxes (酒税/たばこ税, shu zei/tabako zei)

Alcoholic drinks in Japan are subject to a liquor tax, which is included in the price of the beverage, but the income raised has been falling rapidly. According to the National Tax Agency, the revenue from alcohol tax dropped from 3% in 2011 to 1.7% in 2020.

Tobacco is also taxable and in 2023, the government announced plans to raise the tax by ¥3 per cigarette.

Japanese tax rebates and reliefs

Home loan tax deduction

Homeowners in Japan can offset 1% of the remainder of their mortgage borrowing (a maximum of ¥40 million) as a tax credit for up to 10 years. There are a few requirements to qualify for these deductions, such as:

  • Properties must be larger than 50 square meters
  • It must be the borrower’s primary home
  • The taxpayer’s income needs to be under ¥30 million

Donations to non-profit organizations (NPOs)

Financial donations to organizations based in Japan can be subject to tax deductions. The allowable deduction is 40% of the amount donated minus ¥2,000.

Tax avoidance and evasion in Japan

As in many countries, tax evasion (脱税, datsu zei) is a significant problem in Japan. Official data shows the amount of undeclared income from high-income earners totaled almost ¥84 billion in the first half of 2022 – up 72% from 2021. Anyone caught concealing their assets abroad can face a prison term of up to three years and a fine (罰金, bakkin) of ¥2.5 million.

A man walks by a colorful lottery shop in Tokyo
Lottery (宝くじ, takara kuji) shop in Tokyo (東京) (Photo: Yuichi Yamazaki/Getty Images)

The statute of limitations in Japan for tax audits is five years, though extensions are available in cases of suspected tax evasion. An additional three-year period is given if a taxpayer fails to supply documents related to overseas assets or transactions.

Tax fines and interest may apply at a much lower level if you fail to file your income tax return on time or deliberately withhold information about your earnings. Fines are charged at 15% of the amount owed (rising to 20% for amounts above ¥500,000). If you deliberately withhold information from the authorities, an additional fine of 35% to 40% will be charged.

Japanese tax advice

Learning about the tax system in a new country can be tricky, particularly if you are a newcomer and not fluent in the local language. For this reason, it is recommended to seek professional advice from an English-speaking accountant or tax expert when filing your tax returns. This can be especially helpful if you intend to set up a company or are self-employed.

However, ensure your financial advisor meets the standards set by the Accounting Standards Board of Japan (企業会計基準委員会, Kigyo Kaikei Kijun Iinkai). Alternatively, browse our international-friendly Business Directory to find a reputable tax expert.

Useful resources