If you’re a foreigner living and working in Japan, understanding the residence tax is key to managing your finances and avoiding any complications. This article will walk you through the basics of residence tax, including who needs to pay it and how it’s calculated.
What is Residence Tax?
Residence tax is a local tax paid by anyone with an address in Japan as of January 1 who earns a certain amount of income. This applies to foreigners as well. Even if you leave Japan after January 2, you must still pay this tax. Not paying your residence tax can result in the denial of your visa renewal application.
How to Pay Residence Tax
The amount of residence tax you need to pay is based on your income from January 1 to December 31 of the previous year. There are two main methods to pay residence tax:
- Withholding from Salary (Special Collection): Your employer deducts the residence tax from your salary in advance and pays it to the municipal office. This is the standard method for employees, so you don’t need to handle the payment yourself.
- Self-Payment (Ordinary Collection): Around June each year, you will receive a notice (tax bill) from the municipal office asking you to pay the residence tax. You must take this notice and the specified amount to a financial institution to make the payment.
Important Situations to Note
- If You Leave Your Job If you pay residence tax through the special collection and leave your job, you must pay the remaining residence tax through the ordinary collection. Alternatively, you can ask your employer to deduct the unpaid residence tax from your final salary or severance pay and pay it to the municipal office on your behalf (lump-sum collection).
- If You Leave Japan If you cannot pay the residence tax before leaving Japan, you need to appoint a tax agent (tax payment manager) from among the people living in Japan to handle your tax affairs and notify the municipal office where you live.
General Information about Residence Tax
What is Residence Tax?
Residence tax is divided into “corporate residence tax,” borne by companies, and “individual residence tax,” borne by individuals who have an address in a municipality or prefecture.
Residence Tax Rates
The residence tax consists of two components: the income-based component and the per capita component.
- Income-based component (standard tax rate): Calculated based on the previous year’s income and deductions.
- Per capita component: A fixed amount charged to everyone with a certain income level.
Tax Rates and Per Capita Tax (From FY2024)
| Tax Type | Income-Based Rate | Per Capita Tax (Annual) |
|---|---|---|
| Forest Environment Tax | N/A | ¥1,000 |
| Municipal Resident Tax | 6% | ¥3,000 |
| Prefectural Resident Tax | 4% | ¥1,000 |
| Total | 10% | ¥5,000 |
Starting from FY2024, an additional ¥1,000 Forest Environment Tax will be collected together with the residence tax.
Calculation Method for Residence Tax
- Determine Total Income Amount
- Total Income Amount = Annual Income (January 1 to December 31) – Deductions and Loss Carryforward
- Income Deductions
- Various deductions are allowed, such as casualty losses, medical expenses, social insurance premiums, small business mutual aid contributions, life insurance premiums, earthquake insurance premiums, disability deductions, widow deductions, single parent deductions, working student deductions, spouse deductions, special spouse deductions, dependent deductions, and basic deductions.
- Determine Taxable Income Amount
- Taxable Income = Total Income Amount – Total Income Deductions
- Calculate Income-Based Component
- Income-Based Component = Taxable Income × Standard Tax Rate (10%)
- Tax Credits
- Subtract applicable tax credits (e.g., dividend tax credit, foreign tax credit, donation tax credit, tax credits for dividends and capital gains, special home loan tax credit, and adjustment credit).
- Add Per Capita Tax
- Final Residence Tax = Income-Based Component after Tax Credits + Per Capita Tax
Example Calculation (for FY2024)
For an individual with a total income of ¥3,000,000, total deductions of ¥1,000,000, and no tax credits:
- Taxable Income: ¥3,000,000 – ¥1,000,000 = ¥2,000,000
- Income-Based Component: ¥2,000,000 × 10% = ¥200,000
- Per Capita Tax: ¥5,000 (including Forest Environment Tax)
- Total Residence Tax: ¥200,000 + ¥5,000 = ¥205,000
Note: The calculation is simplified for illustrative purposes and excludes common adjustment credits.
Understanding these basics allows you to manage your tax obligations better while living and working in Japan. Make sure to stay informed and compliant to avoid any issues with your residency status.
