Living in Tokyo as a foreigner? Taxes can be confusing, but here’s a quick breakdown to help you navigate Japan’s tax system:
-
Residency matters: Your tax obligations depend on your residency status, not your nationality.
- Non-residents: Taxed only on Japan-sourced income at a flat 20.42%.
- Non-permanent residents: Taxed on Japan-sourced income and foreign income only if remitted to Japan.
- Permanent residents: Taxed on worldwide income.
-
Key taxes:
- National income tax: Progressive rates (5%–45%) based on income brackets.
- Local inhabitant tax: Flat 10% plus a small per capita charge (~¥5,000).
- Consumption tax: 10% on most goods/services (8% for essentials like food).
- Deadlines: Tax returns are due 16 February–15 March each year.
- Avoid double taxation: Japan has tax treaties with many countries, including the US, to prevent paying taxes twice.
-
Filing requirements: Most salaried workers don’t need to file, but you must if:
- You have side income over ¥200,000.
- You earn over ¥20 million annually.
- You leave Japan mid-year.
Quick Tip: Keep detailed records of income, expenses, and foreign earnings. For help, consult English-speaking tax professionals or use resources from Japan’s National Tax Agency.
Taxes don’t have to be overwhelming - understanding the basics and planning ahead makes the process easier!
Japanese Tax Residency and Scope of Taxation
How Japan's Tax System Works
Japan’s tax system operates on a dual-layer structure, requiring individuals to pay both national and local taxes. What’s unique is that tax obligations are determined by your residency status, not your nationality, which means your classification as a resident or non-resident directly impacts how much tax you owe.
Key Components of Japan's Tax System
The tax framework in Japan includes several elements that together shape your overall tax liability. At its core is the national income tax, which uses a progressive rate system - higher earnings result in higher tax rates. On top of this, there’s a local inhabitant tax, which is applied at a flat rate of 10% on your income.
Additionally, a 2.1% reconstruction surtax is added to your national income tax and will remain in effect until 2037. The local inhabitant tax is calculated based on your income from the previous year, provided you are registered as a resident on January 1 of the current tax year. This means you might receive a tax bill in your second year of living in Japan for income earned in your first year, even if your financial situation has changed since.
Japan also applies a consumption tax of 10% on most goods and services. However, essential items like food, beverages, and newspapers are taxed at a reduced rate of 8%. Other taxes, such as property tax, gift tax, and inheritance tax, exist but are less likely to affect most expatriates.
For non-residents, the tax rules are simpler but stricter: a flat 20.42% national income tax is applied to income sourced within Japan.
Now, let’s take a closer look at the specific tax brackets and rates for the 2025 tax year.
Tax Rates for 2025
Japan’s national income tax follows a progressive system, where higher income levels are taxed at increasing rates. Below is the breakdown for the 2025 tax year:
| Taxable Income (¥) | Tax Rate (%) | Deduction (¥) |
|---|---|---|
| 0 – 1,950,000 | 5 | 0 |
| 1,950,000 – 3,300,000 | 10 | 97,500 |
| 3,300,000 – 6,950,000 | 20 | 427,500 |
| 6,950,000 – 9,000,000 | 23 | 636,000 |
| 9,000,000 – 18,000,000 | 33 | 1,536,000 |
| 18,000,000 – 40,000,000 | 40 | 2,796,000 |
| Over 40,000,000 | 45 | 4,796,000 |
Taxes are calculated progressively within these brackets. For instance, if your annual income is ¥5,000,000, you would pay 5% on the first ¥1,950,000, 10% on the portion between ¥1,950,000 and ¥3,300,000, and 20% on the remaining income.
It’s important to note that these rates only apply to the national income tax. Residents must also account for the 10% local inhabitant tax and an additional per capita charge of around ¥5,000 annually. On top of this, the 2.1% reconstruction surtax is added to your national income tax, slightly increasing your total tax rate.
For example, a resident earning ¥6,000,000 annually might face a 20% national income tax rate (before adding the surtax), along with the 10% local inhabitant tax and the 2.1% surtax on the national portion. Because Japan’s tax system is progressive, even a small salary increase can push you into a higher tax bracket, leading to a noticeable jump in your overall tax burden. Understanding these thresholds is essential for financial planning, especially for expats living in cities like Tokyo.
Who Must File Taxes in Japan
Navigating Japan’s tax system starts with understanding your residency status. Your tax responsibilities and filing requirements hinge on how long you’ve lived in Japan and the nature of your ties to the country.
How Residency Status Affects Your Taxes
Non-residents are individuals who have lived in Japan for less than a year and haven’t established a primary residence. They are only taxed on income earned within Japan. For specific tax rates, refer to earlier sections.
Non-permanent residents are those who have lived in Japan for at least one year but do not hold permanent resident status. This group is taxed on income earned in Japan as well as any foreign income that is paid or transferred into Japan.
Permanent residents include individuals who have lived in Japan for at least five years or have official permanent residency status. They are subject to income tax on their worldwide income, regardless of where it’s earned or held.
"In Japan, permanent resident taxpayers are taxed on their worldwide income. Non-resident taxpayers are taxed only on their Japan-sourced income. Non-permanent resident taxpayers are taxed on their income other than foreign-source income (in particular, potentially, on certain capital gains) that are not remitted into Japan plus potentially part of their foreign-sourced income that is paid in or remitted to Japan." - PwC Tax Summaries
If your annual income is less than ¥25 million, you may qualify for a basic exemption when filing your tax return, which can help lower your overall tax liability.
Next, let’s look at filing deadlines and the documents you’ll need.
When to File and What Documents You Need
For most foreign employees in Japan, filing a tax return isn’t necessary because of the withholding tax system, where employers deduct taxes directly from your monthly salary.
However, you’ll need to file a tax return if any of the following apply:
- Your employer doesn’t withhold taxes (e.g., you work for a company outside Japan).
- You have multiple employers or side income exceeding ¥200,000.
- Your annual income exceeds ¥20,000,000.
- You leave Japan before the end of the tax year.
Tax returns must be filed between 16 February and 15 March for the previous year. To complete your filing, you’ll need the following documents:
- Gensen chōshū-hyō (withholding tax statement) from your employer.
- Records of any additional income sources.
- Receipts for deductible expenses, such as medical costs or charitable donations.
- Records of foreign income if you’re a permanent resident.
For those receiving foreign pensions, tax obligations depend on residency status. Non-permanent residents may not owe Japanese tax on pensions that aren’t transferred to Japan, while permanent residents must include all pension income in their Japanese tax return.
If you’re concerned about double taxation, Japan’s tax treaties with other countries can help. However, you’ll still need to file returns in all applicable countries.
sbb-itb-cbc0cbb
Tax Issues for Expats
Living in Tokyo as a foreign resident comes with its own set of tax challenges, especially if you're self-employed or managing income from multiple countries. Understanding these complexities is key to navigating Japan's tax system and avoiding costly mistakes.
Self-Employment and Business Taxes
If you're self-employed in Japan, you’re responsible for filing your own tax returns and calculating your taxes. Unlike salaried employees, who have taxes withheld automatically, freelancers and sole proprietors earning ¥480,000 or more annually must file a tax return (確定申告) to report their income and pay income tax. Starting in 2025, the standard income tax exemption will increase to ¥580,000, offering some relief.
To reduce your tax burden, you can deduct various business expenses like rent, utilities, travel, client entertainment, materials, and insurance premiums. Keeping detailed records of all income and expenses is essential to maximize these deductions.
Another layer of complexity is the enterprise tax. This tax applies to self-employed workers and corporations, with rates ranging from 3.5% to 7%, depending on your location and income. If you own a business in Tokyo, corporate tax rates are 15% on annual income up to ¥8 million and 23.2% on income exceeding that amount. Additionally, businesses must handle consumption tax, which is applied at a standard rate of 10% (or 8% for certain items). This tax is calculated as the difference between the tax collected on sales and the tax paid on purchases.
For expats, managing these taxes becomes even more intricate when international income is involved.
How to Avoid Paying Tax Twice
Expats earning income both in Japan and abroad often face the risk of double taxation. Fortunately, tax treaties like the US-Japan Income Tax Treaty help address this issue. These agreements allocate taxing rights for specific types of income between Japan and your home country, often allowing for tax credits or exemptions to prevent double taxation. For example, an updated protocol signed in 2013 and ratified in 2019 strengthened these provisions, ensuring better protection against overlapping tax obligations.
However, there are limitations. Many treaties include a "saving clause", which allows each country to tax its citizens and residents as if the treaty didn’t exist. This means you might still need to file tax returns in both countries, even if you don’t owe taxes in both.
Social Security taxes are another area where double taxation can occur. The US-Japan Totalization Agreement helps prevent this by coordinating Social Security systems, ensuring you don’t pay into both countries’ systems simultaneously.
Your residency status in Japan plays a crucial role in determining how treaty benefits apply. If you work with international clients or have ties to a parent company abroad, transfer pricing regulations require that transactions between related companies be priced at market value and well-documented to comply with tax laws.
Given these complexities, consulting with tax professionals is highly recommended to ensure compliance with both local and international regulations.
Getting Tax Help in Tokyo
Navigating Tokyo's tax system can feel overwhelming, but expert guidance can make the process much smoother. Thankfully, Tokyo provides a variety of resources tailored for foreign residents, including English-speaking tax professionals and government-supported online tools. Below, we’ll explore these options to help you tackle your tax filings with ease.
English-Speaking Tax Professionals
For expats, finding a tax consultant who understands Japanese tax laws and the unique challenges of living abroad is essential. Tokyo is home to several accounting firms that specialize in assisting foreign residents and businesses, offering services in English to eliminate language barriers.
- Akasaka International Accounting: This firm provides a wide range of services, including financial consulting, tax filing, and support for subsidiaries - all conveniently based in Tokyo.
- YASUDA-Accounting: Specializing in international taxation, YASUDA-Accounting caters to foreign companies and individuals in Japan. Their services include financial and tax advisory, bookkeeping, and tax return preparation.
- Otani Accounting Office: With 38 years of experience spanning two generations of certified tax accountants (Zeirishi), this office offers expertise in both Japanese and international taxation. Their long-standing reputation reflects a deep understanding of cross-border tax matters.
If you’re an American expat, the U.S. Embassy in Tokyo maintains a list of accountants who specialize in handling dual tax obligations between Japan and the United States. During the busy tax season, from January to March, the Tokyo Tax Bureau also provides English-language advisory services to assist foreign residents.
For a broader directory of vetted, English-speaking tax professionals, platforms like Myjin can help you connect with trusted consultants who are familiar with expat needs.
Online Tax Tools and Government Resources
In addition to professional assistance, several online tools and resources can simplify the tax filing process for foreign residents in Tokyo.
- Japanese National Tax Agency (NTA): The NTA website is a go-to source for tax information and forms. While much of the content is in Japanese, key sections are available in English, including basic tax guides and downloadable forms.
- Tokyo Metropolitan Government Bureau of Taxation: This site provides English-language resources specifically for foreign residents, covering local tax obligations that complement national requirements.
- Home Country Tax Authorities: For international residents, consulting your home country’s tax authority can provide additional clarity, especially when managing dual tax obligations.
If you’re unsure where to start, referrals from your employer or relocation service can point you in the right direction. You can also contact the Tokyo Regional Taxation Bureau or the Japan Federation of Certified Tax Accountants for further guidance.
Conclusion: Making Tax Filing Easier for Expats
Filing taxes as an expat doesn't have to be overwhelming if you plan ahead and understand your tax obligations. The first step is determining your residency status, as this dictates which parts of your income are taxable and the forms you'll need to file.
Start by organizing your income statements and receipts well in advance of the March 15 deadline. For American expats, it’s worth reviewing Form 1040, Form 2555, and Form 1116, as these can help reduce your overall tax burden.
The US-Japan tax treaty is another valuable resource, offering mechanisms like the Foreign Tax Credit and Foreign Earned Income Exclusion to help you avoid being taxed twice on the same income. Keeping thorough records isn’t just helpful for filing - it also provides peace of mind if any issues come up later.
If you need expert guidance, Myjin can connect you with experienced, English-speaking tax professionals who specialize in helping expats. These certified Zeirishi are knowledgeable about Japanese tax law, international tax treaties, and the complexities of dual filing requirements. For added confidence, consider working with advisors who are CPAs or affiliated with organizations like the Japan Federation of Certified Public Tax Accountants' Associations.
FAQs
How does my residency status in Japan impact my taxes, and what should I do to stay compliant?
Your residency status in Japan plays a key role in determining how your income is taxed. Here’s a breakdown of the three categories you should know:
- Non-residents: You’re only taxed on income earned within Japan.
- Non-permanent residents: You’re taxed on income from Japan and any foreign income brought into Japan (this applies if you’ve lived in Japan for less than 5 years).
- Permanent residents: You’re taxed on your worldwide income, no matter where it’s earned.
To stay on top of your tax responsibilities:
- Determine your residency status based on how long you’ve lived in Japan and your specific circumstances.
- File your tax return (Kakutei Shinkoku) by 15 March of the following year.
- If you own foreign assets worth over ¥50,000,000, make sure to report them by 30 June of the following year.
For more complex tax situations, it’s a good idea to consult a bilingual tax advisor. They can help ensure your filings are accurate and that you avoid potential penalties. Staying organised and informed will make navigating Japan’s tax system much smoother.
What is the difference between Japan's national income tax and local inhabitant tax, and how do they affect my total taxes?
In Japan, your total tax obligation is determined by two main types of taxes: national income tax and local inhabitant tax.
The national income tax operates on a progressive scale, with rates ranging from 5% to 45%, depending on your income bracket. Additionally, there’s a 2.1% surtax applied to the calculated national tax amount. Meanwhile, the local inhabitant tax is simpler - it’s a flat 10% rate based on your income from the previous year. This tax also includes a small fixed per capita component, typically around ¥5,000, though this amount can vary depending on your municipality.
In practice, this means that as your income increases, your national income tax rate climbs, while the local inhabitant tax remains steady as a percentage of your earnings. For expats living in Japan, understanding how these taxes work is crucial for proper tax planning and staying compliant with local tax laws.
How can I avoid being taxed twice on income earned in both Japan and my home country, and how do tax treaties help?
To steer clear of double taxation on income earned in both Japan and your home country, it’s crucial to grasp the basics of tax treaties. Japan has agreements with numerous countries to determine which country has the right to tax certain types of income. These treaties often allow you to claim a foreign tax credit in Japan for taxes paid abroad, helping to lower your overall tax liability.
For instance, if you’re a Japan resident and pay taxes on overseas income in your home country, you might be able to offset those taxes against your Japanese national tax and local inhabitant’s tax. The specific rules and credits available depend on the treaty between Japan and your home country, making it important to review the relevant provisions. Seeking advice from a bilingual tax expert can simplify the process and ensure you meet the tax requirements in both countries.
