What is the income tax rate and how to calculate your income tax in Japan?

If you are a company employee in Japan you must be paying a significant amount of money to the Japanese government and as the deductions happen almost automatically not many of us if they’re of the exact amount deducted from the monthly payments received from the employee. I thought it expedient to investigate these deductions in detail and I compiled the exact numbers into an article and I’m going to show you the particulars below.

How to calculate your income tax in Japan?



The way your income is taxed in Japan follows a pretty complicated system and you almost have to be a tax expert to understand everything in detail. There are certain deductions you are entitled to based on your pre-tax income. The amount of income tax, healthcare insurance fee and pension varies greatly depending on your household. In general, you have to contribute less to the Japanese society financially if you have a family and the tax rate is usually inversely proportional to the number of children you have. The Japanese government is trying to mitigate the decreasing birth rate related issues with these kind of incentives.


When you apply for a job in Japan, the HR will usually tell you the expected salary before taxes. They do this because they’re unaware of your personal situation and also because the income tax rate changes frequently in the country, so it would be almost impossible to tell you your after tax salary from the company’s side.


This guide will shed some light on the details on how to calculate your income tax in Japan with an example. Let’s dive into the math without further ado.


I’m not sure whether the Japanese tax authority publishes this kind of data in English, but you can access the current tax rate and all the equations that are necessary for the calculation of your income tax every year in Japanese. For those who cannot read Japanese my advice would be to start as soon as possible. Be sure to start with the Japanese alphabet also known as the Hiragana and the Katakana writing system. You can access my online Hiragana tests and if you’re confident enough in your Hiragana skills don’t forget to check out my online Katakana tests as well.


First of all let’s see some fundamental vocabulary. This will be very useful for the decryption of the income tax table below.


  • 給与収入 - total revenue
  • 給与所得控除 - revenue deduction
  • 給与所得金額 - income amount
  • 総所得金額 - income gross total
  • 基礎控除 - general deduction
  • 所得控除(所得税)- income deduction ( for income tax )
  • 所得控除(住民税)- income deduction ( for residency tax )
  • 課税所得(所得税)- tax levied income ( for income tax )
  • 課税所得(住民税)- tax levied income ( for residency tax )
  • 所得税 - income tax
  • 復興特別所得税 - special income tax for reconstruction
  • 所得税・復興特別所得税 - income tax and special income tax for reconstruction
  • 住民税 - residency tax
  • 都道府県民税 - tax for citizens in the administrative divisions
  • 市町村税 - municipalities tax
  • 毎月住民税額 - monthly residency tax amount

The calculation of these amounts is not straightforward. In order to make it more understandable, I tried to make a test calculation with 10.000.000 yen yearly income, which is roughly $95.900. You should start with this amount if the HR from the company tells you that your 年収 or annual compensation will be 10.000.000. Well, most of these costs will be deducted from your salary automatically, so rather than saying that you have to pay these fees, I would say that you’re paying these taxes without even paying attention to them. If you’re a private business owner(個人事業主), or you’re a freelancer and you’re receiving your compensation in cash(報酬) then you are required to report your income and you’ll pay taxes according to the next calculation.


A final note before the actual calculation. This simple example doesn’t include healthcare insurance and pension contributions, but I can tell you that they are calculated from these numbers as well.

Income tax calculation in Japan

Let’s see the entries one by one.


給与収入 or total revenue before any deduction


If you’re a company employee this should be your pre-tax salary. The company pays for other expenses arising from your employment and this is the amount they would transfer to your bank account if the taxes were not paid automatically. The same applies for freelancers or private business owners. If you work as an actor and you receive two times 5 million yen from a company without deducting your taxes (源泉徴収) then this would be your 10.000.000 yen. If you are a private business owner and you were paid two times 5.000.000 yen of dividends you shall report it as 10.000.000 yen pre-tax revenue in here. Well, not too complicated, everything that’s before taxes shall go here. In case the company is withholding revenue taxes you should fill out your income tax declaration in a different way. This is not too complicated either, but I would advise you to ask for help at the tax office.


給与所得控除 or revenue deduction


This is a fixed deductible amount to decrease the taxed revenue. The amount of this deduction depends on your total revenue. You can find this out from the following chart in 2020. You can see that this deduction starts from 550.000 yen and if your revenue exceeds 8.500.001 yen it will reach its upper limit at 1.950.000 yen. In my test calculation I used 10.000.000 yen for the total revenue, therefore the calculator has applied the value of 1.950.000 yen in this calculation.


給与所得控除 or revenue deduction


給与所得金額 or income amount and the 総所得金額 or income gross total


This entry is only a result of a mathematical operation. Just subtract the “revenue deduction” amount from your total revenue and you will get this number.


基礎控除 or general deduction


Every taxpayer in Japan is eligible for this. You can further subtract 480.000 yen from your revenue to calculate your income tax and you can subtract 430.000 yen from your revenue to calculate your residency tax.


所得控除(所得税)or income deduction to calculate your income tax


This is 480.000 yen for every taxpayer in Japan.


所得控除(住民税)or income deduction to calculate your residency tax


This is 430.000 yen for every taxpayer in Japan.


課税所得(所得税)or tax levied income to calculate your income tax


This is also a result of a simple mathematical operation. Just subtract the base deduction for income tax and the revenue deduction from your total revenue and you will get this number.


課税所得(住民税)- or tax levied income to calculate your residency tax


Income tax rate in Japan

This is a result of a simple mathematical operation. Just subtract the base deduction for residency tax and the revenue deduction from your total revenue and you will get this number. 所得税 or income tax. In order to calculate this, we’ll have to use another chart. This will tell you the income tax rate based on your tax levied income. In this case the tax levied income is 7.570.000 yen, and this gives you a 23% income tax rate with a 636.000 yen automatic deduction according to the chart. In other words, your income tax in this case is 7.570.000 x 0.23 - 636.000 yen and this is the number you can see at number 9.


復興特別所得税 or special income tax for reconstruction


This is the 2.1% of your income tax or 1.105.100 x 0.021 = 23.207 yen.


所得税・復興特別所得税 or the sum of your income tax and your special income tax for reconstruction


This needs no explanation.


住民税 or residency tax


This is approximately 10% of your tax levied total income. There might be a few thousand yen fluctuation in this amount based on the prefecture and your personal conditions, but expect to pay ~10% to the city and the prefecture you’re living in.


都道府県民税 or tax for citizens in the administrative divisions


This is one component of the residency tax.


市町村税 or municipalities tax


This is the other component of the residency tax. You don’t have to worry too much about these, because the Japanese tax office will deduct these in an automatic manner.


毎月住民税額 or monthly residency tax amount


Just divide the residency tax amount by 12 and you will get this number.


Summary


Let me finally do a quick calculation to cast some light on the total tax amount you have to pay to the Japanese government if you work in the country and you are receiving 10.000.000 yen every year.


One component of your payments will be the sum of your income tax and your special income tax, or 1.128.300 yen and the other component will be the residency tax, which was 764.500 yen in this case. These will be deducted from your revenue and you will have to pay this money to the Japanese tax authority. This is a total of 1.892.800 yen or 18.9% of your total revenue. Therefore the income tax rate in Japan in this case, neglecting your healthcare insurance payments and pension contributions is 18.9% for those who are receiving 10.000.000 yen in a financial year. This tax rate obviously changes with the amount you earn, but I think this could give you an idea on how much income tax you have to pay in Japan.


Stay tuned for the next post! じゃねー!


Illustration: pakutaso.com


Content: LB



Further reading

More Videos