Thinking about working in Japan? 

You might be wondering, what taxes do foreigners need to pay? How do the taxes for foreigners differ from those for Japanese citizens? 

Whether you’re an expat sent by your company or a freelancer planning to move to Japan, it’s crucial to understand the basics of the Japanese tax system. 

Let’s break down Japan’s tax system and the main types of taxes you need to know about. 

We’ll also cover the processes for tax exemptions for foreign workers and answer common questions. So if you’re interested, keep reading for some helpful insights.

Main Types of Taxes for Foreign Workers in Japan

When residing and working in Japan, the types of taxes foreigners pay are largely the same as those for Japanese nationals. 

Below is a summary of the main types of taxes that foreigners are required to pay.

There are also liquor and tobacco taxes, however those taxes are applied at the time of purchase and don’t usually require planning ahead for the average consumer. 😉

Types and Tax Rates Paid by Foreigners

Let’s dive into each type of tax, exploring their rates and details.

💰 Income tax 「所得税」

Income tax is a tax levied on an individual’s annual income. 

Under the progressive tax system, the tax rate increases as income rises, and foreign workers are subject to income tax just like Japanese nationals. 

However, the rules regarding taxable income and tax rates differ depending on whether the foreign worker is classified as a “resident” (permanent or non-permanent) or a “non-resident.”

In Japan, a “resident” is someone who has lived in Japan for more than one year or whose center of life (such as their occupation) is in Japan. Conversely, a “non-resident” is someone who has lived in Japan for less than one year or whose center of life is outside of Japan.

To determine whether you are a resident or a non-resident, consider two main points: the length of your stay in Japan and where your center of life is located.

If you have physically stayed in Japan for more than one consecutive year, you are automatically considered a resident. 

This is determined by whether you have actually been in Japan, even if you stayed at a hotel or a friend’s house. 

On the other hand, if your continuous stay in Japan is less than one year, whether you are considered a resident or non-resident depends on where your center of life is. The center of life (or “residence”) refers to your occupation or dependents. 

If the following criteria apply to you, you will be considered a resident with your center of life in Japan.

First, check your length of stay in Japan. If it is less than one year, consider if you are working in Japan or have family members with whom you share your livelihood living in Japan. If neither applies, you are a non-resident.

Do you have a profession that generally requires you to reside for more than one consecutive year? Do you have Japanese nationality and family members (e.g., a spouse) living in Japan with whom you share your livelihood?

Individuals who do not meet these criteria are considered non-residents. 

For differences in income tax based on residency status, please refer to the following.

👉 Among residents, there are subtle differences in the scope of taxable income between permanent residents and non-permanent residents. Please also refer to the government website: (2023 INCOME TAX GUIDE)

(Reference: National Tax Agency)

When do you file taxes in Japan?

Normally, the filing period of your taxable income in the period of the previous calendar year is open from February 16 through March 15. 

How do you file a tax return in Japan?

👉 You will be able to find “How to Create a Final Tax Return” at the National Tax Agency website.

💰 Individual Inhabitant Taxes　「住民税」

Individual Inhabitant Taxes are the ones paid to the prefecture and municipality where you reside (or resided) as of January 1. 

While the tax rates vary depending on the municipality or prefecture, the total amount is generally around 10% of the previous year’s income. Even if you leave the country after January 2, you are still required to pay these taxes.

There are two ways for paying, special collection and ordinary collection.

In case of special collection, your employer withholds your Individual Inhabitant Taxes from your salary and pays it to your municipal government. Employees themselves do not need to pay the taxes to the municipal office.

In the case of ordinary collection, when you receive a written “tax demand” (a paper bill) from your local government around June, you will get to the government office yourself with the demand you have received and the amount of taxes indicated on it.

💰 Consumption Tax 「消費税」

The Consumption Tax at the rate of 10% (standard tax rate) is applied to the purchase of goods and services in Japan. In the case of the purchase of food and drink excluding alcoholic drinks and dining out, the rate of 8% (reduced tax rate) is applied.

If you are a freelancer and charge consumption tax to your clients, you will need to deduct the consumption tax paid on purchase and expenses, and pay the net amount by March 31st. 

For freelancers, if the annual taxable sales are less than 10 million yen, or if you have been in business for less than two years, you are not required to file the final tax return (Basic knowledge｜National Tax Agency).

💰 Automobile Tax / Light Motor Vehicle Tax 「自動車税」

When you purchase an automobile or a light automobile (kei car/truck), you will pay Automobile Tax or Light Motor Vehicle Tax with an environmental performance-based tax reduction.

The automobile owners will receive a tax notice from the Municipal/Prefectural Taxation Office and need to pay the tax by the end of May.

Also, when your car is inspected (every 2-3 years), Vehicle Weight Tax is imposed according to the weight of your vehicle. 

💰 Property Tax / Real Estate Income Tax 「固定資産税・不動産所得税」

These are the taxes on the following items owned as of January 1:

• Land, houses, storage sheds, garages, etc.
• Equipment and facilities necessary for business.

The standard tax rate is 1.4%, but this may vary by municipality. Tax notices are generally sent out by the municipality where the land or house is located between April and May each year. Property tax is paid in four installments, but the payment periods vary by municipality.

💰 Inheritance Tax / Gift Tax 「相続税・贈与税」

Inheritance tax in Japan is a tax paid by someone who inherits money or property from a deceased person. The person who inherits pays the tax and the tax rate ranges from 10% to 55%, depending on the value of the inheritance. 

A gift tax is imposed when you receive properties (in case of the value over 1,100,000 yen) donated by individuals.

When you receive properties donated by a corporation such as a company, income tax instead of gift tax is imposed.

👉 The National Tax Agency website explains the details of Inheritance Tax and Gift Tax.

For non-residents, remittances from overseas to Japan are also subject to taxation. 

Here are some ways to appropriately minimize taxes on overseas remittances (remittances from abroad).

Gift within the basic exemption amount of 1,100,000 yen.

• Even if overseas remittances are subject to gift tax, no gift tax will be incurred if the amount is within 1,100,000 yen in a calendar year.

Apply for dependent deduction for relatives residing abroad.

• If you are a resident under income tax law and send money to relatives living overseas, you may be eligible for dependent deductions. To apply the dependent deduction for relatives living abroad, you need to submit the required documents according to their age category.

Clarify that the gift is intended for living or educational expenses.

• Regarding remittances between dependents for the purpose of covering living or educational expenses, such as living expenses, educational expenses, and medical expenses, which are recognized as “normally necessary property,” these are exempt from gift tax. 

Cases Where Foreigners Are Exempt From Japan Taxes (Tax Treaties)

Foreign nationals may be exempt from taxes under tax treaties. 

A tax treaty is a bilateral agreement between Japan and a foreign country to prevent double taxation and tax evasion.

As previously mentioned, residents in Japan are taxed on income generated both domestically and internationally. This leads to double taxation, which can be a significant burden for taxpayers. However, if a tax treaty is in effect, taxes only need to be paid in one of the countries.

Additionally, some countries have established tax exemption measures under tax treaties specifically for technical trainees.

The Japan-US Tax Treaty

Many countries, including the USA, apply the “183-day rule” for short-term stay tax exemptions. 

Let’s use Americans working in Japan as an example. Typically, when an American works in Japan, their income is subject to taxation in both Japan and the USA (double taxation). 

However, if their stay in Japan is within 183 days during any consecutive 365-day period, the income earned in Japan is exempt from taxation.

Reference: Ministry of Finance, Japan

Technical Intern Trainee from Asian countries

For technical intern trainees from countries such as Vietnam, China, the Philippines, Indonesia, Thailand, and Sri Lanka, unique tax exemption measures different from the 183-day rule are established. 

Please refer to the Tax Treaty information by country here.

To apply the tax treaty, you need to submit the “Notification Concerning Tax Treaty” to the tax office, which can be found here.

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Frequently Asked Questions about Taxes for Foreigners

Q: Where can I ask questions about Japanese taxes in English?

A: You can call the ask about national taxes at the following Tax Payment Call Centers:

• Tokyo Regional Taxation Bureau 03-3821-9070
• Osaka Regional Taxation Bureau 06-4965-8298
• Nagoya Regional Taxation Bureau 052-971-2059

Check the National Tax Agency website for more information and resources.

Q: What happens if foreigners living in Japan do not pay taxes?

A: If foreigners living in Japan do not pay taxes, the following risks may arise:

• Penalties for late payments
• Inability to renew residency status or obtain permanent residency status
• Fines or other legal actions

In the worst case, deportation. It is important to pay your taxes to avoid these issues.

Q: Are there differences in the taxes paid by Japanese nationals and foreigners?

A: Generally, foreigners residing in Japan pay almost the same taxes as Japanese nationals. There are no significant differences in the tax systems, such as income tax and resident tax, between foreigners and Japanese nationals. 

However, the taxation method differs for “non-residents.” Non-residents are only taxed on income earned within Japan, at a flat rate of 20.42%.

Q: Are there any differences in the tax payment methods for expats and freelancers in Japan?

A: There are two main differences between how expats and freelancers pay taxes in Japan. Tax Withholding (源泉徴収): Expats employed by a company have taxes withheld at the source, while freelancers need to handle their own tax calculations and payments.

Tax Reporting (確定申告): Freelancers must submit their own tax returns and calculate their taxable income, whereas expats’ employers handle this process.

Q:  Are there ways for foreigners living in Japan to save on taxes?

A: If you work in Japan and pay income/inhabitant taxes, you can use the hometown tax called “Furusato Nozei (ふるさと納税)” program to donate to local municipalities, which increases your tax deduction amount and helps you save on taxes. 

Furusato Japan is a famous hometown tax platform for foreigners.

If you are paying a mortgage in Japan, consider utilizing the mortgage tax deduction as well. japan-law-tax.com may clarify your concerns and questions.

Q: Are there any useful systems for foreign freelancers to calculate Japan Taxes?

A: Money Forward and Yayoi are popular systems used for calculating taxes and Final tax returns. Sorry to say, these systems are only available in Japanese.

If you have questions about taxes, it is best to call the National Tax Agency or contact municipal tax offices.

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