Guide to income tax refund in Japan
You might think that claiming an income tax refund in Japan can be confusing and complicated. Filing a tax return isn’t easy, and especially doing it in another country can be particularly challenging. K.S. Accounting has the expertise and vast experience in the international tax field in Japan, and we have the right people to handle your income tax needs. You can still claim your tax refund up to five years. Click here for more information about our taxation services.
Income tax refund for employees
If you work for a Japanese company and that’s your sole source of income in Japan, your company will take care of every tax matters for you. However, it would be advisable to file a tax return in a certain situation, as you can get a tax refund when certain conditions are met. For example, you can claim a tax refund in the following:
・If you left a company and your company didn’t carry out a year-end adjustment procedure for you, you may get a tax refund.
・If you have a large amount of medical expenses, you can apply for medical expenses deduction on your income tax return.
・Income tax on lump-sum withdrawal payments*
・If you buy or build your own home in Japan and has an outstanding loan balance, you can apply for special tax credit about the housing loan.**
*Certain persons who enrolled in Japanese public pension schemes for 6 months or longer can apply for lump-sum withdrawal payments to the Japan Pension Service after they leave Japan. When you receive the payments, income tax at a rate of 20.42% on the amount to be paid is withheld from the payment. In this case, you may claim a tax refund if you opt to file a tax return.
**There are a bunch of rules associated with this system. For example, the tax credit is only available for personal residences and cannot be applied for holiday homes, second homes or rental properties. The tax office will require a proof of residence. Your personal annual income must not exceed JPY30M, and the tax credit is only available for a period of 10 years from purchase. Please note that non-residents (those who are living overseas and who do not have residence in Japan) are eligible for purchase after April 2016.
Income tax refund for non-resident property owners
If the tenant of your property is a company (e.g. a company renting the apartment for their employees), the tenant must withhold 20.42% of the monthly rent. If the withholding tax paid is higher than your income tax payable, the excess can be refunded.
You must pay income tax on the profit you make from renting out the property, after deductions for “allowable expenses”. Allowable expenses are things you need to spend money on the day-to-day running of the property. If your property business is in deficit, you don’t need to pay tax and you can claim a tax refund. (Maintenance costs or depreciation expenses tend to be large for property business, and income tax can be often refunded.)
In that case, you will need to appoint a tax agent in Japan to file a tax return on your behalf to the tax office. We’d be glad to offer tax preparation services online even for overseas residents. If you have any concerns about Japanese taxation, please feel free to contact us.