Tag Archive non-resident

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.

How to file income tax returns in Japan for non-resident

 

Even if your taxpayer status is non-resident and you don’t have a residential address in Japan, you are still subject to relevant tax procedures. For example, if your domestic taxable income other than salary is more than JPY380,000, you are required to file an income tax return. Even if you make a loss in your business or real estate investment, it would be advisable to file a tax return still, as a loss can be used to reduce taxable income or you can carry it forward and set it against profits in a future year, when certain conditions are met.

In case you are a non-resident but need to handle relevant tax matters in Japan, you must appoint a tax agent (tax representative) who is a resident in Japan. You are required to submit application form to the District Director of the tax office which has jurisdiction over your place of business or real estate. You can personally comply requirements stated above but it is most advisable that your tax accountant should prepare and deal with the tax procedures for you. Your tax agent can be a Japanese corporation or an individual who resides in Japan.

K.S. Accounting has the expertise and vast experience in the international tax field, and we have the right people to handle your income tax needs. We can do everything for you starting from filing the form until income tax preparation. Click here for more information about our taxation services.

 

Tax agent for local taxes in Japan – Real estate acquisition tax / Fixed assets tax

If you are subject to local taxes described below, you need to submit a notification of a tax agent to the relevant local tax offices as well. For example, if you purchase a property in ski resorts, such as Niseko and Hakuba, you are liable to pay real estate acquisition tax and fixed assets tax for your property, even if you haven’t started your real estate business yet.

 

Local Taxes:
Inhabitant tax
Enterprise tax
Real estate acquisition tax
Fixed assets tax
Automobile tax etc.

 

Please note that you need to appoint a tax agent of national tax such as income tax, corporation tax and consumption to the national tax office.

 

Tax agent / Tax representative for an individual who will leave Japan

 

If you are a resident who must file the tax return for the year in which you leave Japan, the due date for filing the tax return and paying the tax is as follows:

 

(1) If you appoint a tax agent before departure, the due date for filing the tax return and tax payment for the year is March 15 of the following year.
(2) If you leave Japan without filing a notification of a tax agent, you must file the tax return and pay the tax before departure.

 

If there’s no income other than salary, and your employer carries out a year-end adjustment procedure, you don’t need to file a tax return. However, if you have certain taxable income other than salary, you need to appoint a tax agent and file an income tax return. If you have any concerns about your tax liability, we’d be glad to offer e-mail consultation service.

Overview of Japanese taxation for individuals

 

Individual income tax in Japan consists of national income tax and local inhabitant tax. The taxable year of individual income tax is the calendar year, while local inhabitant tax is assessed on individuals who live in Japan as of 1 January. Inhabitant tax is calculated based on income for the preceding year.

Individuals who sell and acquire goods and services in Japan will suffer consumption tax on those transactions. In principle, consumption taxpayer status is determined depending on the amount of domestic taxable sales in the past. Japanese consumption tax is sales based tax and is similar to VAT/GST.

 

Classification of individual taxpayers

There are two categories of individual taxpayers – Resident or non-resident. Below is the definition.

 

Resident:
Residents are divided to either permanent resident or non-permanent resident.

A non-permanent resident is an individual who doesn’t have Japanese nationality and has lived in Japan for 5 years or less in the last 10 years.

A permanent resident is an individual other than a non-permanent resident, i.e. an individual who has Japanese nationality, or has lived in Japan for more than 5 years in the last 10 years. Permanent resident is subject to Japanese income taxes on worldwide income.

 

Non-resident:
A non-resident is an individual other than a resident. Basically, an individual who does not have an address in Japan and has lived in Japan for less than 1 year.

 

Short term visitors

Generally, Japan’s double tax treaties are in line with OECD model treaty regarding the treatment of tax exempt foreign employees temporally working in Japan. Such employees are generally tax-exempt if they meet the following 3 criteria:

・They are present in Japan for less than 183 days in any 12 month period
・Their salary is paid by a non-resident employer
・There aren’t any salary paid by a permanent establishment (PE) in Japan

This criteria depends on each country’s tax treaty, so please refer to the double tax treaty of your country.

 

Tax rate

Japanese income tax use the progressive tax rate. The following rates are applied to the income (revenue-expenses) minus allowable tax deductions. (2015~)

 

National income tax rate

Example

If your taxable income is JPY7,000,000, income tax amount is following:

7,000,000×0.23-636,000=974,000

 

Local tax rate
Local tax consists of two categories – per capita levy and income-based levy. Per capita tax is around JPY5,000/year depending on each municipal government. Inhabitant tax rate is 10%, regardless of the amount of taxable income. A non-resident is generally not liable for inhabitant tax, however if a non-resident is registered in the municipal government and lives in Japan as of 1 January, the individual may be liable for inhabitant tax.

Generally, inhabitant tax returns are not required to be filed since the information necessary for assessment is submitted by your employer or by filing income tax returns.