(1) Personal Income Tax
Personal income tax is a tax levied on the income of residents and non-residents in Japan.
1. Taxpayers. Taxpayers of personal income tax in Japan include residents and non-residents. Residents are individuals who have resided in Japan for one year or more, and are subject to tax on all of their income both inside and outside of Japan. However, a resident who has no intention of residing permanently in Japan, but has a domicile or is a resident of Japan and has resided in Japan for less than five consecutive years is considered to be a non-permanent resident and is subject to tax on his/her Japanese-source income, as well as on his/her foreign-source income that is paid in Japan or remitted to Japan. Individuals who are not domiciled in Japan and have resided in Japan for less than one year are considered non-residents and are subject to tax on their Japanese-source income.
2. Taxable objects and tax rates. Japanese personal income tax is levied on various types of income, including interest income, dividend income, real estate income, salary income, retirement income, business income, transfer income, forest income, temporary income, and other income. Deductions for income include: basic deduction, spousal deduction, dependency deduction, disability deduction, deduction for the elderly, deduction for widows and orphans, deduction for work-study deduction, deduction for medical expenses, deduction for social insurance premiums, deduction for life insurance premiums, deduction for insurance premiums for losses, deduction for donations, deduction for small-sized enterprises***, and miscellaneous deductions. Among them, the spousal deduction, support deduction and basic deduction have been raised from 350,000 yen to 380,000 yen.
The personal income tax payable by residents of Japan is subject to an ultra-progressive tax rate, and the rates after the tax cuts were implemented in 1995 are shown in the following table:
Bracket Tax Rate on Taxable Income (%)
1 Portion of taxable income that does not exceed 3.3 million yen 10
2 Portion of taxable income that exceeds 3.3 million yen up to 9 million yen 20
3 Portion of taxable income that exceeds 9 million yen up to 18 million yen 20
3 Portion of taxable income that exceeds 9 million yen up to 18 million yen 30 for the portion between 9 million yen and 18 million yen
4 for the portion exceeding 18 million yen37
The minimum deduction for earned income for salaried workers is 650,000 yen. Table of deduction rates for earned income:
Minimum deduction deduction rate for earned income (%)
The portion exceeding 1,625,000 yen to 1,800,000 yen 650,000 yen 40
The portion exceeding 1,800,000 yen to 3,600,000 yen 720,000 yen 30
The portion exceeding 3,600,000 yen to 6,600,000 yen 1,260,000 yen 20
1.86 million yen for the portion exceeding 6.6 million yen to 10 million yen10
2.2 million yen for the portion exceeding 10 million yen5
The starting point for personal income tax varies depending on the amount of the basic living deduction and other factors, and is currently at 3,842,000 yen for the standard salaried family of a couple with two children
Japan
Non-resident taxpayers in Japan: Taxpayers who have stayed in Japan for less than one year for work are usually considered non-resident taxpayers, and are subject to a sliding scale of 20 percent of income tax regardless of the source of the income. If the non-resident taxpayer pays taxes in his/her home country as a resident of that country, he/she is not subject to pay payroll tax in Japan. If the country has a tax treaty with Japan, a resident of the country stays in Japan for less than 183 days, his/her employer is a non-resident or foreign company, and his/her salary is not paid by a branch office in Japan, he/she is exempted from the 20% tax mentioned above. Non-residents who do not meet the above conditions are subject to the 20% tax on wages. When a non-resident's business income derived from Japan is attributable to the labor income of a permanent establishment in Japan, or is attributable to the income from the sale or rental of real estate in Japan, it is subject to tax at the same progressive rate as that of a resident. A non-resident who has a permanent establishment in Japan and whose personal business income is related to that permanent establishment is subject to personal resident tax and personal business tax.
Japanese tax law provides that dividends and interest paid in or from Japan to residents or non-residents, domestic companies or corporations are subject to withholding tax. For national tax purposes, the dividend tax rate is 20%, the national tax interest rate on bank deposits and marketable securities is 15%, and the resident tax rate is 5%. Non-residents are not subject to the 5% withholding resident tax. Interest on bonds or Eurobonds paid to non-residents and legal persons and liquidation income, etc. are exempt from withholding tax.
3. Calculation of taxable income and tax payable.
①Personal deductions include:
Basic living deduction of 380,000 yen
Spouse deduction of 380,000 yen;
Dependency deduction of 380,000 yen;
Medical expense deduction of up to 2 million yen;
Social insurance premium deduction varies according to the composition of the family. 114,000 yen for a single person. 220,000 yen for a couple, 283,000 yen for a family with one child, and 384,000 yen for a family with two children;
Life insurance premium deductions are capped at 100,000 yen;
Damage insurance premium deductions are capped at 15,000 yen;
Donation deductions are calculated as follows: the total amount of specific donations
The deduction for donations is calculated as the lesser of: the total amount of specific donations - 10,000 yen, or (the amount of annual income x 25%) - 10,000 yen;
The deduction for people with disabilities is 270,000 yen;
The deduction for elderly people is 500,000 yen;
The deduction for widows and widowers is 270,000 yen;
Deductions for work-study expenses are up to 2,000 yen. >The standard deduction for work-study is 270,000 yen;
The standard deduction for small business mutual aid is the full amount actually paid;
The formula for calculating the deduction for various kinds of losses is (amount of disaster losses + amount of related expenditures) - the amount of annual income × 10%. Or, the amount of disaster-related expenses - 50,000 yen, of which the greater amount is the deduction standard.
②Dividend credit and foreign tax credit. The Japanese Individual Income Tax Law provides for a dividend credit program to avoid the double taxation of individual income tax and corporate tax. The deduction is 10% of dividend income when the total taxable income is less than 10 million yen, and the deduction is the sum of 10% of dividend income and 5% of dividend income in excess of 10 million yen when the total taxable income exceeds 10 million yen. A foreign tax credit is in place to avoid double taxation of domestic personal income tax and foreign personal income tax. The amount of foreign tax already paid under foreign law on foreign-source income of a Japanese resident can be credited against Japanese personal income tax and resident tax.
3) Taxation of gains from the transfer of securities. In order to facilitate tax payment by individual investors, from January 1, 2003, securities companies are exempted from personal income tax reporting services for special accounts opened at securities companies by Japanese residents or non-residents with permanent establishments in Japan. As a temporary measure, from January 1, 2003 to December 31, 2005, securities companies will reduce the personal income tax on behalf of individual investors by 10% for transfers of listed stocks (held for more than one year) on dedicated accounts, and a special deduction of 1 million yen has been set up. In addition, when listed shares acquired between November 30, 2001 and December 31, 2002 are transferred between 2005 and 2007, the transfer proceeds of 10 million yen, the acquisition cost, are exempt from tax. A 20% reduction (15% for national tax and 5% for local residents' tax) is levied on certain special designated securities (corporate shares and convertible bonds), and transfer losses that are not deductible in the current period can be carried forward and deducted over the next three years.
4. Method of collection. Individual income tax is levied according to the nature of the source of income and the declaration and collection method and the source collection method are adopted respectively. For interest, dividends, wages, retirement income, etc. to implement the source of collection, for other income to implement the declaration of collection. Two forms of payment are usually adopted, namely, advance payment and remittance. Individual taxpayers take the amount of income tax payable in the previous year minus the amount of income tax levied at source in the previous year as the amount of prepayment base tax. The first period is from July 1 to 31 of the current year and the second period is from November 1 to 30 of the current year. In each installment, 1/3 of the prepaid base tax amount is paid.Individual taxpayers should pay the remittance income tax payable, i.e., the balance of the annual tax payable minus the prepaid and source-collected tax amount, to the state when filing the determination of income return.
(2) Corporate tax
Corporate tax, also known as corporate tax or corporate income tax, is a tax levied on corporate organizations that operate for profit. Japan's corporate tax was introduced in the 1930s and initially accounted for a small portion of the tax, but after the Second World War, corporate tax gradually became the second largest tax after personal income tax.
1. Taxpayers. The taxpayers of corporate tax include domestic legal persons and foreign legal persons. A domestic corporation is a corporation that has its head office in Japan; a foreign corporation is a corporation that has its office outside of Japan. The Corporate Tax Law stipulates that a domestic corporation shall pay corporate tax on all of its domestic and foreign income, while a foreign corporation shall pay corporate tax only on its income derived from sources within Japan.
2, the object of taxation, tax rate. The object of Japanese corporate tax is the profit income of enterprises. Domestic corporations pay corporate tax on business income (profit income from various business activities), liquidation income (liquidation income from the dissolution or merger of a corporation), and retirement pension funds (interest generated by retirement pension funds established in accordance with the regulations is levied, and withheld and paid by banks, insurance companies, etc.).
The income of foreign corporations derived from sources within Japan*** is divided into 11 categories: income from business activities and the use of assets, income from the provision of labor services, income from the leasing of real estate, income from interest on deposits, income from dividends, income from interest on loans, income from advertisements, income from the life insurance fund, reserves for risks of foreign corporations, income from distributions to anonymous combinations and other organizations, and income from the transfer of assets.
The tax rates for Japanese corporations are as follows:
For small and medium-sized businesses with capitalization of less than 100 million yen, the applicable tax rate is 22% on the portion of annual taxable income up to 8 million yen, and 30% on the portion exceeding 8 million yen.
The tax rate for large and medium-sized companies with capitalization of more than 100 million yen is 30%.
3. Calculation of taxable income and taxable amount. Taxable income is the balance of the taxpayer's total profit less expenses for each taxable year.
The formula for calculating the taxable amount of corporate tax is: taxable amount=taxable income×applicable tax rate
①Treatment of dividends: a dividend deduction system is implemented for the distribution of dividends between legal persons. If legal person A holds 25% or more of the shares of legal person B for more than 6 months, the full amount of dividends obtained by legal person A from legal person B will not be taxed; if the shareholding is less than 25%, 80% of the dividends obtained will not be taxed.
②Royalties paid to foreign branches: Deductions are allowed for royalties paid by a Japanese corporation to a foreign branch, but only if the royalties comply with the independent arm's length price requirement. In the case of a company with weakened capital, the deductible portion of interest paid by a Japanese corporation that is indebted to an affiliate is limited. Interest on liabilities is not deductible if the ratio of liabilities to assets calculated by applying a formula exceeds 3:1.
3) Depreciation of fixed assets: Taxpayers can choose to use the declining balance method and the straight-line method. The residual value is 10% of the acquisition cost. The useful life of the web server is 4 years. The tax law specifies the useful life of different types of fixed assets and the annual depreciation rate when using the above two methods.
Summary Table of Depreciation Rates for Fixed Assets for Corporate Income Tax in Japan
Using Life of Different Types of Fixed Assets (Years) Straight-line Depreciation Rate (%) Declining Balance Depreciation Rate (%)
Office Reinforced Cement Buildings 502.04.5
Passenger Buses 616.631.9
Electronic Computers 4/516.631.9
Tables, chairs or wooden cabinets 812.525.0
Manufacturing automation equipment 1010.020.6
Iron and steel industry equipment 147.115.2
④Loss carry-forward: operating losses incurred by mergers and demergers of legal persons can be carried forward for five years, i.e., they are permitted to be set off from profits realized in the next five years. In special cases, it is allowed to carry forward 7 to 10 years. Losses are not allowed to be carried forward for either corporate tax or corporate resident tax.
5. Reserve system: The tax law permits the tax system to provide for expenses or losses that may be incurred in the future. The current reserve system includes a reserve for bad debts, a reserve for adjustment of returned goods, a reserve for special repairs, a reserve for overseas investment risks, and a reserve for disaster prevention in metal mines.
6. Deduction of representation allowance: Starting from 2003, for corporations with a capitalization of less than 100 million yen, the standard for representation allowance is 4 million yen, and an actual deduction of 90% is allowed.
⑦Retained Profit Taxation System: In order to prevent excessive use of tax-saving strategies within affiliates, Japan has set a maximum limit on the percentage of internal retention, and a special tax rate is applied to the portion of the annual retained profit that exceeds the prescribed deduction limit. Considering that internal retention is an important source of funding for small and medium-sized enterprises (SMEs), a lower three-tier progressive tax rate is applied to their excess retained profits: 10% for the portion up to 30 million yen; 15% for the portion exceeding 30 million yen up to 100 million yen; and 20% for the portion exceeding 100 million yen. From 2003 to 2006, the system of taxing retained profits was discontinued for small and medium-sized enterprises with a ratio of own capital of less than 50%.
8. Deduction for donations: Full deduction is allowed for donations used for the revitalization of science, education, culture and health or social welfare. The deduction rate for charitable donations is 1.25% of taxable income or 0.125% of paid-in capital, but no deduction is allowed for donations to foreign branches.
9 Expenses that do not provide the tax authorities with information such as the name and address of the recipient are not deductible. In addition to the normal corporate tax and resident tax, such expenses will be taxed at a special rate of 48.28%.
⑩Introduction of the Parent Company Consolidated Tax System in 2002: Losses incurred by the parent company prior to the consolidation are allowed to be carried forward for five years and deducted from the taxable income in the year following the corporate reorganization.
4. Method of collection: Japan's corporate tax is a self-taxation system. There are two types of corporate tax returns: blue returns and ordinary returns. Blue declaration means that for the corporate enterprises which have more sound bookkeeping vouchers and accounting system and can calculate and pay tax correctly, they can use blue declaration form for tax declaration with the approval of the tax authorities. Legal persons that implement the blue declaration system enjoy more tax benefits than ordinary legal persons in terms of loss carry-forward, establishment of reserves, depreciation of fixed assets, and so on. Ordinary declaration, also known as white declaration, the taxpayer must submit the tax return and pay the tax to the tax authorities within two months after the end of the business year, and the tax authorities may impose penalties in accordance with the relevant provisions of the tax law if the tax is not paid after the due date or if the declaration is inaccurate or if the tax of the legal person is underpaid.
(C) Consumption Tax
Consumption tax is a tax on the value-added of commodities and services, which belongs to multi-stage value-added tax, and was introduced on April 1, 1989, and is levied on the value-added of commodities and services, which belongs to multi-stage value-added tax. The taxpayers are all natural and legal persons who trade in commodities or provide services, and the scope of taxation covers almost all commodities and services. The tax is levied under a multi-stage, multiple levy system. The tax rate is designed as a single proportional rate of 5%. A consumption tax of 5% must be paid on the supply of goods and services within Japan. Exports are zero-rated, while imports are subject to this tax. Taxpayers who provide taxable sales or services of less than 400 million yen have the option of using the simplified tax method, whereby sales and services are taxed at a fixed rate of 0.3% (wholesale) and 1.2% (labor), depending on the nature of the business. Japanese consumption tax is based on the difference between the taxpayer's total sales and total purchases. In addition, the Japanese tax law also provides tax exemptions for certain special commodity transactions and the provision of labor services, mainly land transfers, public bonds, corporate credit bonds, currency and other means of payment transactions, social insurance business, labor insurance and medical care, education, as well as international transportation, leasing industry, export goods, and stamp invoices.
(4) Inheritance and Gift Taxes
Japanese inheritance tax is a tax levied on the heir to a fiscal inheritance or the recipient of a bequest of property. The taxpayer is an individual who acquires property through inheritance or bequest. The object of the tax is the total amount of property acquired by inheritance or bequest, less the decedent's existing debts and funeral expenses. Property is taxed at the current value at the time of acquisition, except in special cases. Japanese estate tax is based on the total amount of property acquired by the taxpayer, less the estate's base deduction, which is calculated on the basis of a fixed amount per heir. The tax has a super progressive rate, with the lowest tier being 10% and the highest tier being 70%. Individuals who receive property through inheritance in Japan are subject to inheritance tax, which is calculated based on the value of the inherited property, i.e., minus the base deduction of 500 million yen, plus 100 million yen multiplied by the number of legal heirs. The total estate tax calculated on this basis determines the amount of estate tax for each heir in proportion to the value of the assets actually distributed to the heirs, and the estate tax rate is also 10% for up to 8 million yen and 70% for more than 200 million yen. Generally, the inheritance of a surviving spouse is exempt from estate tax up to a certain limit, which is the greater of the legal share of inheritance or ￥160 million.
Gift tax is a tax imposed by the Japanese government on the recipient of a gift of property. The taxpayer is the person who acquires the property as a result of the gift. The object of the tax is the amount of the gifted property. If the taxpayer has a residence in the place where the tax law is enforced, the tax is levied on the entire amount of the gifted property acquired during the year. If the taxpayer does not have a residence, the amount of the gift property acquired in the place where the tax law is enforced is taxed. The Japanese gift tax is based on the amount of the gift property acquired by the taxpayer, less a base deduction of 600,000 yen and a spousal deduction depending on the circumstances. The tax is also super progressive, with the lowest tier being 10% and the highest tier being 70%. Individuals who acquire another person's property by gift in Japan are subject to gift tax, which is levied on a calendar year basis and applies at a rate of 10% for up to ￥1.5 million and 70% for ￥100 million or more. Both the Japanese estate tax and gift tax are paid by the taxpayers themselves. Under the Japanese gift tax regulations, a person who acquires a gift of property subject to gift tax must file a return detailing the amount of tax, the amount of gift tax, and other matters stipulated by government ordinance with the tax authorities between February 1 and March 15 of the year following the year in which the gift was made, and must pay the tax by the filing deadline.
(E) Social Security Tax
In Japan, health benefit pensions, unemployment and workers' disaster compensation insurance are government-sponsored systems in which employers and employees participate. With the exception of workers' disaster compensation insurance, premiums are shared equally between employers and employees. The rates are as follows: monthly health insurance premiums are 8.2% of the portion of the monthly standard compensation of 10,000 yen or less; monthly welfare pension insurance contributions are approximately 16.5% of the monthly standard compensation of 590,000 yen; and monthly unemployment and workers' compensation insurance premiums are approximately 1.75% of the monthly standard compensation, of which 1.35% is borne by the employer and 0.4% is borne by the employee.
(F) Resident's Tax
Japanese resident's tax is a type of income tax levied by the Tokyo Metropolitan Government, prefectures and municipalities on individuals and corporations under their jurisdiction. Residents' tax is the main type of local tax in Japan, and is also one of the important sources of local government revenue, which is collected by local governments. Resident tax actually consists of two types of taxes, namely, individual resident tax and corporate resident tax, which are closely related to income tax and corporate tax in national tax. In the case of Individual Resident Tax, other matters are basically the same except for differences in tax rates, deduction provisions, and income. There are also differences in the specific tax regulations and collection at each level of government. The Tokyo Metropolitan Government's resident tax is levied only on national corporations. Prefectural residents' tax is levied on both prefectural corporations and individual prefectural residents. In the case of municipal taxes, the taxpayers are the legal entities and individual villagers of the municipality. In addition to the 37.5% corporate tax, Japanese corporations must also pay business tax and resident tax. Business tax is the income of municipalities, and the tax rate is set by the local government, and different rates are applied in different areas. In the Tokyo metropolitan area, 12.6% of the corporate tax is levied. The amount of business tax is allowed to be deducted from taxable income by adding it to the total amount of expenses in the following year. Resident tax is levied by prefectures at 20.7% of the corporate tax amount. In Japan, resident individuals are subject to prefectural and municipal inhabitants' taxes based on their taxable income less employment income deductions, personal deductions, etc. from January 1 of the previous year. The excessively progressive tax rates are as follows:
BracketsAnnual taxable income (￥) Tax rate (%)
5 for the portion up to 12 million
2 10 for the portion exceeding 2 million to 7 million
3 15 for the portion exceeding 7 million
In Japan, the personal business tax is a tax levied by prefectures on a self-employed person's net income (i.e. net income after deducting 2.7 million yen) of a self-employed person. Depending on the nature of the business, the tax rate ranges from 3% to 5%. The personal business tax can be deducted from the taxable income of the following year.