How much income tax will foreigners in Japan have to pay and how many deductions are there? How to calculate income tax?

A. Overview of income tax

All individuals living and working in Japan are obliged to pay income tax (所得税). The amount of tax payable will depend on the annual income level.

People with income less than 130 thousand yen/year will not have to pay income tax.

For international students, interns and people working at companies with contracts, taxes will be deducted directly from their salaries. Every month when you receive your salary book, you will know the amount of tax paid.

If you work at companies without contracts, you will have to declare taxes yourself and pay them at the end of the year.

B. Income tax for foreigners

For foreigners, depending on the length of stay, the tax rate will be different. This division is not related to visas.

1.Non-resident subjects

People who have only lived in Japan for less than 1 year will be considered non-residents. When you have income from Japan, even if it is passive, you still have to pay tax at the same rate 20.42% .

Income from foreign sources will not be subject to this tax.

2. Subjects of stay

People who have lived in Japan for more than 1 year will be counted as residents and are divided into 2 categories as follows:

• Temporary stay (have lived 1 > 5 years in Japan and do not intend to stay permanently)
• Permanent stay (have lived in Japan for more than 5 years and intend to stay permanently or have permanent residency)

When income comes From Japan , both temporary residents and permanent residents are subject to full tax with the following tax formula:

For incoming income from abroad , these two subjects will be subject to different taxes:

• Temporary residence : income coming from abroad and not remitted to Japan will not be taxable.
• Permanent residence : all income from abroad is taxable.

If you are a Vietnamese national, you will receive a tax reduction, because Vietnam and Japan have signed an agreement on tax priorities.

C. Tax deduction

Deductions are income that does not need to be taxed. These amounts will be deducted before calculating income tax.

1.Basic deduction

All tax participants receive a deduction 38万円

2.Insurance deductible

The insurance amount will not be taxable, so you need to deduct the amount paid. Types of insurance include:

• Social insurance : includes health insurance and pension insurance
• Earthquake insurance
• Life insurance

For health insurance, if medical expenses exceed the compensation amount. Please deduct the excess amount. There is also small and medium enterprise aid insurance.

3. Deduction for family circumstances

I named it that way because the amounts reduced in this section are mostly related to dependents and the taxpayer himself.

D. How to calculate income tax

1. Distinguish between real income and taxable income

Before starting to calculate income tax, you need to carefully understand the following two concepts:

• Actual income : is the yearly income (including bonuses) minus the expenses to produce that income.

The costs of generating that income can be: travel costs, communication costs or costs for equipment to serve the job. If you are a business owner, this expense will include everything related to running the company.

• Taxable income : Take actual income minus other deductions such as basic deduction, insurance deduction and family deduction.

The final amount will be your income tax for that year.

2. Calculate income

• Formula 1 : Total income – income-producing expenses = Real income

3. Calculate taxable income

After having specific numbers Actual income , you can check which case you are in in the following table:

• Formula 2 : Real income – Tax-free deduction = Taxable income (1)

4.Calculate tax deductions

Based on the tax deduction table in Part C , see which category you fall into.

• Formula 3 : Taxable income (1) – tax deductions (basic, family, insurance) = Taxable income (2)

For In normal cases , if you are not married and have not registered your dependents, there are 2 deductible amounts: The amount of social insurance paid and the basic deduction (38万円)

5. Calculate income tax

You take the money Taxable income (2) Compare with the following table and continue calculating:

• Formula 4 : Taxable income (2) x Tax rate – Deduction amount = Income Tax

This is the final number, it may be a little misleading but is usually accurate 90% . Let's come to a specific example below.

6. Specific examples

A Vietnamese employee is working at the company and has a yearly income of 300万円 (ie 25万/month). The cost of serving the job is 3万円. Participate in social insurance with a fee of 12万円. No dependents.

• Formula 1 : This person's income is 300万 – 3万 = 297万円. Inside level 180万円 to 360万円
• Formula 2 : Take 297万 – (297万 x 30% + 18万) = 189万9000円 – This is Taxable Income (1)
• Formula 3 : Take 189万9000 – 12万(social insurance) – 38万(basic deduction) = 139万9000円

So, 139万9000円 is the taxable income (2) of that person, and ranges from under 195万円 So there will be 5% tax

• Formula 4 : 139万9000 x 5% = 6万9500円

So the final number we get is 6万9500円 (ie 69,500 yen). This is that person's income tax for 1 year.

E.Note dependents

Registering additional dependents will help you reduce taxes. However, if you register too many dependents, you will be suspected of intentional tax evasion.

Conditions for dependents are as follows:

1. Dependent must be over 16 years old.
2. The dependent must be related to the registrant (named in the household registration) and have an income under 103万円/year
3. You should only register a maximum of 4 dependents to avoid suspicion.

As I mentioned in part C - family deductions, if the dependent is an elderly person (over 65 years old), the deduction level will be 48万円

F.Income tax declaration

In the last months of the year, you will receive an income tax notice through your company or home mailbox.

Please check the numbers on the tax notice carefully. Especially the sections: insurance, deductible amount and paid amount. If there are errors, go to the company or city hall to apply for correction procedures.

Once you understand the taxable income formula, try calculating your resident tax Let's see for yourself. Please share the article with everyone if you find it useful. Leave a comment about the issue you are wondering about.