Japanese Individual Income Tax Return for Non-Permanent Residents
The first theme is “Japanese Individual Income Tax Return for Non-Permanent Residents".
Recently, we often see many foreign employees working in Japanese companies.In case of Japanese employees,if they earn only salaries and bonuses, the employer company makes year-end adjustments on their salaries and bonuses and -final returns are not usually required.
How about foreign employees?
Basically, the same treatment is applied to foreign employees. However, in case the foreign employees receive salaries and bonuses both in Japan and outside Japan , they should file the final income tax return. The salaries and bonuses paid outside Japan are not subject to withholding tax at source in Japan, and so the whole tax amount should be calculated by filing the tax return.
(Furthermore, if the foreign employees run their own business in Japan and/or have real estates rented in Japan, they should file income tax returns. This is the same as the Japanese employees. But in today’s column, please let us focus on the case of the employment income.
2. Final Returns
According to “INCOME TAX AND SPECIAL INCOME TAX FOR RECONSTRUCTION GUIDE(FOR ALIENS)” published by National Tax Agency JAPAN, “As for the income tax and special income tax for reconstruction, taxpayers shall calculate the income amount, income tax and special income tax for reconstruction by themselves with respect to the whole income earned from January 1 through December 31 of the relevant year in accordance with their own residential status, and adjust any excess or shortage in tax payment withheld at the source or prepaid on the basis of estimated tax.
This procedure is called the filing of the final return.”
As you understand from the above explanation, it is important in final returns to recognize the total amount of taxable income earned in the year.
3. Source of income subject to taxation
The scope of taxation in Japan is as follows:
As you know from the above chart, taxable income varies based on the type of residence.
Each definition is as follows-:
1) Non-permanent resident
A resident taxpayer of non Japanese nationality who has had domicile or residence in Japan for an aggregate period of five years or less within the last ten years.
2) Permanent resident
A resident other than a non-permanent resident
Any individual other than the above “Resident” is classified as a “Non-resident”.
The definition of “Domicile” and “Residence” are as follows:
An individual’s base of living is in Japan. Actually, it is an address in Residential Basic Book Act, the place of the resident's card
The place that the person lives for a certain period on a continuing basis, even if it is not a base of living.
4. Calculation of amount of income categorized as domestic source income
The calculation formula is as follows:
Income from Sources in Japan = Total amount of salaries and bonuses ✕ the period of employment services performed in Japan / Base period for calculation of the salary and bonus
In this regard, please note the following:
1) The above pro rata calculation is not applied to the remuneration for the directors of Japanese companies since the entire amount is considered as Japanese source income.
2) The period of “home leave” should be excluded from the above “Base period for calculation of the salaries and bonuses”, since it is not related to the employment services in Japan and abroad directly.
5. Economic benefit
If the following items are borne by the employer company, not by the employee, these are treated as taxable employment incomes for the employee.
1) Tax reimbursement
3) Company housing
4) Furniture lease
5) Social insurance premium which should be paid by employee
6) Educational expenses for their children (ex: the tuition for American school)
Regarding the above 3), 5%~10% of the actual rent becomes employment income for employees , and 35% or 50% of the actual rent becomes employment income for directors.
6. Deduction from taxable income
For income tax return, several income deductions are provided such as deduction for medical expenses and exemption for dependents family members, etc.
These deductions are also applied to foreign employees a. However, please note the following:
1) Deduction for Life insurance premium
The premium paid to foreign life insurance company cannot be deducted.
2) Deduction for medical expenses
Medical expenses which are paid abroad can also be deducted.
3) Deduction for social insurance premiums
Basically, foreign social insurance premiums cannot be deducted. However, certain foreign social insurance premium is deductible under tax-treaty.
4) Deduction for dependent family members
This deduction is also available for the dependent family members who live outside Japan if they are financially supported by the taxpayer.
It is proposed that any documents which certify the remittance of cost of living for the dependents outside Japan and the relationship with them must be attached to the final return from the year 2016.
In this column, we- focus on the tax treatment for “non-permanent resident”. Pease note that this article is only prepared for the purpose of introducing general contents and no professional advices included. Therefore, please don’t make any judgment based on this article without an individual advice from any professionals.
If you have any further questions, please feel free to contact us.
●Website of National Tax Agency JAPAN (https://www.nta.go.jp/)
●Website of Ministry of Finance Japan, “FY2015 Tax Reform(Cabinet decision on January 14, 2015)” (http://www.mof.go.jp/english/tax_policy/tax_reform/index.html)
●“Income tax guide for 2014”(「所得税 確定申告の手引（平成２７年３月申告用）」)（Editor: Azusa Fukuda／Published by Zeimu Kenkyukai）
●“2014 INCOME TAX AND SPECIAL INCOME TAX FOR RECONSTRUCTION GUIDE FOR ALIENS” published by National Tax Agency JAPAN