Individual Inhabitant Tax and its Annual Renewal Procedure
Inhabitant tax (resident tax) is a collective term of municipal resident tax and prefectural resident tax. Inhabitant tax can also be classified into corporate inhabitant tax and individual inhabitant tax. In this column, we focus on the individual inhabitant tax.
The taxation of the individual inhabitant tax consists of per capita rate and per income rate. The per capita portion is a flat rate levied on each resident regardless of his/her income, and the income based portion is calculated based on the resident’s income of the previous year.If an individual is on welfare by the Livelihood Protection Law, or the income of the previous year is below the certain amount, he/she is exempt from the individual inhabitant tax.
Please refer to the below site if you would like to calculate the amount of your individual inhabitant tax.
〈National Local Tax Council (Zenkokuchihouzeikyougikai)〉
2. Payment to Municipalities
The inhabitant tax is levied by the municipality where you live as of January 1 of the relevant year. For example, even though you move out from ‘A’ city to ‘B’ ward as of January 2, 5015, you still pay your inhabitant tax to ‘A’ city, in which you have residency on January 1, 2015.
3. Special Collection and General Collection
There are two ways of paying your inhabitant tax: “special collection” and “general collection”.
The “special collection” is for employment income earners. In this system, the employer is a tax payer, and he/she deducts employees’ inhabitant tax from monthly salaries and makes payment to each municipality. The amount of the inhabitant tax of the year is divided into 12 months. The payment starts from June through May of the following year.
On the other hand, the “general collection” is for those who are self-employed, or those who have resigned from job, etc. If this system applies to you, you are required to pay your inhabitant tax on your own in four installments: June, August, October, and January of the following year.
4. Obligation of Special Collection
An employer who has an obligation to withhold his/her employees’ income tax at source is required to withhold their inhabitant tax from their salary income as well. Part-time workers (excluding those whose salaries are only paid based on the period longer than one month, etc.) are also subject to the special collection. It is not allowed for an employer to reject the special collection because of the burden of collecting tax or the request from employees. Lately, each municipality has a tendency to strengthen the special collection system.
5. Annual Renewal of Individual Inhabitant Tax
Under the special collection system, the employer will receive the notices of employees’ tax due from municipalities and notify the tax amount to each employee. The employer will usually hand the notices of tax payment to his/her employees together with their salary statements of June. The notices should be handled carefully because they include important personal information. They are even covered with protection seals in some municipalities.
If the employer still receives the notice of the special collection for those who have already resigned from job, he/she is required to take the procedure for switching to the general collection immediately. Since the inhabitant tax is installed in four times under the general collection, the payment amount per installment is larger than that of the special collection (installed in 12 times). The first payment due for the general collection is June 30, and so it is recommended to switch to the general collection by the end of May.
In addition, please remember to submit the ‘Application to Special Collection’ to the municipality for a new employee by the end of May if his/her inhabitant tax has been installed at one time in the previous job ,or his/her tax payment is still under the general collection system.
In this column, we have provided the information of individual inhabitant tax and its annual renewal procedure. If you have any questions, please feel free to contact us.