A. At a Glance - Maximum Rates
Income Tax Rate (%) 65 Capital Gains Tax Rate (%) 65 (a) Net Worth Tax Rate (%) 0 Inheritance and Gift Tax Rates (%) 70 (b)
(a) Although capital gains rates vary according to the type of property, 65% is generally the maximum rate. See Section G.
(b) A 20% surtax is imposed on transfers to heirs who are not family members. See Section H.
B. Income Tax - Employment
1. Who Is Liable
For Japanese tax purposes, the tax liability of individuals is determined by residence status. Individual taxpayers are classified into the following three categories:
- A permanent resident is an individual who has a permanent domicile in Japan or who has resided continuously in Japan for more than five years.
- A nonpermanent resident is an individual who does not intend to reside permanently in Japan and who has resided in Japan fewer than five years.
- A nonresident is an individual who has not established a domicile in Japan and who has resided in Japan less than one year.
- Foreign nationals arriving in Japan are considered to have established residence in Japan unless employment contracts or other documents clearly indicate that they will stay in Japan less than one year.
Permanent residents are subject to income tax on their worldwide income regardless of source. Nonpermanent residents are taxed on their Japanese-source income and on foreign-source income that is paid in or remitted to Japan. Nonresidents are subject to tax on their Japanese-source income only.
2. Taxable Income and Deductions
Individuals who have employment income are subject to income tax. Employment income includes salaries, wages, bonuses and other compensation of a similar nature. Benefits in kind provided by the employer, such as the private-use portion of employer-provided automobiles, permanent company housing, tuition for dependent children, life insurance premiums, private medical insurance premiums and private pension contributions, are included in employment income. Certain employer-paid benefits, however, are excluded from taxable income, such as moving expenses, certain loans below market rates and, for resident foreigners and nonresidents, home-leave expenses.
Taxable employment income is gross receipts minus an employment income deduction, computed as indicated in the following table.
Gross Compensation Exceeding Not Exceeding Employment Income Y Y Deduction 0 1,800,000 Gross receipts x 40% (minimum Y650,000)