みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo

みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo, tax tips, accounting, running business

Do we have to withhold income tax on salary to non-resident employee?

time 2016/07/23

Who has to pay the withholding tax?

The rule about withholding tax on salary is sometime confusing. And a possible penalty for making an error in handling the withholding tax is expensive. The tax itself is 20.42%, which has to be paid by the employer. and the penalty is 5-10% of the withholding tax. There is also interest charge, which is 1.8% annually for the first two months and 9.1 percent later on.

Typical situation with our clients are that they hire students or temporary workers from their home country to run a hotel or provide services. They usually come to Japan with Working Holiday visa.

They are non-residents. They come to Japan for short period, to enjoy skiing while working in nearby hotels or shops. Their wages are subject to withholding tax. And even if their wages are already in full to those who worked, it is not their responsibility to declare and file tax in Japan, it is employer’s responsibility. Failure in paying the tax in time will lead tax liability to the employer.

What is subject to the Japanese tax?

Salaries paid for works done in Japan paid by a legal entity who has a branch or physical existence in Japan.

There are two points to consider. One is where the work is provided. If the work is provided outside of Japan like in Australia, of course it is not subject to Japan tax. This is called “source rule”. If the source of income in Japan, it is taxable in Japan.

Or, if it is paid by a legal entity in Japan (e.g. a company, subsidiary, branch, representative office) or even it is paid by a foreign entity, although the salary is “covered” by a Japanese entity, it is still subject to Japanese withholding tax. “Covered” means that if the salary is booked as deductible expense in its accounting of the Japanese entity, the expense is substantially shouldered and therefore is “covered” by the Japanese entity.


The withholding tax has to be paid by the 10th of the next month. There is a specific tax slip to pay. You need to pay the tax with it either in a bank or a post office.

You can apply for an extension of the deadline so you will only have to pay every six months instead of every single month. The due dates will be July 10th for salaries paid during the first 6 months (Jan. to Jun.) and Jan. 20th next year for the second half of the year (Jul. to Dec.).

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Recently started reading this book. It is inspiring and made me think how we can improve not only the quality of our accounting services but also our “matching”. According to his theory by the author, accounting and tax services should be something to be hired not only by its price but clients see consciously or unconsciously whether we are good match for them or not. Tax advisory is very difficult to make it commodity because clients needs are always different and specific to each individuals or companies. But some area in daily accounting routine work seems quite possible to make it standardized, something like making a journal entry for each cash receipt of tax or restaurant.

It is always good to read books. You will always get somehow inspired or influenced by something new to you in books. Reading books always or most of the times opens my eyes.

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