Tax on salary income for non-residents

Withholding tax of 20.42%

Salaries paid to non-residents are subject to Japanese withholding tax, always. If you are an employer in Japan and if you are paying salaries to non-residents, you have to take 20.42% income tax and pay to the government next month.

The penalty of missing the deadline is expensive, which is 5%-10% of the withholding tax itself. Please be careful not to miss it.

Filing tax return? Will not be accepted.

Employment income (that is another name of salary income in tax terminology) for non-residents are taxable at flat rate. It is always 20.42% and you are NOT allowed to submit a tax return to claim any expenses or deductions. It does not matter whether you have dependents in your country, donation, mortgage anything. It is not the same calculation formula for residents.

Typical situation is when you hire people who come to Japan to work with working holiday visa. We have several clients in ski resort areas. They hire people from abroad because it is hard to hire enough number of people for jobs that pay you only in winter. But fortunately, there are people who are willing to work AND ski.

Those people stay in hotels only for a few months, work and leave Japan when ski season is over. The tax rate seems high for staff as well but you need to deduct 20.42%. Otherwise, you will end up having to pay the tax. It is

Border line case

Some people come to Japan with working visa for one year and go back to their home country exactly after one year. They live in accommodation that their employer provides.

If they stay only a little bit less than one year, it is likely that the tax office will see they are non-resident from the beginning and therefore the 20.42% tax rate should apply from the first day. But if you could prove that they had intention to stay more than one year and then they suddenly had to return to their home country, they were Japan resident from the first day and therefore the tax rate for residents are applicable, which is much much lower, usually.

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Withholding resident tax for local government – does a company have to take care of? 普通徴収か特別徴収か?

The withholding of resident tax works differently from national one, which you currently deduct from everyone’s salary every month.

The resident tax is also required to withhold every month based on tax bills that local governments send to employer. But the enforcement was not very strict for the past years.
Therefore, there have been many small companies who do not handle employees’ resident tax and leave it to employees as their own business.

Recently, the attitude of the local government have been changed and they are more strict. They really push employers to abide with the rule.

Therefore, I recommend to start withholding the resident tax from the next round, if you are not doing, which starts from June next year. The procedure is quite similar to the national tax but it is easier. Because they send the 12 tax slips for each month to withhold for each employees, you will just need to take the exact amount from employee’s salary every month.

Please note that the tax slips will be only sent for those who are on payroll as of Dec 31 in the previous year. For example, the tax slips for 2017 will only be sent for those in the company as at 31st of December, 2016.

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