How the tax rate in Japan for foreigners works (UK guide)

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If you work in Japan as a UK citizen, you pay a flat tax rate in Japan of 20.42% on Japan-source income. This income tax applies only to your taxable income earned in Japan. You may also face local inhabitant taxes, which increase your total tax rate in Japan. Residency status matters because it changes how taxes and taxable income are calculated. Double taxation can happen if both Japan and the UK tax your income, so you need to understand the rules.

Key Takeaways

• UK citizens working in Japan pay a flat 20.42% income tax on money earned from Japanese sources if they are non-residents.
• Residency status in Japan affects your tax rules: non-residents pay tax only on Japan income, while residents may pay tax on worldwide income.
• Local inhabitant tax of 10% applies only if you are a registered resident in Japan on January 1 of the tax year.
• The UK-Japan tax treaty helps avoid paying tax twice by allowing tax credits and exemptions when you report income in both countries.
• Filing taxes on time with the right documents and knowing your residency status helps you avoid penalties and stay compliant with Japanese tax law.

Tax Rate in Japan

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Non-Resident Income Tax

When you work in Japan as a non-resident, you face a flat income tax rate of 20.42% on your Japan-source income. This rate includes a 20% base withholding tax and a 2.1% surtax. The surtax is not separate; it is part of the total tax rate. You pay this tax only on money you earn from Japanese sources. The national income tax rates for non-residents do not change based on your income level. You do not pay this tax on income from outside Japan.

You cannot claim any deductions or credits against this income tax. The law does not allow non-residents to reduce their tax bill with personal allowances or other tax breaks. You pay the full tax rate on your gross income.

The government collects this tax through withholding. When you receive income in Japan, the payer (such as your employer or a business partner) deducts the tax before you get your money. The payer then sends the tax directly to the Japanese tax office. This system covers many types of income, such as:

• Wages and salaries from work in Japan
• Fees for personal services (like consulting, legal, or sports activities)
• Rent from real estate in Japan
• Interest from Japanese bonds or loans
• Profits from selling or leasing assets in Japan
• Pensions from Japanese insurance contracts

If you want to use a tax treaty to lower your tax rate, you must submit special forms before you receive payment. If you do not submit these forms, the payer will withhold tax at the standard rate. You can apply for a refund later if you qualify for a lower rate under a treaty.

Note: The 20.42% tax rate in Japan for non-residents applies only to Japan-source income. You do not pay Japanese income tax on money you earn outside Japan.

Local Inhabitant Tax

Japan also charges a local inhabitant tax, which is usually a flat 10%. This tax is separate from the national income tax. You pay this tax if you are registered as a resident in a Japanese city or town on January 1 of the tax year. If you stay in Japan for a short time and do not register as a resident, you usually do not pay this tax.

There are no special rules for UK nationals. If you meet the residency requirement, you must pay the local inhabitant tax like everyone else. The tax office calculates this tax based on your previous year’s income. If you become a resident after January 1, you do not pay the local inhabitant tax for that year.

Tip: Always check your residency status with your local city office. This step helps you know if you need to pay the local inhabitant tax in addition to the national income tax.

You cannot claim deductions or credits against the local inhabitant tax as a non-resident. The rules are strict, and the tax applies only if you meet the residency test on January 1.

You need to understand both the national and local taxes to know your total tax rate in Japan. If you work in Japan for a short time, you usually pay only the 20.42% income tax. If you stay longer and register as a resident, you may also pay the 10% local inhabitant tax.

Residency Status

Resident vs. Non-Resident

Your residency status in Japan decides how you pay income tax and which types of taxable income you must report. Japanese law places you into one of three groups:

• Non-resident: You do not have a legal address in Japan and have not lived there for at least one year. You pay taxes only on your Japan-source income. If you work in Japan for a short time or visit on a working-holiday visa, you usually count as a non-resident. You do not pay income tax in Japan on money earned outside the country.
• Resident: You have a legal address or have lived in Japan for at least one year. Residents pay taxes on more types of income. There are two types of residents: non-permanent and permanent.
• Permanent resident: You have lived in Japan for more than five years in the last ten years. Permanent residents pay income tax on all worldwide income, not just Japan-source income.

Note: Japanese tax law uses your main home, job, and family location to decide if you are a resident. If you stay in Japan for at least one year, you become a resident for tax purposes.

The table below shows how taxes apply based on your residency status:

Non-Permanent Resident Rules

If you are a non-permanent resident, you have special tax rules. You count as non-permanent if you are not a Japanese national and have lived in Japan for less than five of the last ten years. As a non-permanent resident, you pay income tax on all Japan-source income. You also pay taxes on foreign income, but only if you bring that money into Japan. If you keep foreign income outside Japan, it is not part of your taxable income.

• Non-permanent residents:
  • Not Japanese nationals
  • Lived in Japan less than five of the last ten years
  • Pay taxes on Japan-source income
  • Pay taxes on foreign income only if remitted to Japan

Permanent residents pay taxes on all income, no matter where it comes from or where you keep it. Non-residents pay taxes only on Japan-source income. These rules help foreign residents in Japan plan their finances and avoid paying more income tax than needed.

Tip: If you visit Japan on a short-term stay or working-holiday visa, you usually remain a non-resident. You pay taxes only on your Japan-source taxable income.

Taxable Income in Japan

Understanding what counts as taxable income in Japan helps you avoid surprises when you file your taxes. The rules depend on your residency status. You need to know which types of income are taxed and when foreign income comes into play.

Employment Income

You pay taxes on employment income based on where you work and your residency status. If you are a resident, Japan taxes your worldwide employment income. This means your taxable income includes salaries paid both inside and outside Japan. If you are a non-permanent resident, your taxable income covers all employment income paid in Japan and any foreign income you bring into Japan. Non-residents only pay taxes on employment income earned from work performed in Japan. If you work for a company in Japan, your salary is taxable income. If you work outside Japan, that income is not taxable for non-residents.

Here is a table to help you see how taxable income from employment works:

Self-Employment and Business

If you run a business or work as a freelancer in Japan, your taxable income includes profits from your activities in Japan. Residents must report all self-employment income, even if it comes from outside Japan. Non-permanent residents report self-employment income earned in Japan and any foreign business income brought into Japan. Non-residents only pay taxes on self-employment income earned in Japan. If you do not have a business in Japan, your foreign business income is not taxable income here.

Foreign Income Rules

Japan taxes residents on all worldwide income, so your taxable income includes foreign earnings. Non-permanent residents only pay taxes on foreign income if they bring it into Japan. Non-residents do not pay taxes on foreign income. Your taxable income as a non-resident only includes money earned from Japanese sources. Special rules apply if you have a permanent establishment in Japan, such as an office or branch. In that case, your taxable income includes profits linked to that establishment.

Note: Non-residents never pay taxes on foreign income unless it is connected to a business or property in Japan. Always check if your income counts as taxable income before you file your taxes.

Double Taxation

UK-Japan Tax Treaty

You may worry about paying taxes twice if you earn income in both Japan and the UK. The UK-Japan tax treaty helps you avoid this problem. The treaty came into force on December 12, 2014, and sets clear rules for which country can tax certain types of income. It covers taxes on income, capital gains, and corporation tax. The treaty also reduces or removes withholding taxes on dividends, interest, and royalties.

Here is a table showing some key treaty rules:

The treaty also includes rules to stop abuse, such as limitation on benefits and principal purpose tests. These rules make sure only real residents and qualified persons get treaty benefits.

Avoiding Double Tax

You can avoid double taxation by following a few steps. First, check your tax residence status in both countries. Your status affects which taxes you must pay and where you can claim relief. If you pay taxes in Japan, you may claim a foreign tax credit or exemption in the UK. You usually do this through your UK Self Assessment tax return. You may need to fill out special forms, such as Form DT-Individual, if you want to claim treaty relief as a non-resident.

Here are some steps to help you avoid double taxation:

1. Confirm your tax residence in both Japan and the UK.
2. Report your foreign income on your UK tax return.
3. Apply for tax credits or exemptions using the correct forms.
4. Keep records of taxes paid in Japan.
5. Ask a tax advisor if you have questions about the process.

Note: The treaty sets limits on tax rates for certain income, such as dividends and interest. These limits help you pay less tax overall. Always check the latest rules and seek advice if you are unsure.

Tax Filing and Payment

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Filing Process

You need to file an income tax return in Japan if you earn income above certain thresholds, have multiple employers, or receive income not taxed at source. Residents must report worldwide income and can claim deductions. Non-residents only report Japan-sourced income and cannot claim personal exemptions. Non-permanent residents report all Japan income and only foreign income brought into Japan. Permanent residents report all income, no matter where it comes from. UK nationals follow these rules based on their residency status.

To start, gather your income details and check if you meet the filing requirements. If you leave Japan before the end of the tax year, you must file your taxes before departure. You can file your return online, by mail, or in person at the local tax office. If you do not file or pay on time, you may face penalties, fines, or even trouble renewing your residency status.

Tip: Always check your residency status before you file. This step helps you know how to pay taxes correctly.

Required Documents

When you prepare your tax return, you need several documents. These help you report your income and pay the right amount of taxes.

• Passport and residence card
• Proof of income (such as payslips or withholding tax statements)
• Bank statements (especially if you have foreign income)
• Details of any deductions or allowances (for residents)
• Report of foreign assets if your assets outside Japan exceed $330,000 USD (based on current exchange rates)
• Previous year’s tax return, if available

Keep all documents safe. You may need to show them if the tax office asks for proof.

Deadlines

Japan’s tax year runs from January 1 to December 31. You must submit your income tax return and pay any taxes owed by March 15 of the following year. If you have foreign assets worth more than $330,000 USD, you must also file a report by this date.

If you miss the deadline, you may face a 10% or 15% surcharge. Late payments add extra charges, starting at 2.4% for the first two months and rising to 8.7% after that. In serious cases, you could face legal action or even deportation. Always check when to pay taxes and file on time to avoid problems.

You now know how tax rates, residency status, and taxable income affect your obligations in Japan. Double taxation rules and filing steps help you avoid costly mistakes. To prepare for tax season, follow these steps:

1. Check your residency status.
2. Understand your income types.
3. Know key deadlines and filing methods.
4. Seek expert advice for complex cases.

For official guidance, review resources from the European Commission and Japan Customs. Recent tax reforms and treaty updates may impact your situation, so stay informed and compliant with Japanese tax law.

FAQ

What is the flat tax rate for non-residents in Japan?

You pay a flat income tax rate of 20.42% on money you earn from Japanese sources. This rate includes a 2.1% surtax. You cannot claim deductions or credits as a non-resident.

Do you need to pay local inhabitant tax as a non-resident?

You usually do not pay local inhabitant tax if you stay in Japan for less than one year or do not register as a resident. Only residents as of January 1 must pay this 10% tax.

How does the UK-Japan tax treaty help you avoid double taxation?

The UK-Japan tax treaty lets you claim tax credits or exemptions. You can avoid paying tax twice on the same income. You must keep records and fill out the right forms to get treaty benefits.

What documents do you need to file your Japanese tax return?

Tip: Keep all documents safe. The tax office may ask for proof.

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