Taxes In Japan & Living Comfortably

[Wwanderer]

Who would have thought at the OP that such a dull sounding topic would generate so much heat?!

I try my best not to pay too much attention to money and related topics; it produces a distorted perception of reality that leads to an unbalanced life imo. So I am the furtherest thing from an expert. However, I would not have thought that health insurance or pension insurance would be considered taxes in a reasonable international comparison because they are in effect the cost of purchasing insurance protection for the individual who is paying those fees. It is true that they are involuntary purchases, but that is different from taxes which are collections of funds by govt from individuals to be used for whatever purpose the govt chooses, whether or not it benefits the individual paying...or indeed even if it is used against his interests.

And the reason that they are not sensible for international comparisons, I would have thought, is that there are countries in which the individual is not charged by govt for such insurance protection, but he/she still must pay for the protection by choice or "self-insure".

I hope this is the dullest post I ever make on TAG!

-Ww

 

[meiji]

Who would have thought at the OP that such a dull sounding topic would generate so much heat?!

Because guys that have lived in Japan for any decent period of time tend to be know-it-alls for everything about living in Japan.

 

[TAG Manager]

Well... I'm one of those people that hasn't kept up with U.S. tax filings, but by my calculations.... and current tax rules, I shouldn't owe any taxes based on the taxable income amount that was already taxed by Japan. At worst, I probably owe penalties for late filings.

I'll get around to dealing with this sooner or later.

As far as FATCA is concerned, I think the banks already reported these things, no? I had to fill out FATCA forms when the more recent accounts were opened. (I still believe anything under $10k USD is non-reportable or not necessary... wrong?)

 

[split]

10k aggregate amongst all foreign accounts (regardless of individual country FACTA agreements - overzealous tyrants) must be reported. Unlikely that they would find those accounts in countries like China.

 

[Sudsy]

Are you including health insurance and pension costs? Because I think Solong was.

Yes, I am. All tax and social insurance costs should cap out at around 27% on a remuneration package of 10 million yen, assuming no dependents and no property tax credits, etc.

And to be clear - I'm running the numbers through government certified payroll software.

Running it through the software gives us:

Annual Remuneration: 10,000,000 yen (approx. 833,333 monthly)

Shakai Hoken: 496,500 (41,375 monthly)
Disability (long term care): 78,684 (6,557 monthly)
Pension: 663,204 (55,267 monthly)
Employment Insurance: 50,016 (4,168 monthly)

Social Total: 1,288,404 (107,367 monthly)

National Tax: 841,920 (70,160 monthly)
Resident Tax: 626,040 (52,170 monthly)

Tax total: 1,467,960 (122,330 monthly)

Overall total: 2,756,364 (229,697 monthly)

27.56%

 

[Solong]

Are you including health insurance and pension costs? Because I think Solong was.

Correct. That's often another 14%. 27% (taxes) + 14% (health and pension) = 41%, for those making over 9,000,000 yen a year.

Furthermore, there isn't any cap set to 27%. There is no rule where the amount deducted can't go over 27%.

14% health and pension
10% (up to for local taxes)
20% (income tax, for above) 9,000,000

Saying you only pay 3% in income taxes doesn't make any sense. However, the tax rate below 9,000,000 yen and then 6,950,000 is lower. The person in question might be paid less, so there taxes are less.

 

[just4fun]

Since we're talking money and taxes.......will retirement income get taxed by the Japanese govt? what's the best bank to use to get hit the least on direct deposit (if anyone knows)

 

[Sudsy]

Correct. That's often another 14%. 27% (taxes) + 14% (health and pension) = 41%, for those making over 9,000,000 yen a year.

Furthermore, there isn't any cap set to 27%. There is no rule where the amount deducted can't go over 27%.

14% health and pension
10% (up to for local taxes)
20% (income tax, for above) 9,000,000

Saying you only pay 3% in income taxes doesn't make any sense. However, the tax rate below 9,000,000 yen and then 6,950,000 is lower. The person in question might be paid less, so there taxes are less.

You seem to have not read what I posted above - which was a complete breakdown on a ten million yen salary, as calculated by government approved payroll software - so here it is again.
Note that it includes health (shakai hoken and disability/long term care), pension payments, and employment insurance, which you seem to have forgotten about.

Annual Remuneration: 10,000,000 yen (approx. 833,333 monthly)

Shakai Hoken: 496,500 (41,375 monthly)
Disability (long term care): 78,684 (6,557 monthly)
Pension: 663,204 (55,267 monthly)
Employment Insurance: 50,016 (4,168 monthly)

Social Total: 1,288,404 (107,367 monthly)

National Tax: 841,920 (70,160 monthly)
Resident Tax: 626,040 (52,170 monthly)

Tax total: 1,467,960 (122,330 monthly)

Overall total: 2,756,364 (229,697 monthly)

27.56% (total percentile deductions for income tax, resident tax, and all social insurances)

Further, I said the payroll deductions should cap out around 27% - which is simply what the maximum tax and social insurance liability will be, and short of having your wages garnished, there very much is a rule dictating the maximum deductions that will be removed from your salary - it's called the national tax law. They government cannot arbitrarily decide to tax one individual more than another. If you're making ten million yen as a company employee, without additional benefits such as housing or transport above 50k yen, and you're paying more than the figures I listed, you should talk to your accountant, because something is wrong.

 

[Goiter]

Sudsy man, give up. Solong is the expert here.

 

[Solong]

You seem to have not read what I posted above - which was a complete breakdown on a ten million yen salary, as calculated by government approved payroll software - so here it is again.
Note that it includes health (shakai hoken and disability/long term care), pension payments, and employment insurance, which you seem to have forgotten about.

Annual Remuneration: 10,000,000 yen (approx. 833,333 monthly)

Shakai Hoken: 496,500 (41,375 monthly)
Disability (long term care): 78,684 (6,557 monthly)
Pension: 663,204 (55,267 monthly)
Employment Insurance: 50,016 (4,168 monthly)

Social Total: 1,288,404 (107,367 monthly)

National Tax: 841,920 (70,160 monthly)
Resident Tax: 626,040 (52,170 monthly)

Tax total: 1,467,960 (122,330 monthly)

Overall total: 2,756,364 (229,697 monthly)

27.56% (total percentile deductions for income tax, resident tax, and all social insurances)

Further, I said the payroll deductions should cap out around 27% - which is simply what the maximum tax and social insurance liability will be, and short of having your wages garnished, there very much is a rule dictating the maximum deductions that will be removed from your salary - it's called the national tax law. They government cannot arbitrarily decide to tax one individual more than another. If you're making ten million yen as a company employee, without additional benefits such as housing or transport above 50k yen, and you're paying more than the figures I listed, you should talk to your accountant, because something is wrong.

So, you are trying to say that income tax (national tax) in Japan on 10,000,000 yen is just around 8.5%. LOL!!!! Ok, if you want to believe that, feel free.

http://www.bannerjapan.com/tax/japan-tax/

 

[KJos]

Who would have thought at the OP that such a dull sounding topic would generate so much heat?!

I try my best not to pay too much attention to money and related topics; it produces a distorted perception of reality that leads to an unbalanced life imo. So I am the furtherest thing from an expert. However, I would not have thought that health insurance or pension insurance would be considered taxes in a reasonable international comparison because they are in effect the cost of purchasing insurance protection for the individual who is paying those fees. It is true that they are involuntary purchases, but that is different from taxes which are collections of funds by govt from individuals to be used for whatever purpose the govt chooses, whether or not it benefits the individual paying...or indeed even if it is used against his interests.

And the reason that they are not sensible for international comparisons, I would have thought, is that there are countries in which the individual is not charged by govt for such insurance protection, but he/she still must pay for the protection by choice or "self-insure".

I hope this is the dullest post I ever make on TAG!

-Ww

I agree about health insurance. However for social insurance it depends upon totalization agreement with a person's home country. In my case, one does not exist meaning I don't get any pension benefits unless I retire in Japan. So if I move elsewhere after say 10 years of working in Japan, it's like an additional tax that I would have paid.

 

[KJos]

Yes, I am. All tax and social insurance costs should cap out at around 27% on a remuneration package of 10 million yen, assuming no dependents and no property tax credits, etc.

And to be clear - I'm running the numbers through government certified payroll software.

Running it through the software gives us:

Annual Remuneration: 10,000,000 yen (approx. 833,333 monthly)

Shakai Hoken: 496,500 (41,375 monthly)
Disability (long term care): 78,684 (6,557 monthly)
Pension: 663,204 (55,267 monthly)
Employment Insurance: 50,016 (4,168 monthly)

Social Total: 1,288,404 (107,367 monthly)

National Tax: 841,920 (70,160 monthly)
Resident Tax: 626,040 (52,170 monthly)

Tax total: 1,467,960 (122,330 monthly)

Overall total: 2,756,364 (229,697 monthly)

27.56%

Does your software give what is the taxable income for a gross income of 10,000,000 yen?

 

[Wwanderer]

I agree about health insurance. However for social insurance it depends upon totalization agreement with a person's home country. In my case, one does not exist meaning I don't get any pension benefits unless I retire in Japan. So if I move elsewhere after say 10 years of working in Japan, it's like an additional tax that I would have paid.

Yes, I see the point. But of course you can never be sure you will get the benefit of a pension plan you purchase (willingly or because it is required). If nothing else, you could die before collecting it...or something else could happen, but it is still something that you are purchasing for yourself, not just paying for govt activities in general.

-Ww

 

[Sudsy]

Sudsy man, give up. Solong is the expert here.

Clearly so. I guess our CPAs have been getting it all wrong all these years.... I'll have to inform the partners.

So, you are trying to say that income tax (national tax) in Japan on 10,000,000 yen is just around 8.5%. LOL!!!! Ok, if you want to believe that, feel free.

http://www.bannerjapan.com/tax/japan-tax/

You keep treating gross salary as taxable income, and forgetting to apply the basic personal tax exemption (in this case 5% of 10 million plus 1.7 million, total 2.2 million yen), and that all social insurance payments (about 1.3 million yen) are tax deductible, leaving a taxable income of approximately 6.5 million yen.

So yeah....

 

[Sudsy]

Does your software give what is the taxable income for a gross income of 10,000,000 yen?

See above.

 

[Wwanderer]

You keep treating gross salary as taxable income, and forgetting to apply the basic personal tax exemption (in this case 5% of 10 million plus 1.7 million, total 2.2 million yen), and that all social insurance payments (about 1.3 million yen) are tax deductible, leaving a taxable income of approximately 6.5 million yen.

Even I can understand that!

Anyway, I'm glad they don't take anything close to 40% out of my salary. If they did, there would be several fewer happy sugar babies in Tokyo.

-Ww

 

[Goiter]

Clearly so. I guess our CPAs have been getting it all wrong all these years.... I'll have to inform the partners.



You keep treating gross salary as taxable income, and forgetting to apply the basic personal tax exemption (in this case 5% of 10 million plus 1.7 million, total 2.2 million yen), and that all social insurance payments (about 1.3 million yen) are tax deductible, leaving a taxable income of approximately 6.5 million yen.

So yeah....

Like I said, just give up.

 

[Solong]

Clearly so. I guess our CPAs have been getting it all wrong all these years.... I'll have to inform the partners.



You keep treating gross salary as taxable income, and forgetting to apply the basic personal tax exemption (in this case 5% of 10 million plus 1.7 million, total 2.2 million yen), and that all social insurance payments (about 1.3 million yen) are tax deductible, leaving a taxable income of approximately 6.5 million yen.

So yeah....

I mentioned already that social insurance are deducted from tax. Which is why on the progressive tax rate of 33% for 10,000,000 yen, it's reduced to 20%. I also posted a link, and have others, showing the progressive national tax rates based on income. And it surely isn't 8.5%.

Oh, and the numbers I posted come from an accountant.

https://www.jetro.go.jp/en/invest/setting_up/laws/section3/page7.html
(also has chart of Japan's progressive national tax).


Where some might be getting confused, is that in Japan, many Japanese companies withhold half of their salary and then pay it back as a "bonus" 2 times a year. Usually June and December, they back the other half of the money. 1/4 (June) + 1/4 (December) = 1/2.

It's an arguably abusive traditional Japanese system, where the company tries to maximize the benefit of getting interest payments from the bank.

Because less of your money is given, taxes appear less. However the other half of your salary paid out in June and December is also taxed.

It can get even more complicated, because the company can also pays out real company bonuses in December or performance based bonuses at quarterly intervals, depending on the job. Which is why you have to keep careful track of your money, and the actual amount of taxes and insurance you are paying.

 

[Sudsy]

I tried to give you a couple of graceful outs earlier in the discussion, but as you persist...

I mentioned already that social insurance are deducted from tax.

No, social insurance contributions are deducted from gross income as part of the calculation to determine taxable income.

I also posted a link, and have others, showing the progressive national tax rates based on income. And it surely isn't 8.5%.

You pretty clearly don't understand how to perform the calculations. Like I said, on a 10 million gross remuneration, you apply basic personal tax exemptions (in this case the earned income exemption of 5% of 10 million plus 1.7 million, total 2.2 million yen), and the social insurance payments (about 1.3 million yen) that are tax deductible, leaving a taxable income of approximately 6.5 million yen.

On that 6.5 million yen, you pay 20% of that income exceeding 3.3 million yen, plus 232,500 yen. So, 6.5 million minus 3.3 million = 3.2 million, 20% of that is 640,000, add 232,500 yen and you get 872,500 yen total, for a rate of 13.4% on the taxable income, or 8.7% on the gross income.

Which is why on the progressive tax rate of 33% for 10,000,000 yen, it's reduced to 20%.

We addressed your misunderstanding of how social insurance contributions work above.

If we were to assume 10 million yen of taxable income instead, the taxation rate for national tax is not 33%. It's 33% of taxable income exceeding 9 million yen, plus 1,434,000 yen.

So, if 10 million were your taxable income post-personal exemptions and social insurance, you would calculate it like this:

10 million minus 9 million = 1 million, 33% of that is 330,000, add 1,434,000 yen for a total of 1,764,000 yen, which would be 17.6% of the taxable income.

And FYI, to have 10 million yen in taxable income, you would need to be earning a little over 14 million per annum, so your rate against the gross would be about 12.5% at that level.

(Again, all the above assuming company employee with no dependents or other tax credits beyond basic personal exemptions)

Oh, and the numbers I posted come from an accountant.

No, they don't - unless this accountant is completely unfamiliar with Japanese payroll systems - because no local accountant would forget something as basic as a 2.2 million yen earned income tax exemption.

 

[Goiter]

I tried to give you a couple of graceful outs earlier in the discussion, but as you persist...



No, social insurance contributions are deducted from gross income as part of the calculation to determine taxable income.



You pretty clearly don't understand how to perform the calculations. Like I said, on a 10 million gross remuneration, you apply basic personal tax exemptions (in this case the earned income exemption of 5% of 10 million plus 1.7 million, total 2.2 million yen), and the social insurance payments (about 1.3 million yen) that are tax deductible, leaving a taxable income of approximately 6.5 million yen.

On that 6.5 million yen, you pay 20% of that income exceeding 3.3 million yen, plus 232,500 yen. So, 6.5 million minus 3.3 million = 3.2 million, 20% of that is 640,000, add 232,500 yen and you get 872,500 yen total, for a rate of 13.4% on the taxable income, or 8.7% on the gross income.



We addressed your misunderstanding of how social insurance contributions work above.

If we were to assume 10 million yen of taxable income instead, the taxation rate for national tax is not 33%. It's 33% of taxable income exceeding 9 million yen, plus 1,434,000 yen.

So, if 10 million were your taxable income post-personal exemptions and social insurance, you would calculate it like this:

10 million minus 9 million = 1 million, 33% of that is 330,000, add 1,434,000 yen for a total of 1,764,000 yen, which would be 17.6% of the taxable income.

And FYI, to have 10 million yen in taxable income, you would need to be earning a little over 14 million per annum, so your rate against the gross would be about 12.5% at that level.

(Again, all the above assuming company employee with no dependents or other tax credits beyond basic personal exemptions)



No, they don't - unless this accountant is completely unfamiliar with Japanese payroll systems - because no local accountant would forget something as basic as a 2.2 million yen earned income tax exemption.

Lost cause my friend. He's the final authority on this one.

 

[Solong]

I tried to give you a couple of graceful outs earlier in the discussion, but as you persist...



No, social insurance contributions are deducted from gross income as part of the calculation to determine taxable income.



You pretty clearly don't understand how to perform the calculations. Like I said, on a 10 million gross remuneration, you apply basic personal tax exemptions (in this case the earned income exemption of 5% of 10 million plus 1.7 million, total 2.2 million yen), and the social insurance payments (about 1.3 million yen) that are tax deductible, leaving a taxable income of approximately 6.5 million yen.

On that 6.5 million yen, you pay 20% of that income exceeding 3.3 million yen, plus 232,500 yen. So, 6.5 million minus 3.3 million = 3.2 million, 20% of that is 640,000, add 232,500 yen and you get 872,500 yen total, for a rate of 13.4% on the taxable income, or 8.7% on the gross income.



We addressed your misunderstanding of how social insurance contributions work above.

If we were to assume 10 million yen of taxable income instead, the taxation rate for national tax is not 33%. It's 33% of taxable income exceeding 9 million yen, plus 1,434,000 yen.

So, if 10 million were your taxable income post-personal exemptions and social insurance, you would calculate it like this:

10 million minus 9 million = 1 million, 33% of that is 330,000, add 1,434,000 yen for a total of 1,764,000 yen, which would be 17.6% of the taxable income.

And FYI, to have 10 million yen in taxable income, you would need to be earning a little over 14 million per annum, so your rate against the gross would be about 12.5% at that level.

(Again, all the above assuming company employee with no dependents or other tax credits beyond basic personal exemptions)



No, they don't - unless this accountant is completely unfamiliar with Japanese payroll systems - because no local accountant would forget something as basic as a 2.2 million yen earned income tax exemption.

You, are not a Japanese accountant nor one of a Japanese company doing payroll. I can go directly to one to ask the question. It's not my theory about it, but what they actually do.

And you put the national income tax at 8.5%. It's forever there my friend, for people to see.

 

[Curacao]

This is the mozt crazy thread on here for a while!

 

[Sudsy]

You, are not a Japanese accountant nor one of a Japanese company doing payroll. I can go directly to one to ask the question. It's not my theory about it, but what they actually do.

And you put the national income tax at 8.5%. It's forever there my friend, for people to see.

And there we go, Solong now resorts to the ad hominem...

Well, you're partially correct... I'm not a "Japanese" accountant... though I do hold several accounting certs here.

As to the other... one of the services we provide to our clients is payroll management.

Please, do the math yourself and prove me wrong, I'd be fascinated to see it.

 

[meiji]

Where some might be getting confused, is that in Japan, many Japanese companies withhold half of their salary and then pay it back as a "bonus" 2 times a year. Usually June and December, they back the other half of the money. 1/4 (June) + 1/4 (December) = 1/2.

They might withhold what a US company, say, would ordinarily pay someone in salary, but if my salary is 10M yen a year, they aren't paying me 5M yen + bonus.

And the JETRO link you posted backs up exactly what Sudsy is saying. It has the progressive tax rates and immediately below that it says "Income tax on employment income is calculated based on the amount obtained by deducting the following employment income deductions from income." and then gives you the employment income tax deductions that you take FIRST before calculating the tax.

 

[Solong]

They might withhold what a US company, say, would ordinarily pay someone in salary, but if my salary is 10M yen a year, they aren't paying me 5M yen + bonus.

And the JETRO link you posted backs up exactly what Sudsy is saying. It has the progressive tax rates and immediately below that it says "Income tax on employment income is calculated based on the amount obtained by deducting the following employment income deductions from income." and then gives you the employment income tax deductions that you take FIRST before calculating the tax.

Seishain Contact

I was simplifying the explanation of a seishain contract. I advise everyone to look it up. Most foreigners and people outside Japan that have never worked for a Japanese company will have no idea about this.

Many Japanese companies implement this system. It complicates the understanding of how taxes and pay deductions are done, in addition to what your monthly salary is.

Also, it's presented as a part of a bonus system, when it's actually not, because it part of your own money that is taken.


6,000,000 Yen / 12 months = 500,000 Yen/month (before tax)

6,000,000 Yen / 14 months = 428,571 Yen/month (before tax)

6,000,000 Yen / 16 months = 375,00 Yen/month (before tax)

6,000,000 Yen / 17 months = 352,941 Yen/month (before tax)

6,000,000 Yen / 18 months = 333,333 Yen/month (before tax)

Many companies that use seishain contracts, will use the 18 months or more extended variations. It's more to their benefit.