In Japan, residents need to pay both shotoku-zei and juminzei. The former refers to the national income tax while the latter refers to the resident tax one must pay based on their location.
Juminzei consists of two elements: one paid to the city you reside in (for example, Fuchu-city or Musashino-city) and another to the prefecture (like Tokyo or Kanagawa), with tax rates varying by location.
How is Juminzei calculated?
Calculation of this tax is based on the income you earned in the previous year. New residents who were abroad the prior year are exempt until the following January, after which taxes are due based on the previous year’s gross income.
Juminzei is assessed based on where you lived on January 1st. Even if you relocate the next day, you owe the full amount based on that date.
How is it paid?
For payment, salaried workers have the tax deducted from their monthly wages by their employer, starting in June and continuing through May of the following year, at about 10% of their prior year’s taxable income. The Juminzei rate breaks down into 4% for prefectural and 6% for municipal taxes.
It is important to note that an individual is subject to resident tax if they are a resident as of January 1st. The local tax office determines the tax amount from the prior year’s income tax records, notifying the individual after April. Employers withhold this tax directly from paychecks for salaried employees and remit it to the city office (special collection), while others pay in four installments (ordinary collection).
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What if I change residences?
Regarding exiting or changing residence, it’s crucial for individuals leaving Japan to settle their entire local tax obligations before departure. If an employee did not report their departure correctly, the outstanding tax may still be levied.
Employers are advised to verify with the employee whether authorities were properly notified of their departure. Failure to do so could result in the tax being billed directly by the local ward office. Any questions regarding unpaid tax should be directed to the former ward office to check the status of any outstanding payments.
Do you have a business in Japan and are unsure of how to calculate and pay the local taxes? An Employer of Record (EoR) service like Eos can help you out. As trained experts on Japan’s employment regulations, we can navigate it for you. Capitalise on our 15 years of expertise in EoR solutions and being one of the most established EOR companies in Japan. Check out our services here or connect with us directly.
Featured photo by Nicki Eliza Schinow on Unsplash
