Japanese taxation: Latest developments – 2021

Japanese taxation: Latest developments – 2021

Let me wish you ‘Akemashite omedetou gozaimasu. (formal): あけましておめでとうございます’ a Happy New Year in Japanese. Let us proceed with our learning of the latest  developments in Japanese taxation. Due to initiation of Japanese taxation in our earlier articles in an exhaustive manner, let me narrate the steps taken by Jetro, Japan external trade organization (web page with official tax information), and National Tax Agency to update our knowledge currently.

Individual Income tax

 What is the income?

(All information from government websites with reference at the end)

The filing period of taxable income in the period of the calendar year 2021, is open ; From February 16 (Wed.) through March 15 (Tue.), 2022.

Yes, online filing, posting by postal system, or posting into the reception box of the competent tax office kept outside the office are the systems to submit tax return.

What is the income to be used for calculating income tax? Both residents as well as non-residents pay income tax.

Persons having a domicile in Japan and persons having a residence in Japan for one year or more are termed residents. The worldwide income of residents, regardless of the location of the source of income, is subject to income tax.

Persons not qualifying as residents are termed non-residents. Japanese income tax for non- residents will be assessed on income sourced within Japan.

How do I term income? Income is defined as under:

Employment income

Real estate income like rent, leasing etc. Interest income

Dividend income

Miscellaneous income like public pensions Retirement income

Capital gains from other assets (over 5 years) Occasional income

Timber revenue

Revenue from business

Prize money, lottery winnings,

Aggregate Taxation Income derived from certain lump-sum payments from endowment life

insurance policies or lump-sum payments from casualty insurance policies where the term of insurance or mutual relief is 5 years or less.

What are the deductions available before application of tax? Casualty losses

Medical expenses

Social insurance premiums

Small business mutual aid premia Life insurance

Earthquake insurance

Special exemption for spouses: If your total annual income is not more than 10 million yen and your spouse’s income exceeds 380,000 yen but is less than 760,000 yen.

Widow’s deductions if one is a widower Working students

Persons with disabilities

Dependents Basic exemption: The basic exemption is 380,000 yen if the total income of the tax- payer receiving deduction is 9 million or less. It goes up to 480,000 for an elderly spouse of 70 years or more.

One can see the complete list on the website nta.go.jp.

The above deduction goes down as the income increases. How about employment income deductions?

Let me cover this now than done earlier in my articles (EI is employment income)

Employment income (yen)    Deductions allowed (yen) Up to 1,625,000                              5,50,000

1625001 – 18,00,000             EI*40% – 100000

1800001 – 3600000               EI*30% – 80000

3600001 – 6600000               EI*20% – 440000

6,600,001 – 8500000             EI*10% – 1100000

Over 8500000                         1950000

What is the withholding tax in Japan?

Income tax in Japan adopts the withholding tax system for specific incomes along with the self-assessment system. Under the withholding tax system, the payers of salaries and

wages, retirement allowance, interest, dividends, and fees etc. withhold the certain amounts of income tax etc. at the time of payment and pay them to the national treasury. It varies between 15% and 22%.

The income tax system is found on the principle of the “self-assessment system,” whereby an income earner spontaneously calculates his/her income for the year and the corresponding amount of tax by submitting a return.

For certain types of income, the payer of the income is required to get income tax withheld at the time the income is paid under the “withholding tax system.”

Under the withholding tax system, (1) a payer of certain types of income, such as salary, interest, dividends, and tax accountants’ fees, (2) calculates the amount of income tax

payable pursuant to prescribed methods at the time the income is paid, and (3) withholds the

amount of income tax from the income payment and pays it to the government.

About special income tax for reconstruction, the withholding tax system has been adopted for the income subject to income tax withholding among the income arising between January 1, 2013 and December 31, 2037, in which special income tax for reconstruction is withheld when withholding income tax and is paid with the income tax withheld.

Income tax and special income tax for reconstruction withheld under this system is settled through a year-end adjustment or by filing a final tax return for the year, except for forms of income such as income from interest.

What are the tax reforms proposed for 2022?

Review of the Existing Tax Measure to Promote 5G Network Technology.

In order to accelerate the investment related to 5G technology in local areas, extend the measure by 3 years to FY 2024, but make the tax credit phase down as below.

Measures                    tax credit                    special depreciation Depopulated areas    Current 15%             30%

Year 2022      15%    30%

Is there any change in income tax applicable for payment? Income tax rates

What is consumption tax in Japan?

Let me quote directly from the website of jetro.go.jp.

“The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject to consumption tax. In principle, the consumption tax rate is 10% (inclusive of local consumption tax rate of 2.2%). The reduced tax rate of 8% (inclusive of

local consumption tax rate of 1.76%) will be applied to sales of food and beverages, except for alcoholic drinks and dining out, and sales of newspapers published more than twice a

week (under subscription contracts). 1. (1)

Domestic transactions: the transfer or rental/lease of assets or the provision of services as a business in Japan by an enterprise for consideration.

2. (2)

Import transactions: foreign cargo retrieved from a bonded zone

Financial transactions, capital transactions and certain transactions in the areas of medical care, welfare and education are deemed non-taxable. Export transactions and export-like transactions such as international communications and international transport are exempt from consumption tax.” Consumption tax on taxable purchases may be deducted from consumption tax on taxable sales when calculating the amount of consumption tax to be paid.

Let us deviate our attention to corporate income tax.

My earlier articles have clearly infused our knowledge with the following information on corporate income tax in Japan. There is no change in instructions issued earlier but the latest tax rate will be quoted.

Let me recapitulate the same for our memory.

Japan is one of the earliest countries which enabled branding, growth of big companies and standardization of products as a right for a customer. Some of them like Sony, Mitsubishi or Toyota are not unknown names. Corporate Tax:

Nothing enlightens the expectations of governments than substantial income tax from corporates since most of the industrial policies enable the industries to perform better.

Let us learn the details of corporate tax in Japan with open minds.

National corporate tax is to be paid to central government, local tax to local government bodies, while Inhabitant tax and enterprise tax are to be paid to the eagle eyes of the local bodies.

A certain percentage of national tax is paid additionally to local bodies, other than national payment of income tax. Inhabitant tax is paid both on income and per capita basis of employees engaged.

Corporations having paid-in capital of 100 million yen are subject to enterprise tax on prorate basis. Corporation tax system hinges on the following information on tax required to be paid by corporates.

Just wipe your tears with the lowest tax rate for corporates in USA/India being enforced at the same time.

Actual corporation tax to be paid in Japan

The following para taken from the booklet published by Japan tax authorities is intended for a tax personnel from India.

“Accounting Profits and Taxable Income.

The “accounting profits” are calculated by subtracting expenses from revenues. The “taxable income” is calculated by subtracting deductible expenses from gross profits.

There is a difference between accounting “revenues” and “gross profits” for tax purposes. Similarly, there is a difference between “expenses” and “deductible expenses.”

These differences are treated as exclusion from gross profits, inclusion in gross profits, exclusion from deductible expenses, and deductible expenses, which are added to or subtracted from the “accounting profits” to calculate the “taxable income.”

Popularly known in accounting/taxation matters, permanent differences/temporary differences, a concept well understood by tax accountants throughout the world.

The actual rate of corporate tax as prescribed from government/taxation authorities of Japan are as under:

From April 1, 2021

Corporate inhabitant tax(prefectural) is 0.15% up to 8 million yen, 0.23% for over 8 million yen.

Corporate inhabitant tax(municipal) is0.9% up to 8 million yen, and 1.39% for over 8 million yen.

Enterprise tax is 3.5% up to 4 million yen, 5.30% for over 4 million – 8 million, and 7.0% for over 8 million.

Other interesting titbits of corporate tax.

Final tax return and tax payments We already know that corporations pay various taxes. Therefore, they must file final tax return within two months from the day following the last day of each taxable year. Some of them, however, do obtain extension for filing of returns with the director of Taxation office.

The income and tax amounts to be entered in the tax return needs approval from general meeting of stockholders. It is obvious that calculated tax amount must be paid within the period prescribed and any extension will result in interest tax and overdue tax.

Corporates do file white form and blue form, the later enjoying a variety of tax Benefits. This is one of the finest advantages for corporates working in Japan. I have never come across this unique feature in any other country’s taxation system. I have covered in detail these aspects in my earlier articles in taxguru.

Conclusion

Widest range of opportunities are available to our youngsters to visit Japan, both on short term, or long-term basis. Various sign boards indicating teaching of Japanese language in India emphasize this statement.

Japan has unique features as under:

Complex and violent geography, longevity of its people, some of them above century, complex tax form to be filed in Japanese language, paternalistic nature of their government, and the longest working hours for employees who refuse to move out.

Though enormous quotations and reference have been made, I tried to make this article as simple as possible. But one needs to avail enormous tax consultants available in Japan to file complex forms. But do read, understand, and appreciate one of the oldest civilizations which appreciates nature, art and living itself as an art.

Japan ranks among the nations as the top investor of India and has enormously contributed towards of Indian industrial growth.

Reference https://www.nta.go.jp/english/taxes/individual/pdf/incometax_2019/00.pdf https://www.jetro.go.jp/en/invest/setting_up/section3/page1.html https://www.nta.go.jp/english/taxes/corporation/pdf/outline.pdf

Disclaimer:The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest

judicial pronouncements, circulars, clarifications etc. before acting because of the above

write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional.