Japan individual tax matters must be planned in advance and all compliance must be done in a timely manner. As a member of the Accounting Asia Group, our qualified Japanese professionals can handle all aspects of Japanese individual tax.
Key Features of our Japan Individual Tax Services
The following are some key features of our Japan Individual Tax Service.
1. Pre-Assignment Planning
It is important that Japan tax planning for international assignees be done prior to or (at latest) concurrent with the Japan work visa application.
Particularly important aspects of Japanese individual tax include:
Scope of Taxable Income
Foreigners in Japan will be classified as non-resident, non-permanent resident, or permanent resident. Each classification has different implications with respect to the scope of income that will be subject to Japanese individual tax.
Applicability of Double Tax Agreements (“DTA”)
Japan has DTAs in place with more than 60 countries. In cases where an assignee is considered a non-resident, planning opportunities afforded by the applicable DTA need to be considered.
Location of Japan Payroll
Many international assignees will require both an onshore payroll (for the purpose of paying withholding tax on taxable benefits received in Japan) as well as an off-shore payroll.
Tax Efficient Structuring of Specific Benefits
Total compensation should be structured in a method that takes into account tax efficient benefits such as company provided housing.
Planning may be required to manage the adverse individual and corporate tax consequences associated with director status in a Japanese company.
2. Annual Japan Individual Tax Compliance
Japanese individual tax compliance obligations vary depending on an assignee’s circumstances.
A Japanese individual tax return may not be required where payroll is completed entirely within Japan. In such cases, a “year-end adjustment” is carried out via the Japan payroll in December each year.
A Japan tax return must be filed where an assignee’s payroll is completed off-shore. This involves a final return submitted by 15 March each year and up to six interim / provisional tax payments throughout the year.
3. Post Assignment Tax Issues
There are a number of critical tax issues relevant to the end of an assignment in Japan. These include:
Post Assignment Finalization of Japan Individual Tax
Before departing Japan, foreigners must either lodge a Japan tax return and fully settle their tax liability or appoint a Japan tax agent. Appointment of a tax agent is often preferred since it allows the tax return to be submitted and tax paid by 15 March of the following year.
Timing of Departure
Timing of departure can be a critical issue. Japan's system of local tax is based upon where an individual is resident on 1 January. Where flexibility regarding an assignment end-date exists, there may be substantial tax savings associated with ending an assignment prior to 1 January.