Japan
This chapter includes data on the income taxes paid by workers, their social security contributions, the family benefits they receive in the form of cash transfers as well as the social security contributions and payroll taxes paid by their employers. Results reported include the marginal and average tax burden for eight different family types.
Methodological information is available for personal income tax systems, compulsory social security contributions to schemes operated within the government sector, universal cash transfers as well as recent changes in the tax/benefit system. The methodology also includes the parameter values and tax equations underlying the data.
The national currency is the Yen (JPY). In 2020, JPY 106.89 were equal to USD 1. In that year, the average worker is assumed to earn JPY 5 185 181 (Secretariat estimate). In Japan, the central government income tax year is a calendar year and the local government income tax year is from April to March. The calculations in this report are based on the tax rules and rates, which are applicable the April 1st.
1.1. Central government income tax
1.1.2. Allowances and tax credits
1.1.2.1. Standard reliefs
Employment income deduction: first, the following amounts may be deducted from gross employment income:
‒ If gross employment income does not exceed JPY 1 800 000, the deduction is 40 per cent of gross employment income less JPY 100 000, but the minimum amount deductible is JPY 550 000.
‒ If gross employment income exceeds JPY 1 800 000, but not JPY 3 600 000, the deduction is JPY 80 000 plus 30 per cent of gross employment income.
‒ If gross employment income exceeds JPY 3 600 000, but not JPY 6 600 000, the deduction is JPY 440 000 plus 20 per cent of gross employment income.
‒ If gross employment income exceeds JPY 6 600 000, but not JPY 8 500 000, the deduction is JPY 1 100 000 plus 10 per cent of gross employment income.
‒ From 2020, if gross employment income exceeds JPY 8 500 000, the deduction is fixed at JPY 1 950 000. However, in consideration of child-care and long-term care, measures will be taken to avoid increase in tax burden for households with a dependent relative(s) under 23 years of age and households with a member(s) dependent on care.1
Second step deductions are calculated using as a “reference income” the earnings from employment less the employment income deductions described above. The second step deductions are:
Basic allowance (Personal deduction): allowance up to JPY 480 000 is given to a resident taxpayer whose reference income does not exceed JPY 25 000 000. The amount of tax allowance gradually decreases once the income exceeds JPY 24 000 000.
Allowance for spouse(*): a tax allowance up to JPY 380 000 is given to a resident taxpayer whose reference income does not exceed JPY10 000 000 and who lives with a spouse whose reference income does not exceed JPY 480 000.
Allowance for elderly spouse(*): a tax allowance up to JPY 480 000 is given to a resident taxpayer
Special allowance for spouse(*): a tax allowance up to the amount shown in the following table is given to a resident taxpayer whose income does not exceed JPY10 000 000 and who lives with a spouse whose income exceeds JPY 480 000 but does not exceed JPY 1 330 000:
(*) The amounts of the Allowance for spouse, of the allowance for elderly spouse, and of the Special allowance for spouse, decrease gradually when the reference income (as defined above) of the taxpayer is between JPY 9 000 000 and JPY 10 000 000, then they become zero. Specifically, the amounts of the allowances is as follows:
- Reference income less than JPY 9 000 000: full amount;
- Reference income between JPY 9 000 000 and JPY 9 500 000: full amount*2/3;
- Reference income between JPY 9 500 000 and JPY 10 000 000: full amount*1/3
- Reference income above JPY 10 000 000: no deduction.
Allowance amounts are rounded up to the closest multiple of 10 000 JPY.
Allowance for dependents: if a resident taxpayer has dependent children or other dependent relatives who are 16 years old and over, whose reference income does not exceed JPY 480 000, a tax allowance of JPY 380 000 per each dependent is given to the taxpayer.
Special allowance for dependents: if a resident taxpayer has dependents between 19 and 22 years old whose reference income does not exceed JPY 480 000 and who live with the taxpayer, an allowance of JPY 630 000 is given for each dependent, instead of the allowances for dependents mentioned above.
Allowance for elderly dependent: if a resident taxpayer has dependents who are 70 years old and over whose reference income does not exceed JPY 480 000, a tax allowance of JPY 480 000 per each dependent is given to the taxpayer, instead of the allowances for dependents mentioned above. (If the dependents are lineal ascendance of the taxpayer or his/her spouse, and permanently live with the taxpayer or his/her spouse, a tax allowance of JPY 580 000 per each dependent is given to the taxpayer.)
Deduction for social insurance premiums: the whole amount of social insurance premiums for a resident taxpayer or his/her dependents shall be deducted from his/her income.
1.1.2.2. Main non-standard tax reliefs applicable to an AW
Deduction for life insurance premiums: If a resident taxpayer pays insurance premiums on life insurance contracts and the beneficiary is the taxpayer, his/her spouse or other relatives, the portion of these insurance premiums which does not exceed the limit described below, is deductible from ordinary income, retirement income or timber income.
In addition, if a resident taxpayer pays insurance premiums for “qualified private pension plan (insurance type)”, and the recipient of the pension payment is the taxpayer or his/her spouse or relatives living with the taxpayer, the portion of such premiums which does not exceed the limit described below, is deductible from ordinary income, retirement income, or timber income.
Furthermore, if a resident taxpayer pays insurance premiums on nursing and medical insurance contacts and part of the nursing/medical care which the taxpayer receives is financed by the insurance, the portion of such premiums which does not exceed the limit described below, is deductible from ordinary income, retirement income, or timber income.
For insurance contracts made on or after 1 January 2012 the maximum total deduction is JPY 120 000. A resident taxpayer can claim the deduction up to JPY 40 000 for life insurance premiums, private pension plan premiums and nursing and medical insurance premiums respectively.
For the insurance contracts made on or before 31 December 2011, a resident taxpayer can claim the deduction up to JPY 50 000 for life insurance premiums, personal pension plan premiums respectively. Thus, a resident tax payer can claim the deduction up to JPY 100 000 in total.
Deduction for medical expenses: If a resident taxpayer pays bills for medical or dental care for himself/herself or for his/her dependent spouse or other dependent relatives living with him/her and the amount of such expenses (excluding those covered by insurance) exceeds JPY 100 000 or 5% of the total of his/her ordinary income, retirement income and timber income, the excess amount is deductible from his/her ordinary income, retirement income or timber income. The maximum deduction is JPY 2 million.
If a resident taxpayer who receives health checks, vaccinations, etc., pays bills for switch OTC drugs for himself/herself or for his/her spouse or other relatives dependent on him/her from 1 January 2017 to 31 December 2021, amount of such expenses (excluding those recovered by insurance) exceeding JPY 12 000 is deductible from taxpayer’s ordinary income, retirement income or timber income. This is an alternative to the deduction for medical expenses mentioned above and the maximum deduction is JPY 88 000.
Deduction for earthquake insurance premiums: Earthquake insurance premiums up to JPY 50 000 can be deducted from income. Although the income deduction for casualty insurance premiums are basically abolished, the deduction for long-term casualty insurance premiums remains available if contracted before 31 December, 2006. The maximum deduction for long-term casualty insurance premiums is JPY 15 000. If an individual applies for a deduction for both earthquake insurance premiums and long-term casualty premiums, the maximum deductible amount is JPY 50 000 in total.
Credit for housing loans: A resident taxpayer who constructs, purchases, enlarges or rebuilds a house and finances the cost by means of a housing loan and uses the property as his or her own dwelling is entitled to an income tax credit up to the amount described below for 10 years after the first use of the house, provided that the floor space is not less than 50m2 and that at least half of the floor space is used as the owner-occupied dwelling. The tax credit is calculated based on the remaining housing loan debt amount and the years which the taxpayer has lived in the house. The loan can consist not only from private financial institutions but also from public institutions. This tax credit cannot be claimed by those whose total income is more than JPY 30 million.
1.1.3. Tax schedule
Tax liability is obtained by multiplying the taxable income by tax rate (A) and deducting the amount (B). For example, income tax due on taxable income of JPY 7 million is:
7 000 000 x 0.23 (A) － 636 000 (B) = JPY 974 000.
In addition, a taxpayer is required to file tax returns and make tax payments for additional 2.1% of the base income taxes from 2013 through 2037 (special income tax for reconstruction) annually together with the regular income tax of respective years.
1.2. Local taxes (personal inhabitant’s taxes)
1.2.1. General description of the system
Local taxes in Japan (personal inhabitant’s taxes) consist of prefectural inhabitant's tax levied by prefectures and municipal inhabitant’s tax levied by cities, towns and villages. The prefectural inhabitant’s tax is collected together with the municipal inhabitant’s tax by cities, towns and villages.
1.2.2. Tax base
Basically, personal inhabitant’s taxes (prefectural and municipal inhabitant’s taxes) consist of two parts; one is income based tax and the other is a fixed per capita amount. The taxable income of personal inhabitant’s taxes is computed on the basis of the previous year's income. The main difference from state tax (income tax) is the amount of income reliefs (tax deductions). For example, the amount of personal deduction and tax deduction for dependants is JPY 330 000, and tax allowance for spouse is up to JPY 330 000, the amount of specified allowance for dependants is JPY 450 000, etc.
1.2.3. Tax rate
The standard fixed (annual) per-capita amount of Prefectural inhabitant’s tax is JPY 1 500;
The standard fixed (annual) per-capita amount of Municipal inhabitant’s tax is JPY 3 500;
The standard rate of the income based tax is 10% (Prefectural inhabitant’s tax: 4%, Municipal inhabitant’s tax: 6%, for ordinance-designated cities, Prefectural inhabitant’s tax: 2%, for Municipal inhabitant’s tax: 8%) (*).
2.1. Employees’ contributions
2.1.1. Pension
9.15% of total remuneration (standard remuneration and bonuses). The insurable ceiling of the monthly amount of pensionable remuneration is JPY 620 000 and the insurable ceiling of the standard amount of bonus is JPY 1 500 000.
2.1.2. Sickness
As from April 2012 about 5.00%, (about 4.75% before March 2012), of total remuneration, (standard remuneration and bonuses). The insurable ceiling of the monthly amount of standard remuneration is JPY 1 390 000 and the insurable ceiling of the yearly amount of standard bonus is JPY 5 730 000.
2.2. Employers’ contributions
2.2.1. Pensions
9.15% of total remuneration (standard remuneration and bonuses). The insurable ceiling of the monthly amount of pensionable remuneration is JPY 620 000 and the insurable ceiling of the standard amount of bonus is JPY 1 500 000.
2.2.2. Sickness
As from April 2012, about 5.00% (about 4.75% before March 2012) of total remuneration. The insurable ceiling of the monthly amount of standard remuneration is JPY 1 390 000 and the insurable ceiling of the yearly amount of standard bonus is JPY 5 730 000.
2.2.3. Unemployment
0.6% of total remuneration for Commerce and industry in general except for Business of agriculture, forestry and fisheries, and the rice wine brewing business, and Construction business. It is 0.7% for Business of agriculture, forestry and fisheries, and the rice wine brewing business, and 0.8% for Construction business.
3.2. Benefits for dependent children
From April 2012 (Income caps are applied beginning from June 2012 payments):
a) For persons earning incomes below the income cap
‒ JPY 15 000 (per month) is paid to parents/guardians for each child who is under 3 years old or for the third or subsequent child from 3 years old until he/she graduates from elementary school.
‒ JPY 10 000 (per month) is paid to parents/guardians for each child who is for the first or second child from 3 years old until he/she graduates from elementary school or who is a junior high school student.
The income cap is set at JPY 6 220 000 (the principal’s gross earnings net of certain deductions (a casualty loss deduction , a medical expenses deduction, deduction for small enterprise-based mutual aid premiums and similar payments, disability deduction, widow (or widower) deduction and working student deduction), plus JPY 380 000 per dependent).
3.3. Child rearing allowance
The benefit is available to single mothers who take care of and provide protection to a child. The benefit is available also to single fathers who take care of and provides living expenses, supervision and protection to the child.
It is available until March 31 after the child’s 18th birthday or until age 20 for those with specific disabilities. The benefit is not taxable.
Claimants can receive either a full benefit or a partial benefit depending on their income. Amounts for the full benefit over time are as follows:
The rates and withdrawal rates for the partial payment over time are as follows:
Those with incomes above the threshold for the full benefit receive a partial benefit, and those with incomes above the threshold for the partial benefit receive nothing.
The income measure used is gross annual income minus the employment income deduction minus JPY 80 000 - the amount paid towards public and private insurance premiums.
Income thresholds are based on the number of dependents (see the following table):
The amount of partial benefit is calculated as follows:
Benefit amount = 42,910－{(Amount of income － “Income–tested threshold of full benefit”) ×0.0229231 +10}
The additional amount for the second child is calculated as follows:
Benefit amount = 10,140－{Amount of income － “Income–tested threshold of full benefit”) ×0.0035385 +10}
And the additional amount for the third and subsequent children as follows:
Benefit amount = 6,080－{(Amount of income － “Income–tested threshold of full benefit”) ×0.0021189 +10}
As part of the Fiscal Year 1999 tax reform, the highest marginal rate of the personal income tax imposed by the central government was reduced from 50% to 37%. The top rate of the local inhabitant’s tax was reduced from 15% to 13%. A proportional tax reduction was granted with respect to the national income tax and the local inhabitant’s tax. The amount is equal to the lesser of 20% (local inhabitant’s tax: 15%) of the amount of tax before reduction or JPY 250 000 (local inhabitant’s tax: JPY 40 000).
As part of the FY 2005 tax reform, the rate of proportional tax reduction was reduced from 20% to 10% (local inhabitant’s tax: from 15% to 7.5%) and the ceiling was reduced from JPY 250 000 to JPY 125 000 (local inhabitant’s tax from JPY 40 000 to JPY 20 000) as from 2006 (local inhabitant’s tax: FY 2006). In the FY 2006 tax reform, the proportional tax reduction was abolished as from 2007 (local inhabitant’s tax: FY 2007).
As part of the FY 2006 tax reform, the progressive rate structure of national income tax was reformed into a 6 brackets structure with tax rates ranging from 5% to 40%, and the rate of local inhabitant’s tax became proportional at a single rate of 10%.
As part of the FY 2012 tax reform, the upper limit on employment income deduction (JPY 2 450 000) was set for those who earn employment income of more than JPY 15 000 000 as from 2013 (personal inhabitant’s tax: FY 2014).
As part of the FY 2013 tax reform, the tax rate of 45% was set for the income beyond JPY 40 000 000 from 2015 creating a 7 brackets structure.
As part of the FY 2014 tax reform, the upper limit on employment income deduction was determined to be gradually reduced. In 2016 (as for personal inhabitant’s taxes, in FY2017), the limit became JPY 2 300 000 for salary income more than JPY 12 000 000. Moreover, in 2017 (as for personal inhabitant’s taxes, in FY2018), the limit became JPY 2 200 000 for salary income more than JPY 10 000 000.
As part of the FY 2017 tax reform, as regards allowance for spouse and special allowance for spouse, the maximum spousal income qualifying for the tax allowance (maximum JPY 380 000) were raised from JPY 380 000 to JPY 850 000. At the same time, an upper income limit was introduced as a requirement for taxpayers to qualify for allowance for spouse and special allowance for spouse. The reform goes into effect in 2018. (As for personal inhabitant’s taxes, allowance for spouse and special allowance for spouse will be revised similarly. This reform will go into effect in FY2019.)
As part of the FY 2018 tax reform, following tax systems will be revised. The reform will go into effect in 2020 (as for personal inhabitant’s taxes, in FY2021):
The amount of employment income deduction and pension income deduction will be reduced uniformly by 100 000 yen while the amount of personal deduction will be raised uniformly by 100 000 yen.
The amount of employment income deduction from income exceeding 8 500 000 yen will be reduced to 1 950 000 yen. However, in consideration of child care and long-term care, measures will be taken to avoid increase in burden on households with a dependent relative(s) under 23 years of age and households with a member(s) dependent on care (*).
* Relatives receiving “special deduction for persons with disabilities”
A cap of 1 955 000 yen will be put on pension income deduction for pension income exceeding 10 000 000 yen. The deduction will be reduced for pensioners with income other than pension exceeding 10 000 000 yen after deductions.
Personal deduction will be diminished for people with total income exceeding 24 000 000 yen after deductions, and the amount will be further reduced gradually to zero when total income exceeds 25 000 000 yen.
Eligible age for cash benefits for dependent children was raised from three to six as from 1 June 2000, from six to nine as from 1 April 2004 and from nine to twelve as from 1 April 2006. Benefit amount has been doubled to JPY 10 000 for the first and second child under the age of three as from 1 April, 2007.
As from 2010, JPY 13 000 per month is paid to parents/guardians regardless of their income for each child until he/she graduates from junior high school.
As from April 2012 (Income caps are applied beginning from June 2012 payments):
a) For persons earning incomes below the income cap
‒ JPY 15 000 (per month) is paid to parents/guardians for each child who is under 3 years old or for the third or subsequent child from 3 years old until he/she graduates from elementary school.
‒ JPY 10 000 (per month) is paid to parents/guardians for each child who is for the first or second child from 3 years old until he/she graduates from elementary school or who is a junior high school student.
‒ JPY 5 000 (per month) is paid to parents/guardians for each child until he/she graduates from junior high school as the Special Interim Allowances.
4.1. Changes to labour taxation due to the covid-19 pandemic
4.1.1. Non-taxable benefit payments
No income tax shall be imposed on the following benefits provided by a municipality or special ward, and the right to receive such benefits may not be seized by disposition of the national tax delinquency;
- Certain benefits provided in order to support households in view of the impact of COVID-19 and measures to prevent its spread.
- Certain benefits provided in order to mitigate the economic impact on households which children belong to as a result of COVID-19 and measures to prevent its spread.
4.1.2. Special provision for deferral of tax payment
If a taxpayer has a considerable decrease in business income since February 2020 due to the impact of COVID-19 and has difficulties to pay tax, the tax payment may be deferred for one year without collateral or delinquency tax. Similar special provision is also established for individual inhabitant tax which enables to defer tax collection.
4.1.3. Special provision of deduction for charitable contribution by individuals in relation to the cancellation of cultural, arts or sports events cancelled because of the COVID-19 pandemic.
If individuals waive the right to claim a refund of the amount paid for admissions to cultural, arts or sports events cancelled because of the government's request in order to prevent the spread of COVID-19, the deduction for charitable contribution (income or tax deduction) shall be applied for the waived amount (up to 200,000 yen).
Similar special provision is also established for individual inhabitant tax.
4.1.4. Flexible treatment of the requirements for application of the special tax deduction available for housing loans
More flexibility is added to the application requirements of the tax deduction for housing loan so that it can be applied under certain conditions, even if the house would not started to be used for residence by December 31, 2020 due to the delay in housing construction caused by COVID-19, as if it started to be used for residence on time (in 2020).
The application requirements are also made more flexible for individual inhabitant tax.
5.1. Average gross annual wage earnings calculation
The source of calculation is the Basic Survey on Wage Structure, published by the Ministry of Health, Labour and Welfare. This survey covers establishments with ten or more regular employees over the whole country, and contains statistical figures for monthly contractual cash earnings in June and annual special cash earnings (such as bonuses) received by various categories of workers. Male and female workers of the manufacturing, mining and quarrying, construction, wholesale and retail trade, transportation and storage, accommodation and food service activities, information and communication, financial and insurance activities, real estate activities activities, professional, scientific and technical activities are the point of departure. Their gross annual earnings have been calculated by multiplying monthly contractual cash earnings by 12 and adding any annual special cash earnings. In the Basic Survey, sickness and unemployment compensations are excluded from cash earnings, but average overtime and bonuses are included.
As far as the Basic Survey is concerned, it covers the whole country, and no special assumption is made regarding the place of residence of the average worker.
5.2. Employer contributions to private pension and health schemes
DB: JPY 2 769 billion (FY 2017)
Employees’ Pension Funds (EPFs): JPY 93 billion (FY 2018)
DC: JPY 1 008 billion (FY2018)
Data of DB and EPFs are the total amount of employers’ contribution and employees’ one and there is no data of those which indicates only employers’ contribution. Under DC schemes, as from January 2012, matching contribution which enables employee to pay additional contribution to employer's one became available. The amount of DC does not include the amount of matching contribution. It is regulated by law that employers’ contribution must be higher than employees’ one.
The equations for the Japanese system are mostly on an individual basis. But the tax allowances for the spouse and for children are relevant only to the calculation for the principal earner. This is shown by the Range indicator in the table below.
The functions which are used in the equations (Taper, MIN, Tax etc) are described in the technical note about tax equations. Variable names are defined in the table of parameters above, within the equations table, or are the standard variables “married” and “children”. A reference to a variable with the affix “_total” indicates the sum of the relevant variable values for the principal and spouse. And the affixes “_princ” and “_spouse” indicate the value for the principal and spouse, respectively. Equations for a single person are as shown for the principal, with “_spouse” values taken as 0.
Note
← 1. Relatives receiving “special deduction for persons with disabilities”.