The Japanese individual income tax year runs from 1 January to 31 December.
All income tax returns are filed on an individual basis in Japan; joint tax returns are not permitted. The tax year is the calendar year for all resident-status individuals, and a taxpayer is required to file a national tax return by 15 March of the following year.
If a taxpayer’s income consists only of employment income paid by one local employer (including a Japanese branch of a foreign corporation) that does not exceed JPY 20 million in a year, the payer of the income makes a so-called ‘year-end adjustment’ on the employment income, and if total income other than employment income is JPY 200,000 or less, the employee is not required to file an income tax return.
Beginning with tax year 2013, permanent resident taxpayers with overseas assets that exceed JPY 50 million in gross value are required to submit a report of these assets to the tax authorities along with their annual tax returns. There are penalties associated with not filing or incorrectly filing the report, which differs from similar reporting requirements.
Assets and Liabilities Reporting
Currently, individuals whose taxable income in the year exceeds JPY 20 million are required to disclose their worldwide assets and liabilities. Effective from 1 January 2016, this form will be renamed to 'Zaisan Saimu Chosho' (for this purpose, 'Assets and Liabilities Reporting'), from the current 'Zaisan Saimu Meisaisho' ('Assets and Liabilities Statement'), and additional criteria will be instituted to determine whether there is a requirement to file this form. In addition to the current condition on the amount of taxable income, only individuals whose assets with a fair value of JPY 300 million or more, or assets subject to the exit tax amounting to JPY 100 million or more, as of 31 December would be required to file this form.
Payment of tax
If salary is paid in Japan by a local employer, monthly withholding of both national and local income taxes is required. The tax due on overseas payments of salary is payable when the tax return is filed, rather than through payroll withholding. Two provisional payments of national tax are required in July and November if the previous year’s final tax liability (after the deduction of WHT) was JPY 150,000 or more.
Tax audit process
The tax authority of Japan is the National Tax Agency, and audits are conducted randomly.
Statute of limitations
The standard statute of limitations under audit is currently five years, though this can be extended in cases of tax evasion.
Topics of focus for tax authorities
The topics covered under tax audits can be wide ranging and varied and will largely depend on the individual taxpayer.