Social security contributions
An employee whose salary or bonus, including fringe benefits, is paid in Japan by a local employer (including a Japanese branch of a foreign corporation) is generally liable to pay a share of social insurance premiums. The employee’s share consists of the following contributions:
|Contribution||Standard premiums on monthly salary||Standard premiums on bonus|
|Health insurance for the Metropolis of Tokyo (each prefecture has its own health insurance rate, and rates are slightly higher for individuals between the ages of 40 and 65)||4.95% (on a maximum of JPY 1,390,000 of wages per month)||4.95% (on an annual cap of JPY 5.73 million of irregular annual total payments)|
|Welfare pension (1)||9.15 % (on a maximum of JPY 620,000 of wages per month)||9.15% (on a maximum of JPY 1.5 million of irregular payments per month)|
- The fixed rate of 9.15% for welfare pension will be applied from September 2017. Premiums on child allowance will be imposed separately at 0.34% from April 2019.
Japan social insurance paid by the employee is deductible for Japan income tax purposes.
A consumption tax is levied when a business enterprise transfers goods, provides services, or imports goods into Japan. As of 1 April 2014, the applicable rate is 8% (previously 5%). As of 1 October 2019, the rate will increase to 10% (for certain foods, drinks, and newspapers, the tax rate will remain as 8%). Exports and certain services to non-residents are taxed at a zero rate. Specified transactions, such as sales or lease of land, sales of securities, and provision of public services, are not subject to taxation. Consumption tax paid by the business enterprise attributable to taxable revenue shall be refundable by filing the consumption tax return to the extent that such transaction is recorded in the books of account and relevant invoices are kept.
Net wealth/worth taxes
There are currently no net wealth/worth taxes in Japan.
Inheritance, estate, and gift taxes
Inheritance tax is a national tax imposed on the recipients of an inheritance (including a devise).
Effective 1 April 2017, the transfer of overseas assets between foreign nationals who have a jusho in Japan for less than 10 years out of the last 15 years with a visa issued under Table 1 of the Visa Status Table of Immigration Control and Refugee Recognition Act ('temporary foreigners'), with other temporary foreigners or with foreigners outside of Japan, is exempt from Japan gift and inheritance tax. Note, however, the transfer of overseas assets with Japanese nationals who currently have a jusho or had a jusho in Japan within the previous 10 years is not exempt.
To qualify for the above exemption, foreign nationals need to meet the definition of temporary foreigners. The foreign national has to (i) have a jusho in Japan for not more than 10 years out of the past 15 years looking back from the date of death/gift and (ii) hold a visa issued under Table 1. Foreign nationals who satisfy (i), but fail to satisfy (ii) (i.e. hold visa issued under Table 2), will not qualify as temporary foreigners and are therefore subject to worldwide taxation of Japan gift and inheritance tax while residing in Japan, regardless of whom the transfers are made with.
Note that a Table 1 visa under the Visa Status Table of Immigration Control and Refugee Recognition Act is essentially a work related visa and does not include the following visa types: permanent resident, spouse or child of Japanese national, spouse or child of permanent resident, and long-term resident.
The transfer of overseas assets to a Japanese national heir/donee who is not a resident of Japan but either the heir/donee or the decedent/donor had a jusho in Japan within the past 10 years of the gift or inheritance is subject to Japan gift and inheritance tax. Similarly, the transfer of overseas assets from a Japanese national decedent/donor who is not a resident of Japan but had a jusho in Japan within the past 10 years of the gift or inheritance is also subject to Japan gift and inheritance tax.
This is commonly referred to as ’10-year tail’ rule for Japanese nationals, as any transfers involving Japanese nationals could be subject to Japan gift and inheritance tax for up to 10 years after permanent departure from Japan. Note that there was no transition measure in the law that exempted Japanese nationals who have permanently departed Japan prior to 1 April 2017.
A similar ‘lookback’ rule, the ‘5-year tail’ rule, was introduced in 1 April 2017 for foreign nationals who had departed Japan but had a jusho in Japan for 10 years out of the last 15 years. Under this rule, the transfer of the foreign nationals’ worldwide assets continue to be subject to Japan gift and inheritance tax for up to 5 years after permanent departure from Japan if they resided in Japan for 10 years or more.
However, effective 1 April 2018, the ‘5-year tail’ rule for foreign nationals who had departed Japan but had a jusho in Japan for 10 years out of the last 15 years was repealed for gifts and inheritances occurring on or after 1 April 2018. This is provided that the donor does not return and re-establish jusho within 2 years of permanent Japan departure. Otherwise, the 10-out-of-15-year lookback rule will still apply. Effectively, any overseas assets gifted occurring within the 2 years between Japan departure and return could potentially be subject to Japan gift tax.
Note that any transfers of assets located in Japan is always subject to Japan gift and inheritance tax, regardless of whom or when the transfers take place with.
Assets subject to inheritance tax include tangible, intangible, real, or personal property, unless otherwise specifically exempt under the law. The asset is valued in accordance with the provisions of the Japanese tax rules. The same rules apply to the gift tax system.
The basic exemption is JPY 30 million plus JPY 6 million per statutory heir. If the gross estate is smaller than the total amount of the basic exemption, there is no filing requirement.
After the exemption(s) is applied, the total amount of inheritance tax is determined as follows. First, the assets are allocated to individuals (referred to as statutory heirs) in accordance with the statutory inheritance proportions. Then, the graduated inheritance tax rates are applied to each statutory heir’s portion. Each statutory heir’s portion is then added together to ascertain the total inheritance tax on the assets. Then, this tax is allocated based on the actual recipient(s) of the assets (this allocation is generally based on the deceased’s will). The actual recipient will be liable for the tax payment, and the tax credit (if any) will apply to the actual taxpayer’s liabilities. In summary, the will executed in the home country of the deceased will generally be respected; however, the total amount of tax is always calculated in accordance with the statutory heir inheritance proportions.
Gift tax is a national tax levied on the recipients of a gift. The scope of gift tax is similar to inheritance tax, i.e. a taxpayer’s visa type and the time they have resided inside and outside of Japan affects which gifts may be subject to gift tax. However, the gift tax regime is not unified with inheritance tax, with the exception of a gift that is made within three years from date of death of the donor.
The annual gift exemption per recipient is JPY 1.1 million. Any amount of gift(s) received above the exemption will potentially trigger Japan gift tax.
Additionally, there is a special system where the taxpayer can make an irrevocable election to integrate inheritance and gift tax when certain conditions are met.
Under the special system, referred to as 'settlement of taxes at the time of inheritance':
- Qualified transfers are those from lineal ascendants who are aged 60 years and older made to their lineal descendants who are aged 20 years or older.
- Gifts of up to a total of JPY 25 million will be exempt from gift tax. Several gifts can be made tax-free as long as the total gifts do not exceed the JPY 25 million threshold.
- Gifts are taxed at a rate of 20% on the amount exceeding the accumulated threshold of JPY 25 million. The amount of gift tax, if any, will be treated as a prepayment of tax against a future inheritance tax liability.
- Valuation of the gifted assets will freeze at the time of the gift for the inheritance tax calculation.
- Those who made this election will automatically be subject to the inheritance tax filing regardless of the situation at the time of inheritance.
Recently, special exemptions for gifts made for designated funds have been introduced. These programs are to promote the transfer of wealth from older generations to the younger generation and allow a certain amount of gifts that are free from tax. The exemption is applicable only if the funds are used for qualified expenses. A special account based on the custody agreement must be set up to take the tax benefit. This account is usually maintained by a financial institution that has custody of the funds. Any amounts not used for qualified purposes will be subject to gift tax. Currently, JPY 15 million of educational expenses, as well as JPY 10 million of expenses for marriage and childcare, are qualified for tax-exempt gifting per recipient (due to expire on 31 March 2019).
Inheritance tax rates
|Taxable properties less exemption and various exclusions (JPY)||Tax table|
|Over||Not over||Tax rate (%)||Deduction (JPY)|
Basic estate allowance for inheritance tax: JPY 30,000,000 + (JPY 6,000,000 X number of the legal heirs)
Gift tax rates
|Taxable gifts less exemptions and other exclusions (JPY)||Tax table on gifts except for the column to the right||Tax table on gifts from lineal ascendants to their descendants who are at least 20 years old|
|Over||Not over||Tax rate (%)||Deduction (JPY)||Tax rate (%)||Deduction (JPY)|
Annual basic exemption for gift tax *: JPY 1,100,000
* This basic exemption will not be applied to the irrevocable elective system mentioned above.
The annual fixed assets tax is levied by the local tax authorities on real property. Real property is taxed at 1.7% (standard rate including city planning tax) of the value appraised by the local tax authorities. The depreciable fixed assets tax is assessed at 1.4% of cost after statutory depreciation.
Registration and license tax is levied where certain property is registered, at a rate from 0.1% to 2% of the taxable basis. The taxable basis depends upon the property being registered.
Luxury and excise taxes
Excise taxes were abolished by introduction of the consumption tax.