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 bonuses|
|Health insurance for the Metropolis of Tokyo (each prefecture has its own health insurance rate, and rates are slightly higher for individuals from the age of 40 to the age of 64) (1)||5.00% (on a maximum of JPY 1,390,000 of wages per month)||5.00% (on an annual cap of JPY 5.73 million of irregular annual total payments)|
|Welfare pension (2)||9.15% (on a maximum of JPY 650,000 of wages per month)||9.15% (on a maximum of JPY 1.5 million of irregular payments per month)|
|Unemployment insurance (3)||0.60%||0.60%|
- The fixed rate of 5.00% (previously 4.905%) for health insurance applies from March 2023. Simultaneously, the fixed rate of 0.91% (previously 0.82%) for long-term care insurance also applies from March 2023. Long-term care insurance is required for individuals from the age of 40 to the age of 64.
- Premiums on child allowances will be imposed separately at 0.36%.
- The fixed rate of 0.60% (previously 0.50%) for unemployment insurance applies from April 2023.
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 not taxed. Specified transactions, such as sales or leases of land, sales of securities, and provision of public services, are not subject to taxation. Consumption tax paid by a 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.
The transfer of overseas assets between foreign nationals who have had a 'Jusho' ( tax residency determined based on the family, business, days staying in Japan, asset location) in Japan for less than ten 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') and other temporary foreigners or with non-Japanese nationals outside of Japan is exempt from Japan gift and inheritance tax. Note, however, that the transfer of overseas assets between non-Japanese nationals and Japanese nationals who currently have a 'Jusho' or have had a 'Jusho' in Japan within the previous ten 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 had a ‘Jusho’ in Japan for not more than ten 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. who hold a visa issued under Table 2), are not considered 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 the Immigration Control and Refugee Recognition Act includes work-related visas and does not include the following visa types: permanent resident, spouse or child of a Japanese national, spouse or child of a permanent resident, and long-term resident.
The transfer of overseas assets to a Japanese national heir or donee who is not a resident of Japan but who has had a ‘Jusho’ in Japan within the ten years prior to the gift or inheritance is subject to Japan gift and inheritance tax. If a Japanese national heir or donee has not had a ‘Jusho’ in Japan within the ten years prior to the gift or inheritance, they will not be subject to tax so long as the decedent or donor is a foreign national. Similarly, the transfer of overseas assets from a Japanese national decedent or donor who is not a resident of Japan but had a ‘Jusho’ in Japan within the ten years prior to the gift or inheritance is also subject to Japan gift and inheritance tax.
Effective 1 April 2021, the Japan gift and inheritance tax laws were updated to further narrow the scope or applicability for foreign nationals. The transfer of overseas assets from foreign nationals, regardless of the length of their period of residence in Japan, to ‘temporary foreigners’ or non-Japanese nationals outside of Japan is exempt from Japan gift and inheritance tax if the foreign national transferor holds a Table 1 visa.
This updated exemption and disregard to the length of period of residence in Japan does not apply to foreign national resident recipients of gifts and inheritances of overseas assets. Foreign national resident recipients still need to have had a ‘Jusho’ in Japan for no more than ten of the past 15 years and hold a Table 1 visa in order to be considered ‘temporary foreigners’ and be exempt from Japan gift and inheritance tax on overseas assets received from foreign national transferors. Also, to clarify and confirm, the updated law does not provide an exemption on the transfer of overseas assets if either the foreign national resident transferor or transferee holds a Table 2 visa. This is unchanged.
Note that any transfers of assets located in Japan are always subject to Japan gift and inheritance tax, regardless of whom the transfers are between or when the transfers take place.
Assets subject to inheritance tax include tangible, intangible, real, or personal property, unless otherwise specifically exempt under the law. Assets are 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 any exemptions are 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, a 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 inheritance proportions for each statutory heir.
Gift tax is a national tax levied on the recipients of a gift. The scope of gift tax is similar to the scope of inheritance tax in that 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 gifts made within three years prior to the death of the donor (note that the add-back period of three years will be extended to seven years under the 2023 tax reforms).
The annual gift tax exemption per recipient is JPY 1.1 million. Any amount of gift(s) received above the exemption will potentially be subject to 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 18 years or older.
- Gifts of up to a total of JPY 25 million are 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.
Please refer to the Significant developments section for details on the 2023 tax reform of the above system.
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 × number of 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 18 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 does not apply to the irrevocable elective system mentioned above.
Property (fixed assets) taxes
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.