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.
Overseas assets reporting
Permanent residents of Japan who own assets outside of Japan that exceed JPY 50 million in value as of 31 December of the year must disclose such assets by submitting an annual report by 15 March of the following year.
Assets and liabilities reporting
Global asset and liability reporting is required for resident taxpayers who have total income on the tax return exceeding JPY 20 million and hold worldwide assets with a gross fair value of JPY 300 million or more, or financial assets subject to the exit tax of JPY 100 million or more as of 31 December. Individuals meeting these conditions will need to report, in detail, their worldwide assets and liabilities. These reports are not a part of the income tax return and need to be filed separately with the tax office by 15 March of the following year.
Payment of tax
If salary is paid in Japan by a local employer, monthly withholding of national income tax is required. The national 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 may be required in July and November if the previous year’s final tax liability (after the deduction of WHT) was JPY 150,000 or more.
Local inhabitant's tax is assessed on the prior year’s income if a taxpayer is registered as a resident as of 1 January of the current year. The tax is paid on a four-instalment basis (i.e. in June, August, October, and January of the following year) or withheld from monthly salary from June through May of the following year if the salary is paid in Japan.
Tax audit process
The tax authority of Japan is the National Tax Agency, and individual tax audits are conducted by the national tax office where the individual resides and cover the previous three to five years.
Statute of limitations
The standard statute of limitations under audit is currently five years, though this can be extended in cases of tax evasion.
From tax year 2020, an additional three-year statute of limitation is applied when a taxpayer does not produce supporting documents related to overseas transactions or overseas assets by the due date set forth by tax auditors (no more than 60 days from the date of request) when the National Tax Agency requests a treaty country for information related to overseas transactions or overseas assets; except in the following circumstances:
- The additional three-year statute of limitation does not apply when the request to the treaty country is made when the remaining period until the original statute of limitation is six months or less.
- The additional three-year statute of limitation only applies when the National Tax Agency informs the taxpayer about the request to a treaty country within three months from the date of such request.
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.