In Japan, when an employer hires employees and pays their salaries, the employer is required to withhold income tax and special reconstruction income tax, which are collectively referred to as “withholding income tax” (源泉所得税) in Japan.
Generally, when a company hires employees, it becomes the withholding tax collector (源泉徴収義務者) and is obligated to deduct a small amount of income tax from each employee’s monthly salary, which is then paid to the tax office on behalf of the employee. There are about 10 types of income tax in Japan, which apply to different categories of income, including interest income, dividend income, real estate income, gift income, business income, retirement income, capital gains income, forestry income, one-time income, and other income. Employee salaries fall under the category of gift income (給与所得).
Since the withholding income tax deducted by the company is based on an estimate of the employee’s income, year-end adjustments are necessary to balance any overpayment or underpayment of withholding income tax. As a result, employees do not need to file an income tax return unless they have additional income outside of their salary or need to claim medical expenses or other special deductions.
In general, the withholding income tax deducted from the salary must be paid to the tax office by the 10th of the month following the actual salary payment date. However, if the company has 10 or fewer employees, it is allowed to pay the withholding income tax in a lump sum every six months. This payment method is called a special exception for tax payment deadlines.
The calculation of withholding income tax is based on the following process, assuming the salary amount is determined:
- Employee’s dependents
- Employee’s salary amount
- Reference tax tables
First, the number of dependents the employee supports must be determined by whether the employee has submitted the “Declaration of Dependent Deductions for Employment Income Earner” (給与所得者の扶養控除等（異動）申告書). This form includes information about the employee (the earner) and their family members.
Next, the income amount on which the tax is based needs to be determined. This includes all the employee’s salary, overtime pay, etc., from which the social insurance premiums that the employee must pay will be deducted.
Finally, using the tax amounts published annually by the National Tax Agency of Japan in the reference tax tables, the final withholding income tax to be deducted and paid by the company is determined.
Our company’s social insurance labor consultant can provide professional services in human resources and labor fields and can respond to inquiries in multiple languages. If you have any questions regarding employee withholding taxes, please feel free to consult with us at any time!
