Failing to file taxes in Japan can play out in a few different ways, each with its own consequences. This article covers the possible scenarios and the penalties involved when tax filing is missed in Japan.
Not Filing at All
This covers a situation where someone consistently ignores contact from the tax authorities and never files or pays.
Tax Investigation
If the tax authorities suspect a taxpayer has not filed, they will first try to confirm the person’s income by letter or phone. For real estate income specifically, because the property is on record with the government, they will use the address registered to the owner to follow up.
Gathering Information
If the taxpayer ignores the authorities’ contact, the tax office will use other methods to confirm the property’s rental income — for example, contacting real estate companies to gather information on the taxpayer’s income and expenses.
Estimated Assessment and Payment Demand
If the taxpayer still does not respond, the tax authorities will calculate the tax amount themselves and send a payment notice. If this is also ignored, a demand letter will follow.
Seizure
If the repeated demands continue to be ignored, the rental income from the property can be seized to recover the tax owed. In the worst case, the property itself can be seized and put up for public auction to recover the tax due. If the amount of tax evaded is large, criminal penalties can also apply.
Late Filing
If someone did not file initially, but later files and pays after being contacted by the tax authorities, they face:
- Payment of the original tax owed (since someone who hasn’t filed typically hasn’t kept accounting records either, the tax authorities will assess the amount themselves, usually resulting in a higher figure than a reasonable calculation would produce)
- An additional tax penalty (a fine of 15% or 20% of the original tax owed; 40% if the underpayment was deliberate tax evasion)
- A late-payment tax (a fine of 3%–4% of the original tax owed × the length of the delay, functioning like interest)
Summary
As a result, if someone knowingly has a tax obligation but does not file or pay, and only sorts it out after the deadline has passed, they end up paying roughly 1.5 times the tax originally owed.
Have a question about this guide? Leave a comment below, or ask Zagdim directly.
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