Japan Tax Filing for Property Owners: Who Needs to File and Why

Every March, Japan holds its annual income tax filing season. Japan calls this filing “kakutei shinkoku” — what is generally understood as filing and paying income tax. This piece explains who is required to file income tax, so that property owners can check against the information below whether they need to file. It covers three situations that require an income tax return, and how filing correctly can help a property investor in Japan build up their own social credit — even someone with no plan to immigrate to Japan can still benefit from the social-credit effects of tax compliance. Are you required to file and pay income tax in Japan? Could filing and paying actually bring you additional benefits?

National Tax and Local Tax

In Japan, everyone who has completed residence registration is required to pay tax. Taxes broadly fall into national tax, paid to the national government, and local tax, paid to the place of residence. Income tax paid by employed people is a national tax. The main local tax is resident tax (juminzei): anyone who was registered as a resident on January 1 of a given year owes tax to the municipality where they were registered, calculated based on the previous year’s income.

That said, if a person’s total income for the previous year fell below the government-set income threshold — currently JPY 450,000 or less for a person with no dependents, or (JPY 350,000 x [self + spouse under the same livelihood + dependents]) + JPY 100,000 + JPY 210,000 or less for a person with dependents — or other qualifying reasons apply, resident tax can in some cases be waived (non-taxable); details can be checked with the tax office.

Japan is a credit-based society: failing to file and pay income tax on time can seriously affect a person’s social credit. Of course, not everyone needs to file and pay income tax — certain groups are exempt from filing, and some groups can receive a tax refund after filing.

The Three Filing Situations

Income tax filing falls into three situations:

• Must file and pay income tax;
• Must file income tax, but receive a refund after paying;
• Do not need to file or pay income tax.

These three situations apply to any individual living or economically active in Japan. In other words, for foreign nationals dealing in Japanese property, even someone who does not live in Japan or hold a long-term Japanese visa may need to file income tax depending on their situation, as long as they have activity in Japan. Which situation applies to an individual depends on their annual income, together with that year’s dependent family support and medical expenses, among other factors.

Below are the groups that fall into each of the three situations.

Who Must File Income Tax?

• Individuals not employed by a company, but with various forms of income;
• Individuals employed by a company who also have side-business income;
• Individuals with annual income of JPY 20 million or more;
• Individuals with a substantial pension income;
• Individuals who received a large sum of cash or property from another person;
• Individuals who are self-employed;
• Individuals who hold real estate (property) and earn income from renting it out.

The groups above are, by rule, required to file their income and pay the corresponding tax.

Who Receives a Tax Refund After Filing?

• Those with side-business income in addition to company salary, where tax has already been withheld at source;
• Those who, together with family, paid medical expenses within the year;
• Those employed by a company who did not have a year-end tax adjustment completed;
• Those who purchased a home for their own residence and still have an outstanding home loan;
• Those who incurred a loss in stock or foreign-exchange trading.

The groups above are still required to file their income tax, but part of the tax will be refunded to the individual after filing.

Who Does Not Need to File?

• Those employed by a company with only salary income and no side-business income;
• Those serving as a company president or director with annual income under JPY 20 million;
• Homemakers or students with no income or virtually no income.

According to the “2016 Income Tax, Consumption Tax and Gift Tax Filing Status” statistics published by Japan’s National Tax Agency in 2017, the number of people who filed a 2016 income tax return was 21.69 million, an increase of 176,000 people (+0.8%) compared with 21.515 million in 2015.

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