Japanese Tax Basics
Japan has around 50 taxes. Only a handful of them actually decide your take-home pay.
From the overall structure of Japanese taxation to how income tax and residence tax are calculated, how deductions work, and how to tell whether you must file a return — organised on one page using primary sources (National Tax Agency, Ministry of Finance, Ministry of Internal Affairs). Arranged around "how your take-home pay is decided" rather than around terminology.
The short version: four things that explain most of it
- Tax applies to "income", not to "revenue". Income is what remains after expenses (for employees, the employment income deduction).
- Deductions are then subtracted to give "taxable income", and the rate applies to that. Every deduction you miss is tax you pay unnecessarily.
- Income tax runs from 5% to 45% in brackets; residence tax is a flat 10%. Together, 15% to 55%.
- Tax is not the biggest deduction from your pay. For most people social insurance premiums (around 15%) take more than income tax does.
The overall picture: national and local, direct and indirect
Japanese taxes split into national taxes paid to the state and local taxes paid to prefectures and municipalities — around 50 in total. There are three ways to classify them, and the same tax gets a different label depending on which axis you use.
Axis 1: who you pay
National taxes (income tax, corporate tax, consumption tax, inheritance tax) and local taxes (residence tax, fixed asset tax, automobile tax). Local taxes divide further into prefectural and municipal.
Axis 2: who bears it, who remits it
A direct tax is borne and remitted by the same person (income tax, residence tax). An indirect tax is not (consumption tax, liquor tax, tobacco tax). You bear the consumption tax on a purchase; the shop remits it.
Axis 3: what it applies to
Taxes on income (income, corporate, residence), on consumption (consumption, liquor, gasoline) and on assets (inheritance, fixed asset, stamp duty). The Ministry of Finance reports revenue using these three categories.
| Tax | Category | Applies to | Rate or amount | Who pays |
|---|---|---|---|---|
| Income tax | National, direct | An individual's income for the year | 5–45% (7 brackets) plus 2.1% reconstruction surtax | Everyone who works |
| Residence tax | Local, direct | An individual's income of the previous year | 10% income portion plus a per-capita levy of about ¥5,000 | Residents as of 1 January |
| Consumption tax | National and local, indirect | Consumption of goods and services | 10% (reduced 8% on food and drink) | Consumers (remitted by businesses) |
| Corporate tax | National, direct | A company's income | 23.2% as a rule (15% on the first ¥8m for small firms) | Companies |
| Individual enterprise tax | Local, direct | Business income of a sole proprietor | 3–5% (after a ¥2.9m business owner deduction) | Sole proprietors in listed trades |
| Fixed asset tax | Local, direct | Land, buildings, depreciable assets | 1.4% standard (plus city planning tax up to 0.3%) | Owners as of 1 January |
| Inheritance tax | National, direct | Property received by inheritance | 10–55% (basic exemption ¥30m plus ¥6m per statutory heir) | The person who inherits |
| Gift tax | National, direct | Property received as a gift | 10–55% (¥1.1m a year tax free under annual taxation) | The person who receives |
| Automobile tax | Local, direct | Owning a vehicle | From around ¥10,000 a year by engine size | Owners as of 1 April |
| Stamp duty | National, indirect | Contracts, receipts and similar documents | A fixed amount by document type and value | Whoever draws up the document |
There are many more, including liquor, tobacco, gasoline, bathing and accommodation taxes. Rates and deduction amounts are revised regularly, so check the National Tax Agency or your local government before acting.
How income tax is decided: revenue to income to taxable income to tax
The single most important point is that the rate is not applied to your revenue. A ¥5m salary is not taxed at the rate for ¥5m. It applies to "taxable income" after the four steps below.
Worked example: an employee earning ¥5,000,000 (single, ¥750,000 of social insurance)
- Revenue ¥5,000,000
- Less the employment income deduction ¥1,440,000 → employment income ¥3,560,000
- Less income deductions basic ¥580,000 plus social insurance ¥750,000 = ¥1,330,000 → taxable income ¥2,230,000
- × rate ¥2,230,000 × 10% − ¥97,500 = income tax ¥125,500 (plus the 2.1% surtax)
On ¥5m of salary the income tax is about ¥126,000 — an effective rate of roughly 2.5%. "What share of my salary is tax" looks nothing like the headline rate table. Add residence tax (about ¥230,000) and social insurance (¥750,000) and take-home lands near ¥3.9m. Run your own figures in the detailed simulator.
Ten categories of income, and why the category matters
The Income Tax Act sorts income into ten categories. The same ¥1m is taxed differently depending on which category it falls into. That is why it matters whether side-job earnings count as business income or miscellaneous income, and how you take a retirement payment.
| Category | Typical examples | How it is taxed |
|---|---|---|
| Employment income | Salary and bonuses | Aggregate taxation, after the employment income deduction |
| Business income | Sole proprietor and freelance earnings | Aggregate taxation; expenses deductible, blue return deduction available |
| Miscellaneous income | Side jobs, public pensions, crypto assets, writing fees | Aggregate taxation (pensions calculated separately); losses cannot be offset |
| Real estate income | Rent, parking income | Aggregate taxation; losses can offset other income, with limits |
| Capital gains | Sale of property, shares, cars, gold | Separate taxation for property and shares, aggregate for the rest |
| Occasional income | Maturing insurance, prizes, Furusato Nozei return gifts | Aggregate, after a ¥500,000 special deduction and then halved |
| Retirement income | Retirement allowances | Separate taxation; halved after the retirement income deduction (strongly favoured) |
| Interest income | Interest on deposits | Withheld separately at 20.315% and finished |
| Dividend income | Share dividends, fund distributions | Choice of aggregate, separate filing, or no filing |
| Timber income | Felling or selling timber | Separate taxation under the five-fifths method |
Income tax rate table
Income tax is progressive at the margin. Crossing ¥3.3m of taxable income does not put the whole amount at 20% — only the part above the threshold. The "deduction" column in the table is the adjustment that lets you do the bracket maths in one step.
| Taxable income | Rate | Deduction | Example |
|---|---|---|---|
| ¥1,000 – ¥1,949,000 | 5% | ¥0 | ¥1.5m → ¥75,000 |
| ¥1,950,000 – ¥3,299,000 | 10% | ¥97,500 | ¥3m → ¥202,500 |
| ¥3,300,000 – ¥6,949,000 | 20% | ¥427,500 | ¥5m → ¥572,500 |
| ¥6,950,000 – ¥8,999,000 | 23% | ¥636,000 | ¥8m → ¥1,204,000 |
| ¥9,000,000 – ¥17,999,000 | 33% | ¥1,536,000 | ¥12m → ¥2,424,000 |
| ¥18,000,000 – ¥39,999,000 | 40% | ¥2,796,000 | ¥20m → ¥5,204,000 |
| ¥40,000,000 and above | 45% | ¥4,796,000 | ¥50m → ¥17,704,000 |
A reconstruction surtax of 2.1% of the income tax amount applies on top through 2037. Adding residence tax, the top effective marginal rate is about 55%.
Residence tax: similar in shape, different where it counts
Residence tax is built like income tax but the timing and the deduction amounts differ. Confusing the two is what produces the classic shocks: a large bill in the year after you quit your job, or a miscalculated Furusato Nozei limit.
| Point of comparison | Income tax | Residence tax |
|---|---|---|
| Paid to | The state | Prefecture and municipality |
| Income taxed | This year's income | Last year's income (a year behind) |
| Rate | Progressive, 5–45% | Flat 10% income portion (4% prefectural, 6% municipal) |
| Fixed component | None | Per-capita levy of about ¥5,000 a year (including the ¥1,000 forest environment tax) |
| Basic deduction | ¥580,000 (standard, from the 2025 tax year) | ¥430,000 (unchanged) |
| How it is paid | Withholding or a tax return | Special collection (withheld June–May) or ordinary collection (four instalments) |
Residence tax on last year's income is charged from June of the following year. So in the year after your income drops — leaving a job, going independent, taking parental leave — you receive the full bill based on the year you earned more. Before you resign, estimate next year's residence tax from your withholding slip (roughly 10% of taxable income) and set that money aside. Our guide to residence tax explains the mechanics.
Income deductions: every one you miss is extra tax
An income deduction reduces taxable income itself. The saving is the deduction multiplied by your income tax rate plus 10% residence tax, so it is worth more the higher your rate. For employees, some are handled in the year-end adjustment and others only through a tax return.
| Deduction | Applies to | Amount (income tax) | How to claim |
|---|---|---|---|
| Basic deduction | Everyone | ¥580,000 (up to ¥950,000 if total income is ¥1.32m or less) | Automatic |
| Social insurance premiums | Health insurance and pension paid | The full amount paid | Year-end adjustment |
| Life insurance premiums | Life, nursing-medical, private pension | Up to ¥120,000 | Year-end adjustment |
| Earthquake insurance premiums | Earthquake cover | Up to ¥50,000 | Year-end adjustment |
| Small enterprise mutual aid contributions | iDeCo, small business mutual aid | The full amount paid | Year-end adjustment |
| Spouse and special spouse deduction | A spouse under an income limit | Up to ¥380,000, tapering with your own income | Year-end adjustment |
| Dependant deduction | Dependants aged 16 and over | ¥380,000 (¥630,000 specified, ¥480,000 elderly) | Year-end adjustment |
| Special deduction for specified relatives | Relatives aged 19–22 meeting the income test | Up to ¥630,000 | Year-end adjustment |
| Disability deduction | You or a dependant with a disability | ¥270,000–¥750,000 | Year-end adjustment |
| Single parent and widow deduction | Single parents and widows | ¥350,000 / ¥270,000 | Year-end adjustment |
| Working student deduction | Students who work, within income limits | ¥270,000 | Year-end adjustment |
| Medical expense deduction | Medical costs above ¥100,000 a year | Up to ¥2,000,000 | Tax return |
| Donation deduction | Furusato Nozei, certified NPOs | Donations less ¥2,000 | Tax return (not needed under the one-stop exception) |
| Casualty loss deduction | Damage from disaster, theft or embezzlement | Depends on the loss | Tax return |
Income deductions and tax credits work very differently
Two things are called "deductions", and ¥100,000 of each saves a different amount. Tax credits are the stronger of the two.
Income deduction (reduces taxable income)
Saving = amount × rate. Someone on the 10% bracket claiming ¥100,000 of medical expenses saves ¥10,000 of income tax plus ¥10,000 of residence tax — ¥20,000 in total. Worth more at higher rates.
Tax credit (subtracted from the tax itself)
Saving = the amount itself. A ¥200,000 mortgage credit cuts your tax by ¥200,000. Because it ignores your rate, the impact is much larger.
The main tax credits: the housing loan credit, the dividend credit, the foreign tax credit, and the special credits for donations to political parties and certified NPOs. The residence tax portion of Furusato Nozei effectively works as a credit too.
Social insurance often costs more than tax
If you are thinking about take-home pay, tax alone is not the story. Across most income bands, social insurance takes more out of a payslip than income tax does.
| What is deducted | Employee share, approximate | Nature |
|---|---|---|
| Health insurance | About 5% (employee share, varies by prefecture) | Social insurance |
| Nursing care insurance (age 40+) | About 0.8% | Social insurance |
| Employees' pension | 9.15% (capped) | Social insurance |
| Employment insurance | Around 0.55%, revised yearly | Labour insurance |
| Income tax | 5–45% of taxable income | Tax |
| Residence tax | About 10% of taxable income plus the per-capita levy | Tax |
Social insurance has no progressive scale, and contributions stop rising once you pass the cap on standard monthly remuneration. In practice that makes the burden heaviest in the middle of the income range. If a raise never seems to reach your account, this flat-rate structure is the reason. The detailed simulator shows the actual figures.
Who has to file a return
Employees are normally finished by the year-end adjustment, but the following people must file — or are better off filing.
You must file if
- You are a sole proprietor or freelancer with income above the basic deduction
- You are an employee with more than ¥200,000 of non-salary income (side job, property, crypto)
- Your salary exceeds ¥20,000,000
- You receive salary from two or more employers
- You left a job mid-year and had no year-end adjustment
- You sold property, or shares held in a general account, at a gain
Not required, but worth doing
- Medical expenses exceeded ¥100,000 (medical expense deduction)
- You donated to six or more municipalities, or missed the one-stop application
- It is the first year of your mortgage (housing loan credit)
- You suffered damage from a disaster or theft (casualty loss deduction)
- You made losses on shares (carry forward for three years)
- You have certificates you forgot to submit at the year-end adjustment
Side-job income of ¥200,000 or less means no income tax return is required, but a residence tax declaration is still required separately. Missing this is an under-declaration. Our guide to side-job filing covers it in detail.
- Gather a year of revenue and expenses (for employees, the withholding slip)
- Collect the certificates for the deductions you can use (document checklist)
- Enter everything in the National Tax Agency's online filing corner (e-Tax walkthrough)
- File between 16 February and 15 March (refund claims can be filed from January)
- Pay, or receive your refund
Detailed guides by situation
Tax guide for employees ›
Year-end adjustment, Furusato Nozei, medical expenses and side jobs.
Tax guide for sole proprietors ›
The ¥650,000 blue return deduction, expenses and apportionment, invoices, national health insurance.
Tax guide for companies ›
Corporate tax rates, setting director remuneration, retirement benefits, year-end planning.
Take-home pay action list ›
Concrete steps by situation, down to what to do today.
Related articles
Blue vs white tax return ›
Filing as a sole proprietor, and what the ¥650,000 deduction requires.
Calculating the medical expense deduction ›
What counts, how to calculate it, how to subtract reimbursements.
Furusato Nozei guide ›
How the deduction breaks down, your limit, and the one-stop exception.
How residence tax works ›
Prior-year taxation, the per-capita levy and payment timing.
Frequently asked questions
How do income tax and residence tax differ?
Income tax is a national tax on the income you earn during the year. Residence tax goes to your prefecture and municipality and is based on the previous year's income, charged in the following fiscal year. The rates differ too: income tax is progressive from 5% to 45%, while residence tax is a flat 10% income portion plus a per-capita levy of around ¥5,000. The basic deduction also differs — ¥580,000 for income tax against ¥430,000 for residence tax.
What is the difference between a deduction and an expense?
An expense is a cost incurred to earn business revenue and is subtracted when calculating income. A deduction is subtracted afterwards from the calculated income or from the tax itself, as an income deduction or a tax credit. Employees receive the employment income deduction automatically in place of expenses.
If a raise pushes me into a higher bracket, does my take-home fall?
No. Income tax is progressive at the margin, so the higher rate applies only to the part above the threshold. Going ¥1 over ¥3.3m of taxable income adds only a few tens of yen. Separate cliffs do exist elsewhere, such as the ¥1.06m and ¥1.3m social insurance thresholds and the income limits on child allowance.
How many taxes are there in Japan?
Around 50 in total across national and local taxes. What actually affects an individual's take-home pay, though, is mostly income tax, residence tax, consumption tax and social insurance premiums — which are not a tax but are deducted in the same way. Understanding those four covers most of it.
Can I still claim something I forgot in a past year?
A refund claim can be filed for five years from 1 January of the year after the tax year concerned. Forgotten medical expenses, iDeCo contributions or dependant deductions can be recovered within that window. If instead you owed tax and never filed, filing voluntarily as soon as possible keeps the additional tax lower.
Sources and official information
This page is based on the official sources below. Rules are revised every year — please check the latest information before acting.
- National Tax Agency, Tax Answer No.2260: income tax rates
- National Tax Agency, Tax Answer No.1199: basic deduction
- National Tax Agency, Tax Answer No.9000: national and local taxes
- National Tax Agency: the 2026 revision of the basic deduction
- Ministry of Finance: materials on types of tax
- Ministry of Internal Affairs and Communications: individual residence tax
This page is for general information only and is not tax or legal advice. For individual matters, please consult your tax office or a licensed tax accountant.
