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Taxes in Japan [2023] – A Complete Guide

Last updated on 7 de April de 2023

Japan is the third largest economy in the world and one of the most unique countries. We analyze the most important taxes in Japan to make you understand how much tax workers, investors, companies, consumers and real estate pay.



Just behind the United States and China, Japan is in third place in the ranking of the world’s largest economies. It is one of the most advanced countries from a technological point of view. And it is also a unique country, due to its culture and traditions.

Although the country’s demographic situation is not positive, due to its aging population, Japan remains one of the most innovative places on the planet, with leading manufacturing and technology sectors.

This makes it a very interesting place for both visitors and potential future residents.

The capital, Tokyo, is the most populous metropolitan area on the planet, with over 37 million people. It is also the urban area with the largest gross domestic product.

The currency of Japan is the Japanese Yen (JPY). Throughout this post, we will analyze taxes in both Japanese Yen as well as their equivalent in US Dollars and Euros. To do this, we will use an approximate exchange rate of $1 = €1 = ¥125.

Japan as a whole is not an expensive country. However, the cost of living in Tokyo is high. According to, the cost of living in Japan is about 2% higher than in the United States and 5% lower than in the United Kingdom.

This contrasts with the situation experienced in the 1980s, when the Japanese economy was in the midst of a real estate and stock market bubble. It is said that Tokyo was the most expensive city in the world at that time.

Taxes on Earned Income

Let us start our analysis by looking at how labor income is taxed in Japan.

Social Security

Social Security in Japan is paid by both the employer and the employee and is based on their gross salary and age.

It includes 5 different concepts: medical insurance, care homes for the elderly, retirement pensions, unemployment insurance and workplace accidents insurance.

Something interesting is that different social security rates apply depending on whether the worker is 39 and younger, or 40 and older. The following table summarizes the percentages paid for each of these concepts, both by the employer and the employee, as well as the total maximum amounts, depending on age:

Data from Velocity Global

As you can see, workers under 40 pay around 15% of their gross salary in social security contributions, with a maximum amount of about $12,000/€12,000. Employers’ contributions will amount to 16% of the gross salary, which will be paid directly to the Japanese social security, with a cap of around $13,000/€13,000.

For workers aged 40 or older, the percentage paid to the Japanese social security is 16%, and the maximum contribution is around $13,000/€13,000 annually. In the case of the employer, the percentage will be around 17% of the gross salary, with a maximum contribution of around $14,000/€14,000 per year.

The part of the gross salary that is above the maximum base for social security contributions is only subject to the other two types of taxation on earned income: the national income tax and its surcharge, and the resident tax.

National Income Tax (NIT)

The national income tax in Japan follows a progressive tax structure, where higher incomes are taxed at higher rates. This tax is paid to the Japanese central government.

The national income tax is not calculated on the entire gross salary, but on the taxable base, which can be significantly lower.

To arrive at the taxable base, we will reduce the gross salary by the following concepts:

  • Basic deduction of 480,000 Yen annually ($3,840/€3,840): this deduction is applied everyone with an income of less than 25 million Yen ($200,000/€200,000)
  • All payments made by the employee to the Japanese social security
  • Various deductions for expenses such as life insurance, earthquake insurance, donations to charitable organizations, having dependents or being a widow
  • Employment Deduction, which compensates for work-related expenses and is based on the worker’s gross salary. The following table shows how the Employment Deduction is calculated:
Data from NTA

Therefore, if we apply all these deductions, we will see that the taxable base on which we calculate the national income tax is significantly lower than the gross salary, especially for income people.

Let us see how the taxable base is reduced for various salary levels. In this case we take an employee who is 39 years or younger and does not use any optional deductions:

Once we have calculated the taxable base for the national income tax in Japan, the following progressive rates are applied:

  • 0 to ¥1,950,000 ($0-$15,600/€0-€15,600): 5%
  • ¥1,950,000 to ¥3,300,000 ($15,600-$26,400/€15,600-€26,400): 10%
  • ¥3,300,000 to ¥6,950,000 ($26,400-$55,600/€26,400-€55,600): 20%
  • ¥6,950,000 to ¥9,000,000 ($55,600-72,000/€55,600-€72,000): 23%
  • ¥9,000,000 to ¥18,000,000 ($72,000-144,000/€72,000-€144,000): 33%
  • ¥18,000,000 to ¥40,000,000 ($144,000-$320,000/€144,000-€320,000): 40%
  • Over ¥40,000,000 (over $320,000/€320,000): 45%

As you can see, the significant deductions applicable to lower and middle incomes, along with reasonable tax rates for low taxable bases mean that most of the population in Japan pay very little in terms of national income tax.

Additional Surcharge for Tasks in Fukushima

From 2013 until 2037 an additional surcharge of 2.1% is applied on the amount to be paid in national income tax.

This surcharge, which will be in effect for 25 years, will be used to finance the reconstruction tasks derived from the nuclear disaster that took place in Fukushima in 2011.

We will use an example to see how much we have to pay: If our gross salary is 10 million Yen ($80,000/€80,000), the taxable base will be 6.36 million Yen ($50,926/€50,296), the amount to be paid in national income tax 845,648 Yen ($6,765/€6,765) and, consequently, the additional surcharge will be 17,759 Yen ($142/€142).

Therefore, someone with a gross salary of 10 million Yen will pay an effective rate of 0.18% in terms of surcharge for recovery tasks in Fukushima.

Resident Tax

The resident tax is an income tax paid to local governments. It has a fixed rate of 10%. That can be broken down into 6% for the taxpayer’s municipality, and 4% for the prefecture, which is an institution similar to a province.

It should be noted that this tax, like the national income tax, is not paid on the entirety of our gross salary. The 10% is paid on the taxable base for resident tax purposes. The gross salary is reduced by the following concepts to arrive at the taxable base:

  • Basic deduction of 430,000 Yen annually ($3,440/€3,440): this deduction applies to all incomes below 25 million Yen ($200,000/€200,000)
  • Payments made to Japanese social security by the worker
  • Various deductions for expenses such as life insurance, earthquake insurance, donations to charitable organizations, having dependents or being a widow
  • Employment Deduction to compensate for work-related expenses, calculated based on the worker’s gross salary. This is calculated in the same way as the Employment Deduction for national income tax.

As you can see, despite the nominal rate of the resident tax in Japan being 10%, the effective percentage is close to 4% for low-income earners, increasing to over 8% for high income levels:

Another thing to note is that the resident tax is only paid if we were living in Japan on January 1st of that year. This means that if we are moving to Japan, it is most likely that we will not have to pay that tax in our first year.

Total Tax Burden on Earned Income

To understand the total tax burden on labor income in Japan, it is most useful to analyze what percentage of the employer’s total expenses receives the employee in net salary.

This means we must deduct the following concepts from the total employment cost of the company: social security paid by the company, social security paid by the worker, national income tax, additional surcharge for reconstruction tasks in Fukushima and resident tax.

The following table includes all these calculations for different salary levels. The calculations are done for a worker who is 39 years old or younger and does not use any optional deductions:

We can see the same data translated into US Dollars and Euros:

Finally, we will display the same data graphically:

As we can see, a worker in Japan receives between 50% and 70% of the employer’s total expenses as net salary.

Capital Income Taxes

Let us see how income from savings and investments is taxed in Japan:

Dividends and Interest

Dividend and interest income is subject to lower tax rates than income from work. The applicable rates of the national income tax and the resident tax are as follows:

  • National income tax: 15%, with an additional surcharge of 2.1% on the amount to be paid to cover expenses derived from the 2011 earthquake
  • Resident tax: 5%

As a result, the total rate applicable to this type of income is 20.315%.

Rental Income

Rental income in Japan is also subject to taxes. We will only have to pay taxes on the difference between the gross rental income and the expenses associated with the ownership of those properties.

In fact, Japan is a relatively generous country in terms of expenses that are considered tax-deductible. In addition to the usual expenses, such as repairs, fees, insurance or mortgage interest, Japan also allows us to reduce the taxable base with depreciation, calculated as a percentage of the value of the property.

The final amount will be added to the rest of our income, including labor income, and subject to national income tax and resident tax, at progressive tax rates.

Capital Gains

The first 500,000 Yen ($4,000/€4,000) that we earn from capital gains in a given year are exempt from tax. If our capital gains are above that figure, we will have to pay national income tax, the additional surcharge and resident tax.

However, the applicable percentages will depend on the source of those capital gains, as well as the amount of time we have owned those assets before selling them.

Capital gains obtained from financial instruments, such as stocks, bonds, or ETFs, or from real estate we have owned for at least 5 years, will be taxed at the following rates:

  • National income tax: 15%, with an additional surcharge of 2.1% on the amount to be paid
  • Resident tax: 5%

Therefore, this type of capital gain will be taxed at an aggregate rate of 20.315%.

In the case of real estate we have owned for less than 5 years, the following rates will apply:

  • National income tax: 30%, with an additional surcharge of 2.1% on the amount to be paid
  • Resident tax: 9%

This means that the final applicable rate would be 39.63%.

Sales Tax

Japan levies a sales tax on the consumption of goods and services, similar to the sales tax or VAT we can find in other countries. Sales tax in Japan has two different rates:

The general rate of sales tax in Japan is 10% and applicable to most goods and services. This rate has been in effect since October 2019.

The reduced rate of sales tax is 8%. This reduced rate applies to food, drinks, and the press.

It should be noted that if you go to Japan as a tourist, some commercial establishments will allow you to request a refund of the sales tax you have paid.

Real Estate Taxes

There are two types of real estate taxes in Japan:

Real Estate Transfer Tax

If we want to buy an apartment or a house in Japan, we will have to pay taxes. Both national and municipal taxes exist.

The tax on registration of real estate transactions is a national tax. It taxes the purchase of a property at a rate of 2.4% for new homes and 4% for second-hand homes. However, these percentages are not calculated on the full purchase price, but on the value assessed by the authorities, which is around 50-70% of the transaction amount.

In addition, if we have financed the purchase of a property with a mortgage, we also have to register the corresponding documentation and pay taxes for it. The tax in this case is 0.4% on the value of the loan.

Regarding the municipal tax, it is called tax on real estate acquisitions. It is calculated as 3% of the value of the property minus a deduction that depends on its construction year. For properties built after 1997, the deduction is 12 million Yen ($96,000/€96,000). The deduction will be lower for older properties.

Therefore, depending on the type of property (new or second-hand), the valuation made by the authorities, whether we use mortgage debt or not, and the construction year, the combined rate for real estate purchases will be between 3.2% and 6% of the purchase value.

Property Taxes

The ownership of real estate is also subject to property taxes in Japan.

We must pay a municipal tax of 1.4% on the taxable value, and a district tax of 0.3%. The combined 1.7% only applies to the taxable value.

The taxable value is the assessed market value of the property less a deduction. In the case of properties of less than 200 square meters (the majority in Japan), the deduction is a sixth, bringing the combined effective rate to 1.42%.

In the case of properties larger than 200 square meters, the applicable deduction is a third of the value of the property. This means that the combined effective tax rate is 1.13%.

Corporate Tax

Corporate profits in Japan are subject to a series of taxes that depend on the size of those profits and the type of company. In addition, various administrations are involved. We should consider a total of 5 concepts:

  • First, we have the national corporate tax, which is a national tax on corporate profits. The first 8 million Yen ($64,000/€64,000) is taxed at 15%. The amount that exceeds that figure is taxed at 23.2%.
  • Then we have the municipal corporate tax rate, which is a surcharge of 10.3% on what has to be paid in national corporate tax. This means that the effective rate is between 1.545 and 2.39%.
  • The special local tax is another municipal tax. This rate is 2.6% for larger and more profitable companies. But it is lower for small and medium-sized businesses.
  • The business tax is paid to the prefecture where we operate. The applicable rate varies depending on the company. For large companies it is 1.18% of profits, but the rate is lower for smaller companies.
  • Lastly, we also have the resident tax applicable to companies. This rate varies depending on the municipality and prefecture in which the company is headquartered. The rates range from 7% to 10.4% on the amount to be paid in national corporate tax. This means that the effective rate is between 1.05 and 2.41%.

Thus, if we add all these taxes, we end up with a total tax burden of 30-34% on corporate profits.

It should be noted that if small family businesses decide to keep their profits in the company as opposed to taking them out in the form of dividends, they will be able to apply for various reductions. Their final tax burden will be somewhere between 10-20% of profits.

As you have seen throughout this analysis, Japan has high level of taxation, as most other developed countries.

There are more attractive tax jurisdictions in the world. But Japan may be the place you want to live in because of its culture, cuisine, history and politeness.

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And if you want to read more about Japan, check out the following link:
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