Residence tax is charged at a rate of 10% income after allowances and deductions.
An individual with a domicile in Japan on 1st January is liable for residence tax that year.
Residence tax is calculated based on the previous (Jan-Dec) year's income.
For salaried employees it is deduced monthly from salary from June-May each year. The fact that it is calculated on the previous year's income can cause some surprising effects that are worth being aware of:
- If your income increases in a year, your residence tax payments will increase from June the following year.
- If your income increases part-way through a year, your residence tax will increase twice: Once the following June, based on the part-year of increased income, and again the following June, based on a full year of increased income.
- For people who recently moved to Japan or started working, the amount of tax they pay will likely increase greatly the first two Julys, as the previous year's income goes from 0, to a partial year, to a full year of earnings.
- For people who's income decreases, they will have to pay a year of residence tax on the previous year's higher income amount.
It is possible to divert a portion of residence tax payments to other municipalities in exchange for free gifts by using the Furusato Nozei system.
If leaving Japan on or after 2nd January, a tax representative may need to be nominated to settle the tax liability. The tax representative needs to be resident in Japan.