Expatriate tax ebook - Japan

What taxes?

Capital gains tax
Inheritance, estate and gift taxes
Investment income
Local taxes
Real estate taxes
Social security taxes
Stock options
Wealth taxes
Other specific taxes

Capital gains tax
Gains on the sale of stocks and real property are taxed separately from other income. Gains made on the sale of stocks in a listed company are currently taxed at 10% (temporarily reduced from 20% until 31 December 2008) and 20% for unlisted companies. For resident individuals, gains made on the sale of real property held for five years or less are taxed at 39%. For real property held for more than five years, gains are taxed at 20%. Owner occupiers receive a ¥30m deduction on any gain made upon sale of the property.

Gains on the transfer of movable property (cars, furniture, etc), under current rules are taxable according to whether they are classified as long term or short term gains.

Inheritance, estate & gift taxes

• Inheritance tax
  Japan’s inheritance tax (IHT) is based on the residence status of the beneficiary and/or the location of the assets inherited. Beneficiaries domiciled in Japan are subject to IHT on property they receive, while beneficiaries not domiciled in Japan are subject to IHT on assets inherited that are located in Japan. IHT is levied at progressive rates on the fair market value of the property inherited, less related expenses. Further deductions are allowed, depending on the status of the heir/s, and a spouse allowance is also available. The net value of the inheritance is taxed as follows.
  

• Gift tax
  Japan’s gift tax is levied on the person who receives the asset from a donor.

Basic deduction  ¥1.1m every year

Investment income
A person who receives investment income such as interest income, dividend income or royalties is liable to withholding income tax at source. Applicable tax rates differ depending upon the situation, e.g. resident or non resident, or the existence of a tax treaty between Japan and the investor's home jurisdiction.

Local taxes
As mentioned under facts and figures, Japan’s local inhabitant tax is levied on individuals who reside in Japan as of 1 January of the current year, and who earned income in Japan during the preceding year. The tax rate is a flat 10%.

Real estate tax
See the related flyer on real estate taxes.

Social security taxes
An employer (either a corporate entity or a sole proprietorship with five or more employees) with a Japan payroll is required to join Japan’s social security scheme, which comprises medical care insurance, pension insurance and labour insurance. Both the employer and employee are required to contribute. Withholding rates for employees are as follows:

Stock options
Stock options granted to an employee resident in Japan will be subject to tax in Japan. For non qualified stock options, the difference between the exercise price and the price at grant will be taxed as employment income. Tax on gains made upon the sale of the stock will be levied on the difference between the sale price and the exercise price.

Qualified stock options will be taxed only upon sale, with capital gains tax being levied on the difference between the sale price and the price at grant. To be qualified, a number of conditions need to be satisfied, including the stock option being granted by a Japanese company.

Wealth tax
There is no wealth tax in Japan.

Other specific taxes
Money remitted or paid into Japan is also subject to marginal income tax rates.

Information about Japan:

• introduction
• facts and figures
• basis of taxation
• what taxes?
• tax planning opportunities