Nenmatsuchosei: Year end tax adjustment
Japan Income Tax
It's that time of year again when its time to file your year-end Japan personal income tax ! Most people will have their income tax payments automatically withheld each month by their employer, and receive a special adjustment at year-end to pay or refund the tax balance. This system is called Nenmatsuchosei (Year-end tax adjustment).
However not everyone will qualify to have their tax return handled by this system, for example:
If you leave Japan before the year ends
If you work for a non-Japan based employer
If you work for more than one employer
If you earn more than 20,000,000 yen a year
If you earn other annual income in excess of 200,000 yen
But, for people who qualify for Nenmatsuchousei you will still have to do some paperwork — your employer will provide you with Nenmatsuchosei-hyo around this time of year (November) .
These forms will ask you to confirm possible changes during the year, including dependents, contributions paid to private insurance companies, life insurance, mortgage interest, social insurance premiums, earthquake insurance, etc. This can also be done online with certain payroll systems such as MF Cloud.
Please take care to fill out these forms correctly, these are deductions that can help offset your total income for the year and possibly assist with an income tax refund. The employer will calculate the year-end taxes and factor in these adjustments. Assuming you qualify, the year-end adjustment (up or down) occurs on your last paycheck. You might also have to pay local taxes to your prefecture or municipality — they’ll send you a bill that you pay directly. Please note that should you receive a refund on your last paycheck for the year. This does not factor inhabitant tax. This is a separate tax, so don’t be surprised when you get your tax bill in May.
If you don’t qualify for Nenmatsuchosei, then you’ll have to file a tax return no later than March 15 of the following year. Our tax accountant partner can help identify possible deductions. Figuring the Japanese income tax requires calculating your salary deductions already taken and about 10 other deductions, including ones for mortgages, spouses, dependents, insurance, pensions, medical costs and miscellaneous losses.
Income taxes in Japan at the national level run between 5% and 40%. You will also need to pay inhabitant tax, which is roughly 10%. Factoring in all of this, Japan is up pretty high on world tax rankings for personal income tax.
For any questions regarding your company's nenmatsuchosei, your payroll needs or your own personal taxes please get in touch!