Information on withholding tax

We explain withholding tax in Japan.

You can also see:

Overview

Income subject to withholding tax

Year-end adjustment

Withholding tax?

Usually, you (individual, corporation, etc) file a tax return and pay taxes (income tax, consumption tax, etc) once a year. However, withholding tax actually comes before the tax return, and also somebody pays your taxes on behalf of you. Also, you may be required to pay withholding tax on behalf of somebody. This tax is connected to everyday transactions, and it has to be withheld correctly and paid to the Japan tax office by the due date (every month).

For example, you are a self-employed individual (e.g. photographer). You work with a Japanese company and provided your services to them. Then you probably issue the invoice below to receive the payment.

Two weeks later, you checked your bank account and realised that you received only JPY 90,000 from them. Definitely, this is not a bank charge. This is the withholding tax. The company knows you are a photographer and they also know your income needs withholding tax. The tax rate is 10% (more accurately 10.21%) and JPY 10,000 (10% of 100,000) was taken from the JPY 100,000. So you received JPY 90,000. What happens to the JPY 10,000? This is ‘your’ tax (not the company’s tax.), but you have no responsibility to pay it, because the company will pay. For the tax office, this system seems to collect taxes efficiently as it is paid in advance. In addition, as the JPY 10,000 is your tax, you should not forget to include it in your tax return to avoid paying the tax twice.

By the way, your invoice can cover the withholding tax. See the below.

The tax has to be taken regardless of whether it is shown on the invoice. If your client failed to take the tax from your invoice, the penalty can be imposed on your client (not you). And we don’t think this will build a good relationship with your client, so we recommend you make a good invoice.

You are the client? Don’t forget to take the tax.