Income subject to withholding tax

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Income subject to withholding tax?

income subject to withholding tax

We show you a list showing types of income subject to withholding tax.

Payments to residents

  • Salaries and bonuses

Salaries do not include commutation allowance as it is not taxable. However, if your train (or bus) commuting costs more than JPY 150,000, the excess amount is taxable. If your company covers your housing cost, it should be added to your compensation. But if the company rent a house, rents it out to you inexpensively (e.g. you pay 50% of the original cost the company pays), and meets other requirements, this housing cost is not included in your compensation.

  • Retirement allowances

Low tax rate is applied as you no longer work. See the example below.

Example:

Retirement allowance: JPY 8 million

Years of service: 11 years

Retirement income deduction: 400,000×11 (years of service)= JPY 4.4 million

Taxable retirement income: (8 million-4.4 million)×50%=JPY 1.8 million

Tax: 1.8 million×5%×1.021=JPY 91,890

  • Fees to certain professionals

Professionals includes lawyer, certified public accountant, certified public tax accountant, shiho-shoshi (solicitor), labor and social security attorney, architect, real estate appraiser, etc.

Basically 10.21% tax rate applied, but some exceptions. See below.

Fee over JPY 1 million (example: paying JPY 1.5 million): 1 million×10.21%+(1.5 million-1 million)×20.42%=JPY 204,200 (as withholding tax)

Fee to shiho-shoshi (solicitor): {50,000 (gross amount)-10,000 (fixed amount deducted from gross amount)}×10.21%=JPY 4,084

Some professionals do their job as a company (Bengoshi Houjin, Zeirishi Houjin, etc). In this case, withholding tax is not applied.

  • Dividends
  • Others (Interest, public pension, etc.)

Payments (Japan source income) to non-residents (Foreign corporations)

  • Sale of land or building in Japan
  • Rental income from land or building in Japan
  • Royalties for intellectual property rights
  • Loan interest
  • Others (Salaries, dividends, etc.)

Note: There may be a tax treaty between Japan and foreign countries so that we can avoid double taxation (tax exemption or low tax rate). Also, please remember you need to prepare and submit an application form for the treaty to the Japan tax office ‘before’ you make the payment.

Also, if payments are made in foreign countries, withholding tax is usually not required.