Any employee who earns income from employment is eligible for salary deduction. It is a common practice that some portion of the salaries is deducted to contribute to both local taxes as well as national income in Japan. It is important for employers to be aware of these rules to ensure that the budget to employ staff is sufficient and reasonable.
A sample of basic items included in the salary
|
Items to be paid to employees |
|
|
Basic Monthly Salary |
Basic Monthly Salary does not vary from month to month. Regardless of their performance or leaves taken. |
|
Allowances |
Allowances amount of money given at regular intervals for a specific purpose. |
|
Reimbursement |
Reimbursement is compensation paid by the company. |
|
Others |
This includes other expenses that are not within the category of basic monthly salary, allowances and reimbursement. |
|
Items to be deducted from employees’ salary |
|
|
Social Insurance (employee’s |
Social Insurance is a Japanese statutory system to ensure employees in Japan have a stable and secure livelihood. |
|
Income Tax |
The rate for Income Tax differs based on the prefecture where the employee resides. |
|
Residence Tax |
The rate for Residence Tax differs based on the prefecture where the employee resides. |
|
Other Deductions |
This includes other deductions that are not within the category of social insurance, income tax and residence tax. |
* the above table is a sample, and actual ones may look different from this table.
* For Social Insurance, there is a portion of “employer’s contribution”, which is almost equivalent to the employee’s contribution.
Income Tax and Residence Tax for Foreign Employees
Income Tax for Foreign Employees
The Income Tax Law defines the scope of taxation for foreigners according to whether they have a domicile in Japan, whether they are Japanese citizens, and how long they have been domiciled.
Residents are those who have an address in Japan or have had an address in Japan for at least one year, while others are, in principle, non-residents.
Of the residents, those who do not have Japanese nationality and have had a domicile in Japan for a total of five years or less in the past ten years are classified as non-permanent residents, while the rest are classified as permanent residents.
Permanent residents are subject to tax on all income, non-permanent residents are subject to tax on salaries paid in Japan and money paid as wages by the parent company, etc., and non-residents are subject to tax on income earned in Japan.
As a general rule, the tax rate is 20% for non-residents, and the rest is the same as for ordinary Japanese.
Resident Tax for Foreign Employees
As with income tax, there are different categories of resident tax. The tax rate is the same as for Japanese employees. The tax rate is the same as for Japanese employees.
Non-residents, on the other hand, are not subject to resident tax. Resident tax is determined by the city office where you live, or according to your income of the previous year, so it is not imposed on foreigners who do not have an address in Japan or students who have no income.
Summary
To sum up, there are certain financial deductions to be mindful of when hiring employees in Japan. As well as for foreign employees who are working in Japan need to be inform of the various taxes and deductions. To find out more information, you can head to the Ministry of Health, Labour and Welfare website.
EPS' Staffing Solutions
Have any questions? Please visit the below pages for more information about us!
