朝日税理士法人

III. Withholding Taxes

 III. Withholding Taxes

 

The Japanese income tax system is based on “self-assessment system,” Under this system, income earners compute and file by themselves their annual income and tax amount.

 

The Japanese income tax system also requires the use of the “withholding tax system” method. Under this method, the payers of certain types of income are required to withhold a portion of the income payment on the date of payment as a withholding tax. Eventually, the amount withheld shall be remitted to the Japanese tax authorities.

 

The rate or amount of the withholding tax is based and assessed on payments of certain taxable income, regardless of whether paid to an individual or a corporation. It is determined according to the categories of income and the classification of the recipient of that income.

 

■Withholding and Payment Procedures

 

Payers of income subject to withholding at source must remit the amount of tax withheld at source to the tax office on or before the 10th day of the month following the month of payment.

 

If a payer with a residence or an office in Japan pays income to a non-resident or a foreign corporation at a place outside Japan, the income tax withheld shall be paid on or before the end of the month following the month of payment.

 

With respect to withholding tax paid on residents’ salaries and certain professional fees, small businesses with fewer than 10 persons on the payroll are given the option to pay on a monthly basis or to pay withholding income tax in six-month installments twice a year (by July 10 and by January 20).

 

■Scope of Income Subject to Withholding Tax

 

The following income payments are subject to withholding tax.

 

Recipient

of the Payment

Type of Income Subject to Withholding Tax

Residents

(Individuals)

 

  • Interest
  • Dividends
  • Salary, wages, bonuses and similar compensation
  • Retirement allowances
  • Compensation, fees, etc., to certain professional

Domestic Corporations

  • Interest
  • Dividends

Non-residents and Foreign Corporations

(Note 1, 2, 3)

<Payments Made in Japan in the fiscal year beginning by March 31, 2016>

  • Consideration for providing certain services rendered in Japan such as engineers
  • Rent of real estate and other properties in Japan
  • Proceeds from the transfer of real estate in Japan
  • Interest on deposits and savings deposited to offices in Japan
  • Dividends received from domestic corporations
  • Interest on loans for business operations in Japan
  • License fees, royalties and usage fees for machinery and equipment received from business operations in Japan

<Payments made in Japan in the fiscal year beginning on or after April 1, 2016>

  • Income derived from the management/holding of assets in Japan
  • Proceeds from the transfer of assets in Japan
  • Consideration for providing certain services rendered in Japan such as engineers
  • Rent of real estates and other properties in Japan
  • Other domestic-sourced income

 

(Note 1) Types of domestic-sourced income and taxable scope have changed from the fiscal year beginning April 1, 2016 and thereafter. The concept of domestic-sourced income has drastically changed.

(Note 2) On the payments described above to a non-resident or a foreign corporation, or such payments made overseas by payers with a resident or an office, etc. in Japan, tax should be withheld.

(Note 3) Exemption: Payments of certain types of income as prescribed for non-residents and foreign corporations to a non-resident or a foreign corporation with a permanent establishment within Japan are exempt from withholding taxation. To support the exempt status, a certificate from the taxation office must be presented to the payer, attesting that the income is attributable to that permanent establishment and will be added to business income of the permanent establishment that shall be declared in Japan.