In addition to income tax and resident tax, the self-employed need to pay individual business tax.
This time, I’ve summarized information about the individual business tax.
Who should pay?
The self-employed engaged in any of the 70 designated business categories are subject to tax obligations. While we refer to 70 categories, most businesses fall under this classification.
Interactions with Prefectures
In many cases, during the latter half of the year following the start of business, you will receive a questionnaire from your prefecture regarding your business activities. Your tax liability will be determined based on your responses. That said, you cannot provide information that differs from the actual business operations. You must answer honestly, and if your business falls under the relevant industry category, you will be required to pay taxes.
Calculation Method
Subtract 2.9 million yen from taxable income, then multiply that amount by the tax rate (3-5%) to calculate the tax.
The difference from income tax is that,
- The inability to deduct the special deduction for blue-form tax returns or full-time employee salaries
- Deduct 2.9 million yen per year as a tax deduction (If income exceeds 2.9 million yen, tax liability arises. If the business month is less than 12, the deduction amount changes.)
Tax Filing Period
Typically, payments are made in two installments: at the end of August and the end of November.
However, in the first year, taxation is often delayed, and after responding to the questionnaire, a lump-sum payment is frequently requested around two months later.
Target Industries
Business taxes are categorized into “Class 1 to Class 3,” with tax rates varying by industry. This table summarizes representative sectors under the Local Tax Act and the Metropolitan Tax Ordinance.
The following lists the applicable industries and tax rates. Note that programmers are often exempt from this taxation.
◆ Type 1 Business (37 Industries — Tax Rate: 5%)
This category covers a wide range of general commercial activities, including sales, manufacturing, transportation, food services, accommodation, advertising, and real estate.
Type 1: List of 37 Industries
- Merchandise Sales
- Insurance
- Money Lending
- Goods Leasing
- Real Estate Leasing
- Manufacturing
- Electricity Supply
- Quarrying
- Telecommunications (including broadcasting)
- Transportation Services
- Transportation Handling
- Vessel Berth Operations
- Warehousing
- Parking Services
- Contracting
- Printing
- Publishing
- Photography
- Seat Rental
- Lodging (Hotels, Inns)
- Restaurants
- Food and Beverage Services
- Mediation Services
- Agency Services
- Brokerage Services
- Wholesaling
- Currency Exchange
- Public Bathhouses (except those classified under Type 3)
- Theatrical Performances
- Amusement Arcades
- Sightseeing Facilities
- Commodity Trading
- Real Estate Sales
- Advertising
- Credit Investigation Services
- Guide Services
- Ceremonial Services (Weddings, Funerals)
Tax Rate: 5%
◆ Type 2 Business (3 Industries — Tax Rate: 4%)
These are primary production businesses, mainly in agriculture and fisheries.
Type 2: List of 3 Industries
- Livestock Industry
- Fisheries / Marine Product Industry
- Charcoal and Fuelwood Manufacturing
Tax Rate: 4%
◆ Type 3 Business (30 Industries — Standard Tax Rate: 5% / Some at 3%)
Type 3 covers professional services, personal services, and various skilled occupations, including legal, accounting, medical, consulting, and design services.
Type 3: List of 30 Industries
- Medical Services
- Dental Services
- Pharmacist Services
- Veterinary Services
- Attorney (Lawyer)
- Judicial Scrivener
- Administrative Scrivener
- Notary
- Patent Attorney
- Tax Accountant
- Certified Public Accountant
- Licensed Bookkeeper / Accounting Professional
- Social Insurance and Labor Consultant
- Consulting Services
- Architectural Design / Supervision
- Real Estate Appraisal
- Design Services
- Arts and Performance Instruction
- Barber Services
- Beauty Salon Services
- Dry Cleaning
- Public Bathhouses (Sento-type)
- Dental Hygienist
- Dental Technician
- Surveyor
- Land and House Investigator
- Maritime Agent
- Plate-Making and Prepress Services
- Massage / Acupuncture / Moxibustion / Judo Therapy and Other Medical-like Services
- Farrier Services
Tax Rates (Type 3)
- Standard: 5%
- Reduced (3%) applies to:
- Massage, acupuncture, moxibustion
- Judo therapy
- Other “medical-like” treatment services
- Farrier services
◆ Additional Note
The classification rules for real estate leasing and parking lot businesses have special criteria.
Answer Survey Calmly
When you receive a tax questionnaire, you may sometimes feel like you’ve forgotten some tax obligation. However, that’s not the case—let’s do it to verify tax matters properly.
