- September 6, 2023
- Posted by: Aki Kojima
- Categories: Individual & Self-Employed, Corporations
Here, we would like to consider the basics of the compensation tax.
What is remuneration tax?
“Remuneration tax” is a general term referring to a tax imposed on specific remuneration or income, the specifics and tax rates of which may vary from country to country or region to region. Some countries and territories use the term as a specific tax system, while others use it informally as a remuneration-related tax.
In Japan, the literal translation of remuneration tax is “報酬税”(Hou Shu Zei).
However, no tax is “報酬税”(Hou Shu Zei). Instead, a similar aspect exists in income tax.
The withholding income tax is part of the income tax system.
Income tax withholding
This tax must be paid when payment is made concerning compensation.
The tax in this regard is paid by client A, who deducts the withholding income tax portion when making payment to person B for services rendered. This is the prepaid portion of the income tax. The removed amount is paid by A by the 10th of the following month.
Who has to pay the tax?
It is the company or business owner. It is not just companies or individuals.
Schools, government offices, associations, and foundations without juridical personality, etc. that pay salaries are also subject to withholding at source.
However, some people are excluded.
- Individuals who pay salaries only to domestic servants, such as two or fewer nannies, regularly.
- Individuals other than individuals liable for withholding tax concerning employment income, such as legal fees paid by individuals who are not responsible for withholding tax about employment income.
The fact that payments are often forgotten is a problem.
What happens if it is forgotten?
The person who must make the deposit bears the burden of making the payment.
It would be best to be careful here because you may fail to collect the forgotten deposit portion.
What kind of compensation is covered?
It should be easier to understand if you look at specific examples.
Let me give you examples.
- Manuscript fees and speaking fees paid to authors, etc.
However, prize money paid to winners of prize competition entries need not be withheld at source as long as the amount paid to one person at one time is 50,000 yen or less.
- Fees paid to qualified persons, etc.
(e.g., lawyers, certified public accountants, judicial
- Fees paid to professional baseball players, etc.
Other examples are professional soccer players, professional tennis players, models, and diplomats.
- Remuneration for film appearances
Other examples: Remuneration/fees paid to individuals who perform in theatrical or other performing arts (music, dance, comic performances, etc.), television broadcasts, etc., or who operate entertainment production companies
- Contract money
Contract money paid at one time by promising to provide services, e.g., contract money for professional baseball players
- Prize money for horse racing
Prize money for advertising or horse racing paid to horse owners
There are others, but these are examples that are easy to understand.
Why do we keep these as an unearned portion?
The reason is that these rewards are often fast-footed and are not retained as a source of tax payments if they are not deposited.
There is no literal translation of remuneration tax in Japan.
Instead, it is identified in the Income Tax Law as withholding income tax.
Whether or not you are subject to withholding income tax, it can be complicated across countries, and this is something you need to be aware of.
I hope the above information is of some help to you.