- August 13, 2023
- Posted by: Aki Kojima
- Category: Individual & Self-Employed
Hello to all our readers! Today, we’re diving deep into the intricacies of the Japanese tax system, focusing on an annual income of 5 million yen. This guide is tailored for non-Japanese individuals or businesses aiming to grasp the nuances of taxation in Japan. Let’s embark on this enlightening journey.
Breaking Down the Salary
Visualize an annual income of 5 million yen. This translates to a base monthly salary of 300,000 yen, complemented by job-related allowances of 15,000 yen and a commuting allowance of 14,000 yen. Thus, before any deductions, your monthly salary is 315,000 yen, with an additional 14,000 yen for commuting.
As a regular employee in Japan, you’d typically be enrolled in Employee’s health insurance, Employee’s pension insurance, and employment insurance. For example, we’re considering a newcomer to the Japanese workforce, so resident tax deductions aren’t applicable yet.
Social Insurance Contributions
Employee’s health and pension insurance contributions are based on the average monthly salary from April to June. For a young professional in Osaka, health insurance would be 10.29% of the salary, with both employer and employee sharing the burden. Similarly, the pension insurance stands at 18.3%, split equally.
This insurance, covering unemployment benefits and training programs, will cost the employee 0.6% and the employer 0.95%.
Monthly Take-Home Pay
After accounting for the above deductions, your net monthly salary would be 267,282 yen, with an income tax of 7,180 yen.
Come December, there’s a year-end adjustment. Assuming no overtime and a bonus equivalent to 4 months’ salary (1.26 million yen) without any dependents, the total income tax from April to December would be 130,422 yen.
After considering the basic deduction of 480,000 yen, the taxable income is 3,125,688 yen. The tax rate for the first 1.95 million yen is 5%, and for the remaining amount, it’s 10%. The company handles these calculations.
Additional Tax Payment
An additional tax payment of 84,578 yen would be required in our scenario. However, most individuals receive a refund due to overestimations in the withholding tax tables.
Salary Increase and Resident Tax
Many Japanese companies offer salary hikes in April, which can influence your withholdings. However, starting in June, the resident tax is based on the previous year’s income.
In summary, understanding the breakdown of your salary and the associated taxes is crucial for financial planning in Japan. While the system might seem complex, with some knowledge, it becomes navigable.
This guide is a general overview, and individual circumstances might vary. If you need further clarification or assistance, we’re here to help. If you found this guide insightful, please like, share, and subscribe for more updates on Japan’s tax and accounting landscape. Thank you for reading!