I’ve previously written about income taxes in Japan which was an oversimplified view into the amount of taxes one actually pays in Japan. And while researching on income taxes more detailedly for a friend running a business here, I spoke with my tax accountant friend and came to learn that the income tax situation isn’t as bad as I had thought. So, if you are considering a move here based on the amount of income tax you have to pay here vs Singapore or your own country, this slightly more comprehensive (but still simplified) view might come in handy.
In Japan, there’s such a thing called employment income deductibles, and what this is, is something like the expense portion of a self-proprietor. In general, self-proprietors get to expense items which gets taken off their total income, thus reducing their taxable income. For example, if I make $1,000 as a self-proprietor and I had to get a $600 laptop for work, I can mark that as an expense and only the remaining $400 is my taxable income. Employees typically do not get such expenses deducted, so to keep it fairer between salaried workers and freelancers, the government came up with the employment income deductible for employees to take off their taxable income. The amount for each income bracket looks like the table below:
If you make 250,000 yen (approx. SGD$3,125) a month, that would make 3 million yen a year, and your deductible would be 3,000,000 x 30% + 180,000 = 1,080,000 yen. That’s 36% of your income that won’t be taxed.
Then, you also get basic deductibles that is given to all workers in Japan. Basic deductibles is standard for everyone at 380,000 yen (330,000 yen when calculating for resident tax) regardless of your income. So, add that to the employment income deductible makes your total deductibles 1,080,000 + 380,000 = 1.46 million yen, which is almost 50% of your income not taxed.
This means, your taxable income is 3,000,000 – 1,460,000 = 1,540,000 yen, and only after deriving this number, should you look at the chart below, posted on the National Tax Agency’s website.
A taxable income of 1,540,000 yen means you will be taxed at 5% with no further deductions (yes, higher income earners get further deduction here). So, 1,540,000 x 5% = 77,000 yen, which is really only about 2.6% of your 3 million yen income.
Let’s go through another example of someone making 830,000 yen a month (or 9.96 million yen a year). The employment income deductible would be 9,960,000 x 10% + 1,200,000 = 2,196,000 yen. Including the basic deducitible of 380,000 yen makes the total deductible amount 2,576,000 yen. So, the taxable income would be 9,960,000 – 2,576,000 = 7,384,000 yen. Meaning, this employee will be taxed at 23% with a further deduction of 636,000 yen, making it 1,062,320 yen, which is really only a little under 11% as opposed to the seemingly daunting figure of 23%.
Sure, the tax here is still higher than what we have to pay in Singapore. But this insight might provide a better comparison. Besides, remember that one has to pay resident tax, insurance, pension and what not, which means your expense is actually much more, but at the same time, your tax can be even lesser.