Japanese Business Glossary

贈与税 (zoyozei) is Japanese for "gift tax." This is a tax imposed on the transfer of property or money from one person to another as a gift.

In Japan, when someone gives a gift exceeding a certain value, the recipient is generally required to pay a tax on the value of the gift. The purpose of this tax is to prevent individuals from avoiding inheritance tax by transferring assets as gifts during their lifetime.

The tax rate and exemptions can vary based on the amount and relationship between the giver and recipient.

印紙税額 (inshi zeigaku) refers to the amount of stamp duty in Japanese. Stamp duty is a tax applied on documents that are legally significant, such as contracts, agreements, and other official papers. The exact amount of the tax can vary depending on the type and value of the document. In Japan, this stamp duty is necessary for the document to be considered valid in certain legal contexts.

配偶者特別控除 (haiguusha tokubetsu koujo), special spouse deduction, is a Japanese tax deduction aimed at reducing the income tax burden for taxpayers whose spouses have limited income. This deduction is designed to support households where one spouse has a lower income, usually from part-time work or other minor sources.

To qualify, the taxpayer’s spouse must have an annual income within a specified range. The exact range may vary each year, so it’s important to check the current tax regulations. The amount of the deduction decreases as the spouse’s income increases. The maximum deduction is applied when the spouse's income is at the lower end of the specified range and gradually decreases as the income approaches the upper limit of the range.

The deduction is also influenced by the taxpayer’s income. There are thresholds for the taxpayer’s total income, and exceeding these thresholds can reduce or eliminate the deduction.

The aim of this deduction is to support households by lowering the tax burden, thus encouraging economic stability and potentially increasing consumer spending.

For the exact figures and more detailed conditions, it is advisable to refer to the latest information provided by the Japanese tax authorities or consult with a tax professional.

所得税 (shotokuzei) is a tax levied on the income of individuals in Japan. It applies to income earned within a calendar year, from January 1 to December 31, and is calculated based on the taxable income of an individual. The calculation process involves several steps.

First, you determine the gross income, which includes all types of income such as salary, business income, capital gains, rental income, and others. Then, various deductions are allowed to reduce the taxable income. These deductions include basic deductions for dependents, social insurance premiums, and medical expenses. Specific deductions applicable to most individuals are the basic deduction, social insurance premium deduction, spousal deduction, and dependent deduction.

Next, you subtract the total deductions from the gross income to determine the taxable income. Japan uses a progressive tax rate system, meaning the tax rate increases with higher income brackets. The rates range from 5% to 45% depending on the amount of taxable income. For example, income up to 1,950,000 yen is taxed at 5%, and income above 40,000,000 yen is taxed at 45%.

After applying the tax rates, any applicable tax credits are subtracted to determine the final tax amount. Tax credits may include those for housing loans, specific investments, and other qualifying expenses.

Individuals are required to file a tax return annually, typically between February 16 and March 15 of the following year. If the total income is under certain thresholds or if the income is solely from salary with appropriate withholdings, filing may not be necessary. However, those with multiple income sources or significant deductions usually need to file a return to adjust their tax obligations accurately.

年末調整 (nenmatsu chousei), year-end tax adjustment, is an annual process in Japan where employers adjust the amount of income tax withheld from employees' salaries to match the actual tax owed for the year. This process ensures that the correct amount of tax is paid, avoiding both overpayment and underpayment. Employers calculate the total amount of salary and bonuses paid to each employee throughout the year and compare it to the tax that was already withheld. They then apply various deductions and exemptions that employees are eligible for, such as deductions for dependents, insurance premiums, and housing loans. The adjustments result in either a refund if too much tax was withheld or an additional payment if too little was withheld.

Employees must submit necessary documents, including forms detailing any changes in their personal situation that affect tax calculations, such as changes in dependents or marital status. These adjustments are typically performed between October and January of the following year. If any documents or information are missing, employees may need to file a tax return during the regular filing period from February 16 to March 15 of the following year to claim any eligible deductions or credits not accounted for during the year-end adjustment.

消費税 (shohizei), consumption tax, is a value-added tax (VAT) levied on most goods and services in Japan. It operates as a multi-stage tax, collected at each stage of production and distribution, and is ultimately borne by the final consumer. The standard rate is 10%, while a reduced rate of 8% applies to certain items, such as food and non-alcoholic beverages.

The consumption tax system in Japan includes both taxable and exempt transactions. Taxable transactions encompass the sale of goods and services. However, certain transactions, such as the sale and lease of land, interest on loans, and medical services, are exempt from consumption tax.

Businesses are required to calculate and remit the tax collected from their sales. They can deduct the consumption tax paid on their purchases, known as input tax, from the tax collected on sales, known as output tax. This process is called the input tax credit, ensuring that the tax burden ultimately falls on the final consumer rather than on businesses throughout the supply chain.

There are two main accounting methods for handling consumption tax: the tax-included method and the tax-excluded method. The tax-included method simplifies bookkeeping by incorporating the tax into the price of goods and services, while the tax-excluded method separates the tax from the price, providing clearer financial reporting.

Businesses with annual taxable sales exceeding 10 million yen are required to register as taxable businesses and file consumption tax returns. Smaller businesses may qualify as tax-exempt businesses and are not required to collect or remit consumption tax unless they choose to register voluntarily.