Business in Japan - Sole Proprietorship and local tax
Business, Japan

Local residence tax for sole proprietor business in Japan

This article is specific for starting a business in Japan.

If you are not an accountant (like me!), then you may find it confusing about how to pay tax in Japan for your business.

Or if you are a working mother, then you may be simply too busy to try to figure it all out.

So I hope this article will help you!

*Please note that I am not an expert on the Japanese tax system. If you have any questions, please ask your personal accountant. I am only providing this information to share about my own experience. Thank you for your understanding.

Firstly, if you would like to start a business in Japan, but you would like to start small (for example, you estimate your business will make less than 1 million yen per year and you just want a simple start), then you can consider to start as a sole proprietor.

Registering yourself as a sole proprietor is much easier (and cheaper) than registering as a company (Kabushiki Gaisha).

This post is about the residence tax (local tax) that you will need to pay as a sole proprietor.

Pay an Accountant to help you

First of all, see my previous article here about the benefits of paying a professional accountant to look after this for you. I highly recommend having an accountant as it can be very confusing to fill out the documents for tax purposes in Japan. Also if there is a question from the tax office about your application, then the tax office can call your accountant on the phone and speak directly in Japanese. This not only gives you piece-of-mind as you don’t have to worry about talking in Japanese on the phone about taxes, but it also can be a smoother process for the tax office to speak directly with a Japanese accountant.

How to pay Resident Tax

If you are still working for a company, then your residence tax will be deducted from your salary. So you don’t need to worry about this if you are working for a company.

But if you are not working for a company, or if you are back-paying the tax from income that you received from your business in a previous year, then you will need to pay your residence tax yourself. The payment slips will arrive by post in May or early June, and you will need to pay by 30th June. If you haven’t received the payment slips (or if you don’t remember), then make sure you go to the ward/city office to ask.

Calculation

How the residence tax is calculated:

  • The residence tax is calculated as of January 1st every year with respect to your income from the previous year.
  • Calculation: personal residence tax = 10% of taxable income + 5,000yen approx. (depends on the ward or city you live in)

The reason I am posting this here is because I myself received documents in the mail to pay the local tax, but I didn’t understand them as they are all in Japanese.

So my biggest advice is that if you receive tax-related documents in Japanese in the post, and if you don’t understand them, don’t ignore them!

Make sure you go to your local ward/city office and ask them to explain it to you, or take a photo of the documents and send them to your accountant to ask for translation and assistance.

Hope this helps!

x Kate

 

 

 

 

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