Case 15<\/p>\n
<Question>
\nI just started a business in Tokyo this April. I’ve heard that companies have to recalculate the income tax of employees and officers by December. At the moment, I’m the only employee so do I still have to recalculate my taxed income? Additionally, I came from Canada last year and I worked at a Japanese company until February.<\/p>\n
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<Answer> <\/p>\n The scope of the Annual Adjustment<\/span><\/strong><\/p>\n People whose salary is JPY 20 million or less and who submit \u201cApplication for (Change in) Exemption for Dependents of Employment Income Earner\uff08\u7d66\u4e0e\u6240\u5f97\u8005\u306e\u6276\u990a\u63a7\u9664\u7b49\uff08\u7570\u52d5\uff09\u7533\u544a\u66f8<\/a>\uff09*1 Exceptions from the above are out of the scope for the Annual Adjustment, rather they need to file the income tax return by March 15 the following year.<\/p>\n <\/p>\n *1 A salaried person shall submit an \u201cApplication for (Change in) Exemption for Dependents of Employment Income Earner\u201d \uff08\u7d66\u4e0e\u6240\u5f97\u8005\u306e\u6276\u990a\u63a7\u9664\u7b49\uff08\u7570\u52d5\uff09\u7533\u544a\u66f8\uff09to the\u00a0employer\u00a0no later than one day prior to the date on which employment income is first paid each year. If not, a higher tax rate for collecting the withholding tax is adopted. Additionally, this application does not need to be filed to the tax authority.<\/p>\n <\/p>\n Procedures<\/span><\/strong><\/p>\n The Annual Adjustment is implemented in <\/span>December, and if the paid withholding tax is different to the annual income tax it is adjusted with the usual monthly deduction in December.<\/p>\n The following income deductions are in the scope of the annual adjustment, so the supporting documents should be obtained by the officers and the employees.<\/p>\n Income deductions & Tax credits on the Annual Adjustment<\/strong><\/span><\/p>\n The following are income deductions and tax credits on the Annual Adjustment. The amount of the deductions and the credits depends on the situation, and whether\u00a0the necessary supporting documents, which prove the amount of the deductions and the credits,\u00a0have been obtained.<\/p>\n <\/p>\n Filing tax return for additional refund <\/span><\/strong><\/p>\n People who are out of the scope of the Annual Adjustment have to file the income tax return by March 15 of the next year though people who are in the scope of the Annual Adjustment also may file the income tax return for other income deductions which couldn’t be deducted by the Annual Adjustment. The following are examples of the deductions.<\/p>\n <\/p>\n Q&A case (resident or non-resident & changing job)<\/span><\/strong><\/p>\n <\/p>\n
\nPaid salaries are subject to a withholding tax every month. The withholding tax is a kind of advance payment of Income tax, the difference has to be settled in the future by some methodology such as filing the tax return or an Annual Adjustment of income tax (a year end adjustment of income tax).\u00a0The calculated income tax on the tax return is different to the total amount of the annual withholding tax due to several income deductions or credits that are not considered when the withholding tax is withheld.\u00a0\u00a0 (The withholding tax is calculated considering the exemption of dependents which is one of the deductions or credits though the impact is minimal). <\/strong>Consequently, the collected withholding tax cannot be equal to the actual income tax, so filing the tax return or the Annual Adjustment of income tax (the year end adjustment of income tax) is necessary.
\nThe Annual Adjustment of income tax (the \u201cAnnual Adjustment\u201d) is a process which is performed by employers at the end of year to re-calculate the Income Tax and settle it. If there is any shortage in payment, such a shortage will be withheld from the last salary payment and if there is any overpayment, such an overpayment will be adjusted by appropriating it to the tax amount to be withheld from the last salary payment or by refunding it to individual employees.<\/p>\n
\nThe above people who;<\/p>\n\n
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\nAny person eligible for a medical expense deduction because the amount paid for medical expenses exceeds the lesser<\/span> of either 100,000 yen or the amount equivalent to 5% of total income.<\/li>\n
\nAny person eligible for a foreign tax credit relating to the tax equivalent to income tax paid in foreign countries.<\/li>\n
\nAny person eligible for a special credit for loans relating to a dwelling due to the acquisition of a house, etc., or who had not claimed the deduction during the year-end adjustment from the second and subsequent years after the acquisition<\/li>\n
\nThe credit is only available for dividend incomes from Japanese companies. If taxpayers\u2019 total taxable income is JPY 10 million or less, the credit is calculated as <\/span>10% of net dividend income after any related interest expenses.<\/li>\n<\/ol>\n\n
\nIt is not clear how long you have lived in Japan though, as long as you started a business in Japan, you are considered a Japanese resident so you are in the scope of the Annual Adjustment.<\/li>\n
\nObtaining the Withholding Record\u201d from the previous job is necessary. The Annual Adjustment is implemented with the previous salary.<\/li>\n
\nIf other tax credits like the above are claimed, filing a tax return is necessary.<\/li>\n<\/ol>\n