Taxes and Tax Schemes in Japan | What You Need to Know in 2025

Japan, a global economic powerhouse known for its technological innovation and strong industrial base, operates a sophisticated tax system that affects both residents and non-residents. Located in East Asia, Japan combines a highly developed economy with traditional values, creating a unique environment for international professionals and businesses.

Japan's economy, the third-largest globally, has maintained stability despite demographic challenges and global economic fluctuations. The country's tax system reflects its commitment to social welfare while remaining competitive in the global market. Recent reforms have focused on simplifying procedures for foreign residents and digital tax filing.

The expat community in Japan, though relatively small compared to other developed nations, is growing steadily. Major sectors like technology, finance, and education provide numerous opportunities for foreign professionals. The tax system, while complex, offers various benefits and deductions that can significantly impact an expat's financial planning.

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Japanese Income Tax

Japan employs a progressive income tax system with rates ranging from 5% to 45%. Resident taxpayers are subject to taxation on their worldwide income, while non-residents are taxed only on Japan-sourced income. The system includes both national income tax and resident tax (inhabitant tax), which is levied by local governments.

Tax residents face the following national income tax brackets (as of 2025):

Additionally, resident tax is generally calculated at 10% of taxable income, bringing the effective maximum tax rate to approximately 55%.‍

If you want to have a better understanding of the taxes you should pay on personal income in Japan, you can use the personal tax calculator in the Taxation section of the Japan page.

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Japanese Tax on Overseas Income

‍Japan's treatment of foreign income depends on residency status. The country recognizes three categories of taxpayers:

1. Permanent residents (5+ years): Taxed on worldwide income
2. Non-permanent residents: Taxed on Japanese income plus foreign income remitted to Japan
3. Non-residents: Taxed only on Japan-sourced income

This system particularly benefits non-permanent residents, who can manage their tax liability by controlling the timing and amount of foreign income brought into Japan. The non-permanent resident status is available for the first five years of residency, making it especially valuable for expats on medium-term assignments.‍

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Japanese Tax on Investments

‍Investment income in Japan receives specific tax treatment. Dividends and capital gains from listed stocks are typically taxed at 20.315% (including special income tax for reconstruction). The system includes:

• 15.315% national tax
• 5% resident tax
• Special exemptions for small-amount investments through NISA accounts
• Separate taxation of certain investment income

Real estate investments face both national and local taxes, with potential deductions for depreciation and maintenance expenses.‍

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Japanese Corporate Taxation‍

Corporate tax in Japan comprises several components:

• National corporate tax: 23.2%
• Local corporate tax: 10.3% of national corporate tax
• Business tax: varies by company size and location
• Resident tax: varies by location

The effective corporate tax rate typically ranges from 30% to 35%, depending on the company's size and location. Small and medium-sized enterprises may qualify for reduced rates on income up to ¥8 million.

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‍Special Tax Regimes‍

Japan offers several special tax arrangements beneficial to international professionals:

1. Exit Tax Exemption: Foreign nationals working in Japan can receive exemption from exit tax on financial assets when departing Japan.
2. Salary Income Deduction: A simplified deduction system that reduces taxable employment income based on salary level.
3. Foreign Tax Credit: Available to prevent double taxation on overseas income for permanent residents.
4. Special Tax Benefits for Researchers: Tax incentives for qualified foreign researchers working in Japanese institutions.

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Regional Comparison

Tax Planning for Japan

‍Effective tax planning in Japan requires attention to several key areas:

1. Timing of Arrival: Arriving early in the calendar year can affect tax liability for the first year.
2. Residency Status Management: Strategic planning of residency status can optimize tax treatment of foreign income.
3. Remittance Planning: Non-permanent residents should carefully plan foreign income remittances.
4. Documentation: Maintaining clear records of overseas assets and income sources is crucial.

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