Why do we need to submit a tax return?

Essentially, submitting a tax return is playing your part as a resident and sole proprietor in Japan to ensure you’re contributing the right tax amount to the government. It's also an opportunity to claim deductions for costs relating to your business such as work equipment, electricity and wifi when working from home, and transport costs. This can potentially reduce your tax liability.

For additional context, the national tax office can’t calculate everyone’s income tax, so sole proprietors need to calculate and report it themselves, or ask a tax accountant to do it on their behalf.

What happens if you don't file a tax return?

→ Ref: NTA No.14001 Overview of delinquent tax and additional tax

While completing your tax return is a requirement, the consequences for not filing your taxes on time can vary. If you’ve paid more tax than you actually owe, there are no penalties for not filing a tax return (as you’ve essentially paid the tax office more money!) However, you can claim a refund on overpayments (from January 1st in the following year up to five years later). If you owe tax and filed after the due date, you’ll likely be charged additional tax or ‘delinquent tax’.

What is the difference between tax returns and end-of-year adjustments?

→ Ref: No.12018 Wage earners who must file a final tax return

Both tax returns and year-end adjustments are processes for calculating, declaring, and paying taxes owed to the government. They differ in terms of who they apply to, when they need to be filed, and the types of deductions available.

Essentially, end-of-year adjustments (nenmatsu chosei 年末調整) involve calculating the amount of income tax withheld from salaries and need to be filed by employers on behalf of their employees. On the other hand, tax returns are generally completed individually by freelancers and sole proprietors (note, some company employees and executives may need to file a tax return too).

What is income tax?

→ Ref: 財務省 Learn about "Income Tax”

Individual Income Tax is a tax imposed on personal income (including salary, and business income) earned in a year starting from January 1 through December 31. It’s calculated as follows:

1. Gross Income − Expenses, etc. = Net Income (A)

2. Net Income (A) − Deductions = Taxable Income (B)

3. Taxable Income (B) × Tax Rate = Income Tax Amount (The tax rate gradually rises along with the increased taxable income (B))

4. Income Tax Amount - Tax Credit Amount = Tax Payment Amount

For example:

＊ Non-business deductions include various deductions such as the Basic deduction of 480,000 yen, Social insurance deduction, Furusato nozei deduction, etc.

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When do I file a tax return?

You will need to submit your tax return for income earned in the past year from February 16th to March 15th.

For example, for income earned between Jan. 1st and Dec 31st, 2024, that is, your 2024 tax return, you’ll need to submit it from February 16th to March 15th, 2025.

You can do this by submitting the forms directly at your registered tax office or online via e-Tax. If you ask a tax accountant to complete it on your behalf, we recommend reaching out at least a month in advance of this period. 

Who needs to file a tax return?

→ Ref: pg. 8 Ministry of Justice

In principle, you will need to submit a tax return if:

・Your annual income as a freelancer or sole proprietor is 480,000 yen or more

・You are a company employee and earn 200,000 yen or more business income in a side job*

＊Note: Even if your income from a side job is less than 200,000 yen, it may be better to file a tax return. This applies to cases where you might be paying too much income tax. If you are filing a final tax return to receive a mortgage deduction or medical expense deduction, you also have to declare your income from a side job, even if it is less than 200,000 yen.

Who is exempt from the tax return?

→ Ref: 出典：国税庁「確定申告が必要な方」

出典：国税庁「No.1600　公的年金等の課税関係」

You may be exempt from the tax return if you fall into any of the following categories:

・Your business income as a sole proprietor is 480,000 yen or less

・You are an employee with a salary income of 20 million yen or less and your annual income from side jobs, etc., is 200,000 yen or less

・You receive 4 million yen or less in National Pension and your annual income from a side job is 200,000 yen or less

We’ll follow up in Part 2 of the series to explain more about the tax return in detail.

Disclaimer

This article is intended only as a basic guide to taxes in Japan. We make every effort to ensure that the information presented here is accurate and up to date. However, all details are subject to change at any time. LOOK UP Corp. cannot guarantee the accuracy, currency, or completeness of any of the material and information in this article and accepts no responsibility or liability arising from or connected to the material provided above.

LOOK UP ACCOUNTING

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