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Tokyo Taxes

Taxes in Japan are paid on income, property and consumption on the national, prefectural (similar to our state level) and municipal levels. Below is a summary of some of the most relevant types of taxes paid by individuals:

Income Tax
Paid annually by individuals on the national, prefectural and municipal levels. Also known as “resident tax” on the prefectural and municipal level. The amount is calculated based on the net income of the individual person.

Enterprise Tax
Prefectural tax paid annually by self-employed individuals engaged in business activities. The amount is calculated based on the person’s net income and the type of business.

Property Tax
Municipal tax paid annually by individuals who own land, housing and other types of depreciable assets.

Sales Tax
Paid by consumers when they purchase goods and services. The current rate is 5% (4% national, 1% prefectural). Shops and other service providers are required to include the consumption tax in the prices shown.

Vehicle related Taxes
A prefectural automobile tax is paid annually by individuals who own a car, truck or bus. In case of passenger cars, the amount is calculated based on the engine displacement. A municipal light vehicle tax is paid annually by individuals who own motorbikes or other motorized light vehicles. A national motor vehicle tonnage tax is paid by vehicle owners at the time of the mandatory inspections (shaken). A prefectural automobile acquisition tax is paid by persons when they acquire a car.

Liquor, Tobacco and Gasoline Taxes
The national liquor tax is paid by consumers when they purchase alcoholic beverages. National, prefectural and municipal tobacco taxes are paid by consumers when they purchase tobacco products. A national gasoline tax is paid by consumers when they purchase gasoline.

U.S. Tax Information
The Internal Revenue Service (IRS) office serving Japan is located in Philadelphia, and provides U.S. Federal tax assistance to Americans in Japan. The IRS office at the American Embassy in Tokyo closed in 2004.

The IRS Home Page, www.irs.gov, has a lot of information available to answer many questions. Go to ‘Individuals’ and then ‘Overseas Taxpayers’ you will find a section of FAQ, which will take you to IRS Publication 54. Many questions of overseas taxpayers can be answered from that source.

One point to remember for all overseas taxpayers is that the United States taxes its citizens on their worldwide income. Even though they may be eligible to exclude a certain amount of their earned income from their income tax computation, they must file a US tax return in order to claim that exclusion.