 |
 |
| Overview of National Withholding Tax (Gensen Shotoku Zei) in Japan |
| Last Update 2012/1/7 |
| |
| National Withholding Taxes |
| |
When a person makes payments, the person might need to withhold certain
amount of payments in accordance with Individual Income Tax Law (IITL,
sometimes referred to as Income Tax Act, in Japanese Shotoku Zei Ho) or
Special Measure Tax Law (SMTL, sometimes referred to as Act on Special
Measures Concerning Taxation, in Japanese Sozei Tokubetsu Sochi Ho).
In addition to National Withholding Taxes, Local Withholding Taxes may
apply to certain payments such as interests paid by financial institutions.
The purpose of National Withholding Tax is either as a backup to be settled
later at the time of Tax Return / Year End Adjustment, or as a final tax
payment in Japan.Regular Corporation |
|
Examples of payments that need withholding are: |
| |
1. |
Salary/Wage/Bonus to Residents |
| |
2. |
Retirement Pay to Residents |
| |
3. |
Certain Interests to Residents or Domestic Corporations |
| |
4. |
Certain Dividends to Residents or Domestic Corporations |
| |
5. |
Certain Public Pensions to Residents |
| |
6. |
Certain Private Pensions, Profit Distributions from TK or others to Residents
or Domestic Corporations |
| |
7. |
Most of payments to Residents : This type includes payments to |
| |
|
|
Professionals such as Lawyers, Certified Public Accountants, Certified Tax Accountants, etc. |
| |
|
|
Translators, |
| |
|
|
Instructors such as English Teachers, |
| |
|
|
Investment Advisors, |
| |
|
|
Designers, etc. |
| |
|
The amount to be withhold depends on type of work, but usually 10 % of
the amount up to JPY 1 million and 20 % for the amount above JPY 1 million.
From 2013, Additional Tax to help Recovery will be added. |
| |
8. |
Certain payments to Non-Resident Individuals or Foreign Corporations: This
type includes payments of |
| |
|
|
Most of Nin-i-Kumiai (NK) profit distribution, |
| |
|
|
Real Estate sales proceeds, |
| |
|
|
Payments to compensate for dispatching certain personal services to others , |
| |
|
|
Rental Payments for Real Estate, ships, airplanes, etc., |
| |
|
|
Interests, |
| |
|
|
Dividends, |
| |
|
|
Royalties, |
| |
|
|
Payments for translation, |
| |
|
|
Software development expenditures, |
| |
|
|
Salaries, Public Pensions, etc., |
| |
|
|
Prizes for advertizing business, |
| |
|
|
Pensions based on insurance agreements, etc. |
| |
|
|
TK profit distribution, etc. |
| |
|
However, if Japan and the country where the Non-Resident or Foreign Corporation
is located have a Tax Treaty and the Tax Treaty has different stipulations,
the Tax Treaty overwrites the tax law.
The Withholding Tax Rate is 10%, 15% or 20% depending on the type of payments.
From 2013, Additional Tax to help Recovery will be added (2.1% of original
withholding tax).
Salary Payments to a Non-Resident by a foreign corporation might need special
attention when the office in Japan was a branch. In this case, the salary
paid in a foreign country is deemed to have been paid by the Japanese branch,
and the Japanese branch is liable to withhold tax, and has to withhold
20% of the payment (From 2013, Additional Tax to Help Recovery will apply).
This applies to stock options exercised after repatriated too (http://www.nta.go.jp/shiraberu/zeiho-kaishaku/shitsugi/gensen/06/48.htm). |
|
|
| Responsibility / Due Date / Penalty |
| |
It is the payer who has to withhold the tax amount even if there is no description of withholding on the
invoice. And, generally, the amount withheld has to be paid to the Tax Office on the 10th of the
following month of the payment, which is quite a tough schedule. |
|
If the payer was not able to make the payment to the Tax Office timely, the payer has to pay penalty
which is equal to 5% or 10% of Withholding Tax, and interest, which are not deductible for the
Corporate Income Tax purpose. |
| |
Ex.
A corporation received a JPY 100 million invoice from an Indian Software corporation based in India
(no PE in Japan) as Software Development Fee. The corporation has to withhold JPY 20 million and
pay JPY 80 million to the Indian Software corporation.
If the company fails to withhold JPY 20 million, and pays JPY 100 million to the Indian Software
corporation, the corporation will have to do the following if pointed out
in a tax audit: |
| |
|
The company has to pay JPY 20 million as withholding tax, |
| |
|
The company has to pay JPY 2 million as a penalty + interest, and |
| |
|
The company has to request the Indian Software corporation to return the JPY 20 million. |
|
| |
| |
|
|
