JAPAN Law and Practice Contributed by: Junichi Ueda, Etsuko Hara, Nobuto Shirane, Takahiro Hayase, Yutaka Shimoo and Miki Goto, Anderson Mori & Tomotsune
A resident is defined as any individual who has their residence ( jusho ) in Japan or who has had their temporary residence ( kyosho ) in Japan for more than one year. A permanent resident is defined as a resident other than a non-perma - nent resident (as defined below) and is subject to income tax with regard to all of their income (including salary, hereinafter the same in this section) accrued inside and outside Japan. On the other hand, a non-permanent resident – who is defined as any individual who is a resident of Japan, but who is not a Japanese national and who has had residence in Japan or temporary residence in Japan for five years or fewer in total during the past ten years – is subject to income tax only with regard to income other than foreign-sourced income and any amount of foreign-sourced income that is paid in or transmitted to Japan. A non-resident (ie, any individual other than any type of resident) is subject to income tax only with regard to domes - tic (Japan)-sourced income. This type of income includes salaries received for work or personal services carried out in Japan or, if outside Japan, by a person acting as an officer of a Japanese corporation. For the employment earnings of a permanent resident or a non-permanent resident who has submitted a certain application and whose indi - vidual income does not exceed JPY20 million per year, such an employee will only be subject to withholding tax and need not file their own tax return. Instead, the employer will be responsible for the calculation and payment of the employ - ees’ taxes. This system, especially the year-end recalculation procedure of the system, is called the “year-end adjustment system” ( nenmatsu chousei ) of tax payment. The income tax rates are progressive and the maximum rate is 45% (excluding local income tax).
In addition, reconstruction special income tax will be imposed on income tax at a rate of 2.1% from 2013 to 2037. Please see the following pro - gressive income tax rates (including reconstruc - tion special income tax): • 5.105% (for the portion of taxable income of JPY1.95 million or less); • 10.21% (for the portion of taxable income of more than JPY1.95 million to less than JPY3.3 million); • 20.42% (for the portion of taxable income of JPY3.3 million to less than JPY6.95 million); • 23.483% (for the portion of taxable income of JPY6.95 million to less than JPY9 million); • 33.693% (for the portion of taxable income of JPY9 million to less than JPY18 million); • 40.84% (for the portion of taxable income of JPY18 million to less than JPY40 million); and • 45.945% (for the portion of taxable income of JPY40 million or more). Employees and their employer jointly contrib - ute in equal parts to employee social expenses, such as national health insurance premiums and employees’ pension insurance premiums. In addition, if an employee dies, their heirs would be subject to inheritance tax. In general, inheritance tax is imposed both on domestic and foreign assets. However, depending on the nationalities and residence period of the dece - dent and their heirs in Japan, the taxable assets may be limited to domestic ones in some situ - ations. By way of example, in cases where for - eign individual Japanese residents with certain types of working visas die in Japan, their heirs without Japanese nationality would be subject to inheritance tax only on domestic assets, as long as they:
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