Think it' too early to start planning your taxes? Think again. Jeffrey Strain guides you through the maze of allowances that will cut precious yen off your yearly tax tab



Japanese taxes, for the most part, are pretty straightforward. In most cases, they are collected monthly from your salary based on the previous year's salary. This is referred to as collecting taxes at source. The amount deducted each month from your salary is called the provisional amount since it's an estimate of what you will owe at the end of the year. In December, a year-end adjustment is made to account for any changes in your circumstances which have influenced the amount of taxes to be paid.

The year-end adjustment is compared with the amount of tax withheld at source so that any surplus or shortfall can be adjusted. If you are a salaried employee, your final tax is calculated by your company through the year-end adjustment. Since your company does all the calculations, in most cases there is no need to file a tax return.

Your company, however, calculates your year-end adjustment based on the information of which it is aware. It is therefore important that you know all the tax deductions for which you are eligible so you can confirm your company has accounted for each of them.

Making allowances

Japanese taxes offer a number of substantial allowances which qualified people are entitled to take. Although most are fairly obvious and your employer is probably aware of your eligibility for them, others may have slipped by unnoticed. To make sure your company has deducted all the allowances for which you are entitled, you should confirm that your employer is aware of each the following deductions for which you qualify.

Basic Exemption. Residents and non-residents who earned money in Japan are allowed to deduct JY380,000 as a basic exemption from their total income. If you are considered a salaried employee, your company will automatically take this exemption into consideration. If your company regards you as a contract worker, they may not calculate this exemption. A simple way to know if you are considered a salaried employee or a contract worker is to check the amount of tax withheld from your salary each month. If the amount withheld is exactly 10%, then the company probably considers you a contract worker and does not calculate this exemption.

Basic Spouse Deduction. This is a basic sliding deduction depending on how much money a spouse earns. The spouse must be living with you and have made less than JY380,000 in net income for this deduction to apply.

Additional Spouse Deduction. Often foreigners are not aware that an additional spouse deduction exists. If your net income is JY10,000,000 or less, then you may be entitled to this deduction even if your spouse doesn't qualify for the basic spouse deduction. To claim this deduction, you must fill out a special form (haigusha tokubetsu kojo shinkoko-sho) and give it to your employer.

Dependents. People often assume that a dependent is a child. If your only dependents are your children, then it's likely that your employer already takes their deductions into account. There are, however, others you may be able to claim on your tax return as dependents who you never considered. If a relative is a member of your household, even if they do not live with you all year because of illness, business or schooling, and their total net income is less than JY380,000, they can be claimed as a dependent. You must, however, show at least JY1,000,000 in support for any dependent you claim. You should claim all dependents that meet this criteria, but be warned that if you claim too many dependents, the possibility of being audited increases.

Dependent deductions can also be made if you or your spouse's parents, grandparents or great-grandparents are over 65 and have less than JY1,000,000 gross income. It's not necessary that they live in Japan to qualify. If you remit JY1,000,000 per person per year back to your home country to support them, or can show JY1,000,000 in support for those living in Japan, they qualify as dependents and, depending on their age, varying deductions are applicable.

Aged Persons. If you are 65 or older and earn under JY10 million, you may be able to exempt JY500,000 from your income. Widow/Widower. If your spouse has died or you have been divorced and have not remarried, you may be eligible for this deduction. You must have at least one dependent living with you and earn under JY5 million. You may not, however, claim both the widow/widower and aged person deductions.

Physically Handicapped. If you, your spouse or a dependent is physically handicapped, you may be able to deduct JY270,000 or JY400,000, depending on the severity of the handicap. If you think you might qualify for this deduction, you should contact the tax authority which will determine whether or not you qualify.

Working Student. Working students who earn less than JY650,000 a year may be able to deduct JY270,000 from their income if their school qualifies under the tax code's definition.

Medical Expenses. Those who accumulate extensive medical expenses during a year period can deduct expenses over JY100,000. Examinations by doctors and dentists as well as prescription medicine are applicable. Routine physical examinations, beauty treatments and operations as well as preventative treatment are not deductible.

National Health Insurance. If you paid premiums or had premiums deducted from your salary, they can be deducted on your tax return.

Life Insurance. If you have a life insurance policy recognized by Japanese law and the named beneficiary is you, your spouse or other relative, you may deduct part of these premiums on your tax return.

Causality Insurance Premiums. All or part of these premiums can be deducted from your tax return if the policy is recognized by Japanese law, and it is for a house used for residential purposes by yourself, your spouse or other relatives in your household.

Charitable Contributions. Qualifying contributions to charities recognized by the Japanese government can be deducted from your taxes. A statement of donation or receipt from the organization stating the amount received must be submitted with your tax return. Donations to non-profit organizations outside Japan do not qualify for this deduction.

Credit for Foreign Taxes. As a rule, foreign taxes may be deducted from your Japanese income tax if the foreign taxes correspond to income taxes which you must also pay in Japan, excluding delinquency and penalty taxes. You must provide evidence of the taxes paid with a copy of your final tax return from your home country or a copy of a tax payment slip.

This is the first in a two-part series. Next week: Tax returns and self employment deductions.

Reproduced with permission of Kansai Time Out.