Japan has the withholding tax system on employment income in which employers (salary payers) withhold the amount of income tax of their employees (salary recipients) from their salaries and pay the tax to the government on behalf of the employees. All employers (except for those scheduled to stay in Japan for less than a year) are required to withhold and pay their employees’ income taxes levied on their salaries.

Net employment income is calculated by deducting employment income deduction from the amount of earnings. Taxable income is calculated by deducting social insurance premiums and income deductions such as dependent deduction or basic deduction from the net employment income. Amount of income tax is calculated by multiplying the taxable income by a tax rate ranging from about 5% to 41%, depending on the amount of taxable income.

The estimated income tax amount is deducted from the monthly salary by employers, and the total amount of income tax payable (yearly income tax) is balanced through the year-end adjustment made at year’s end when the employee’s total amount of salaries for the year from January to December is fixed and confirmed. The year-end adjustment is carried out by employers upon paying the last salary of the year.

A person who resides in Japan as a resident as of January 1 is subject to inhabitant tax. Therefore, it should be noted that the person is still subject to inhabitant tax even if he or she changes address or leaves Japan after January 1 as long as the person had income in the previous year. The amount of inhabitant tax is decided based on the previous year’s income tax record of the person by the municipal office, and the individual is notified of the amount after April that year.

If the person is an employment income earner, the employer deducts the amount of inhabitant tax from the monthly salary during the period between June that year and May of the following year, and pays it to the municipal office on behalf of the employee.