JPN-Journal.com News/Laws for Foreigners Working in Japan.

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• Interest Income


Interest income includes interest from bonds, debentures, and interest on savings, as well as distributions from earnings derived from investment and loans trusts.

In general, income tax is withheld by the payer at the time of payment. Withholdings tax rate is 20% (15% income tax and 5% local tax). Interest earned on savings with overseas banks not subject to withholding tax must be declared.

Interests on loans to individuals or companies do not fall under the category of interest income. They are classified either as miscellaneous income or business income.

Actual interest received during the year, less any tax-exempt interest income, is subject to tax.



• Dividend Income


Dividend income includes payments received as surplus and distribution of profits of investment trusts (excluding corporate management investment trusts such as public and corporate bond investment trusts and public offering bonds).

Similar to interest income, income tax is withheld by the payer at the time of payment. WIthholdings tax rate is 10% (7% income tax and 3% local tax) for dividends from public companies and 20% (15% income tax and 5% local tax) for dividends from non-public companies.

For dividends from public companies and other certain dividends (excluding payments received by major shareholders), a taxpayer may elect the separate taxation method instead of the aggregate taxation. When the separate taxation method is elected, withholding at source is deemed to have settled the taxpayer's tax liability on that portion of dividend and no further action is required by the taxpayer. It is important to note that dividend credit cannot be claimed for the amount of dividend computed under the separate taxation method.

Actual dividends received during the year is subject to tax.



• Real Estate Income


Income from real estate includes income from leasing land, building, property right, sailing vessel, aircraft, etc. Down payment, contract renewal fee, fee for transfer of title are generally treated as income from real estate. However, down payment, etc. arising from setting up land-leasing right may be classified as income from capital gain.

Gross receipts less necessary expenses is subject to tax.



• Business Income


Business income includes income derived from wholesale and retail commerce, hotels and restaurants, manufacturing, construction, finance, transportation, maintenance, and any income derived from sales of products or services. It also includes income of doctors, lawyers, writers, actors and actresses, professional baseball players, traveling salespersons, carpenters and those involved in fisheries or similar enterprises.

Business income encompasses agricultural income defined as income from agricultural production, fruit growing, sericulture, rearing of poultry and livestock, the manufacture of straw goods or similar activities, and dairy farming.

Gross receipts less necessary expenses is subject to tax.



• Employment Income


Employment income includes salaries, wages, amounts paid to former employees based on prior service, pensions other than lump-sum pensions, bonuses and similar amounts. Allowances (cost of living allowances, child education allowances, medical allowances, tax allowances, housing allowances, etc.) and fringe benefits (benefits received on employer-provided housing with low or no rent payments and benefits received on a employer-provided loan with low or no interest rate) are included in employment income.

Gross compensation less earned income deduction is subject to tax.



• Retirement Income


Retirement income includes retirement allowance, severence pay, lump sum payment from social insurance systems, and any other payments triggered by retirement from employment.

50% of gross compensation after the special retirement deduction is subject to tax.



• Forestry Income


Forestry income include income derived from lumbering or the transfer of timber. Income derived from sale or transfer of timber within 5 years after acquisition of forestry may be classifed as business or miscellaneous income.

Gross receipts less special deduction after reducing for expenses for forestation, acquisition, management, lumbering of the forest, and other necessary expenses, is subject to tax.



• Capital Gain/Loss


Capital gains/losses include income from the transfer of machinery, golf membership, ships, patent rights, fishing rights, paintings, precious metals, and other tangible and intangible property, but does not include income from the sale or transfer of land or buildings or the proceeds of sales of inventory or other property continuously transferred in business.

Gain or loss from sales of assets held for less than 5 years is classified short-term. Gain or loss from sales of assets held for more than 5 years is classified long-term.



• Occasional Income


Occasional income includes one-time payments and maturities from life or accident insurance policies, prize or lottery winnings, winnings from horse or cycling races, rewards from returning lost items, and other incidental income of a nonrecurring nature that does not fall into the aggregate assessment income tax categories of interest income, dividend income, lease income, business income, employment income or capital gains.

Gross receipts less special deduction after reducing for necessary expenses is subject to tax.



• Miscellaneous Income


Miscellaneous income is income that does not fall into any other category of income. Common miscellaneous income includes annuity from insurance system and income of a nonrecurring nature such as interest received from a loan to a friend and/or a family member.