If you live in Japan, you need to understand the taxes you pay. Full stop.
Do taxes feel like they suck? Yeah. It's a large cut out of your paycheck or income. Sometimes more than you expect.
On the other hand, they pay for roads, hospitals, Abe's handouts to his politcal posse, and other important infrastructure.
Since it's your money, and you can only manage what you track, you'd better understand how your cut is calculated at (at least!) a very basic level. Don't let the money missing from your paycheck be a mystery to you every month. That's being a kid, and kids don't make bank.
We are not CPAs, tax accountants, or in any way certified legal advisors. Tax laws are tricky, and subject to constant change (10x if you’re American, and liable to the American tax system and the IRS). For pressing legal inquiries related to taxes (or any other bureaucratic information for that matter), we advise you to contact an accountant, known as a 税理士 "zei-ri-shi" in Japanese. We can take no responsibility for, and will not be held liable for any consequences related to, actions taken based on our tax advice. We're just normal people navigating the system.
With that said, the subject of taxation is a vexing one, which can make or break a person’s financial success. The majority of helpful resources are scattered to the four corners of the web. Some of the best ones are written only in Japanese. Others exist haphazardly and disorganized on reddit posts or JET forums of yesteryear. CPA blogs will attempt to paint a bleak (and often incomplete) picture to scare their viewers into hiring them, and paying their exuberant prices. (I’m lookin’ at you, America). It’s an inconsistent, ill-informed mess of a subject.
Our mission here at Risu Press is to empower our readers in their pursuit of success in the Japanese culture by providing them with useful, actionable, and relevant information. In this guide, we will do our best to provide an easily digestible outline of the Japanese social tax system to save you from massive headaches down the line. This will cover everything from income tax, to residence tax, to insurance and pension premiums, and all of the small details in between.
No, this is not a sexy subject.
Yes, we also prefer reading manga, memorizing Japanese slang, and even learning about the complex history of kanji (and lording it over our friends who don't know the complex history of kanji). But all of that pales in comparison to the subject of taxation for immediate and long term impact on our financial health. Plus, if you get this down well enough, you can lord your grasp of tax knowledge over your friends too! So ignore at your own peril, or read on to take real control over your tax obligations once and for all.
Before we get to the juicy stuff, (we know you’re just here for the titillating 専門用語 "sen-mon-yō-go" after all), let’s talk about why this is important for YOU, right now, no matter how you make your income.
Ignorance is NOT Bliss in Taxation — How Not to Have Your Moneys Taken Senselessly
Let’s start out with a basic assumption: most people have very little idea how the taxation system works even in their own country.
Why would they? It's a system made of rules and loopholes that shift like sand in the desert, and are encrypted in dense, specialist language. It only makes sense to leave its deciphering to the professionals. When asked, most civilians just defer to their employer or to their tax accountants who are supposed to “take care of it for them”.
There’s nothing wrong with that. As we stated above, we encourage our readers to seek professional council on these matters. But there’s a difference between strategically deferring the fine print details to a specialist who you trust, and being completely tax illiterate. The amount of times this writer has heard the following cop outs from people of all different socioeconomic statuses is astounding:
- “I don’t know, my employer handles all that stuff. I think it just gets taken out of my paycheck."
- “I mean, I won’t get any money back on my, erm… ’tax return’ is it (?) anyway, so why bother?"
- “I just hand all of my papers over to my accountant, and he does the rest"
- “The laws change every year anyway, so why bother learning them?"
- “Yeahhh, when I start my own business and start making a real profit, I'll learn about all that stuff"
- “I’m an employee, so it’s not my responsibility"
- “I dunno man, I just pay the slips when they come in the mail. It’s like ￥120,000 all together, right?"
This isn’t a class thing. It's true across the board.
From part time eikaiwa teachers to the loftiest CEOs, and every level in between, misinformation abounds.
However, tax literacy is an integral aspect of financial literacy, and financial literacy means the difference between vacations in Bali and living hand-to-mouth, or worse, having your accounts drained and being to summoned to court. Claiming to have a good handle on your finances without having a solid grasp on how taxation works is like claiming that you're fluent in Japanese without ever having learned basic adjectives, and how to conjugate them. Go try describing the weather without knowing words like 暑い (atsui: hot) and 寒い (samui: cold) and you’ll know what I mean.
Luckily for us, the inverse-opposite is true as well: there are people at all levels of the socio-economic scale who reap massive benefits from being even just the slightest bit tax literate.
Again, this isn’t a class thing. We’ve known English teachers who claim massive tax refunds just by keeping their pay slips and train fare receipts. We’ve seen businesses that have survived their first tumultuous years just by writing off the proper expenses. We’ve met freelancers who are exempt from residence taxes just because they kept a solid set of auditable books, or who legally and transparently circulate money back into their businesses to upgrade their service and equipment. Without a little bit of research and foresight, they would have forked that cash over to the government for no good reason!
How about a moment of silence for all the tax payer money wasted on extravagant olympic stadiums and “two-masks-per-household" public health bail out programs… Gone, but not forgotten.
Here, Have Some More Incentives. There's Plenty to Go Around!
In case you’re not convinced, here are a few more concrete examples of how becoming tax literate (or choosing to remain illiterate) can directly impact you.
If you work for a company as an employee, being tax literate means you can:
If you're a business owner or freelancer, being tax literate is a MUST because you can:
Choosing to remain tax illiterate will likely doom your business and finances because you will likely:
We’re not making this up. This isn’t conjecture.
This writer is speaking from experience — I have experienced almost every tax whoa known to man just short of court summons and intentional tax evasion, and suffered the consequences. Some of our friends weren’t even so lucky. When it comes to taxes, ignorance is not bliss, and knowledge really is power.
This introductory post is the first in a long series which will cover all of the above in finer detail, and much more. The following post will begin with a break down of the basic structure of income taxes, which is something that surprising few people really understand.
Interested? Great! Now, let’s stop the bleeding.
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