(English) Japanese Withholding Tax – Concepts, Scope, Procedures
Case 10
I have started a business in Japan though I heard that a withholding tax has to be paid regularly. I understand that the withholding tax is imposed on salaries, however, I do not know how it should be paid. Could you explain the withholding tax payment process as well as other expenses which impose a withholding tax?
1. Withholding tax system
Under the withholding tax system certain types of income, such as salaries, interest, dividends and tax accountants’ fees determine the amount of withholding tax. Income tax withheld under this system is settled through a year-end adjustment or by filing a final tax return for the year, except forms of income such as income from interest subject to “separate withholding tax” that tax payment is completed only by withholding.
Persons obliged to withhold income tax and pay it to the government are called “withholding agents.” All payers of income subject to withholding are withholding agents, including schools, government agencies, and even individuals and non-juridical associations or foundations, as well as companies. However, salaries, retirement allowances, and remuneration/fees such as tax accountants’ fees that are paid by an individual who regularly employs no more than two domestic employees are not subject to withholding income tax.
2. Due date
A withholding agent shall in principle be paid by the 10th of the month following the month in which the income subject to withholding was paid.
If the due date is a Saturday, Sunday, or holiday, the next business day shall be the due date. If payment is not made by the due date, the withholding agent may in principle have to pay delinquent tax and additional tax for non-payment.
3. Submission of application form for withholding tax
A salary payer shall submit a “Notification on the Establishment of a Salary-paying Office” （給与支払事務所等の開設届出書）within one month of the date of occurrence of any of the following events:
(1) The establishment of a new office that handles salary payments (e.g. the establishment of a corporation or the opening of a branch or business office); or
(2) The commencement of salary payment handling activities by any branch, business office, or similar establishment.
Any withholding agent that pays salaries to fewer than 10 employees on a regular basis and submits an “Application for Approval Made in Relation to the Special Provision for Due Dates for Withheld Income Tax” （源泉所得税の納期の特例の承認に関する申請書）and obtains such approval may take advantage of a special provision regarding the due dates for income tax withheld from salaries, retirement allowances and remuneration/fees paid to tax accountants, etc. Under this arrangement, payment can be made twice a year, July 10 and January 10. Additionally, this rule is applied to only salaries, wages, retirement benefits and accountants’ fees, etc.
4. Scope of withholding tax
As mentioned above, the withholding tax is imposed to salaries, interests, dividends, accountants’ fees, etc. Basically, the withholding tax is imposed on service fees, however, it depends on the type of services and type of resident status. Therefore, it is recommended to check the type of fees and resident status upon each transaction.
5. Payment procedure
The withholding tax shall be paid at a local financial institution (such as a bank or post office) or over the counter at the competent tax office, together with submission of “Statement (Tax Payment Slip) of Collected Income Tax”（所得税徴収高計算書（納付書）).
By Certified Public Accountant (CPA) & Tax Accountant, Koji Takahashi
Tokyo & Yokohama
