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News

Income Tax Earned Income Deduction Changes

I am not sure how close you are to your Japanese income tax calculation but if you are an employee in Japan, the income tax is calculated on your salary minus an earned income deduction minus the usual exemptions and allowances (personal allowance, dependent relative allowance and so on) and then subject to national tax at various rates.
This unearned income deduction can actually be worth around ten percent of your salary, that is making that part effectively tax free. It was originally meant to represent some of the costs a salaryman might have in earning his salary, similar to the costs a small businessman may incur in running his business.
Well in line with the ongoing review of the tax framework in Japan, the authorities have announced that are planning to reduce it considerably over the next few years.
Details are not announced yet but one can assume it will lead to an effective increase in tax burden.
On a similiar note it was announced earlier this year that the temporary income tax cuts you may or may not be aware that you have been enjoyed and worth up to Yen 250,000 per person will be phased out from this year. (Written May 30, 2005)

Tax on Retirement Allowances in Japan to be Increased

According to newspaper reports, the tax authorities announced that they will be looking to restrict the favourable tax treatment of retirement allowances where the period of employment was only comparatively short.
Currently retirement allowance payments in Japan are effectively subject to income tax at half the standard income tax rates over and above a completely free element, which is based on number of years of employment.
The tax authorities feel that as a tax saving technique foreign companies in particular are paying out large sums at retirement, even in cases where the period of employment was short.
They are possible planning to introduce a minimum number of years service rule, below which payments would not qualify as retirement allowance payments.
They are looking to make the changes, when they have been finalised, to be effective from 2006. (Written May 25, 2005)