What Types of Tax Returns Are There In Japan?
For many employees in Japan, chances are that they don’t even have to touch tax returns (確定申告, Kakutei Shinkoku). Normally, the employer (or his or her accountant) fills out a tax return for each employee. This is typically “Tax Return A” (確定申告Ａ, Kakutei Shinkoku A), the simplest one. The employee just comes in, does his or her job, and doesn’t have to worry about a “W-2” or a “1040EZ” the way an American worker has to. However, what if your income situation in Japan is more “non-traditional?” If so, you’ll very likely need to file a tax return.
Who Has To File Tax Returns?
First of all, even if you don’t live in Japan, you still must file a tax return for income earned in Japan. Whether income in Japan is taxable, whether income abroad is taxable, or whether both are taxable depends on tax residency. Someone is a “permanent resident for tax purposes” if he/she has lived in Japan for five out of the past ten years. This is regardless of nationality. Please be careful not to confuse this with “permanent resident for immigration purposes;” they’re two very different things.
For those who live in Japan, their employers usually take care of filing tax returns. This is regardless of whether or not they‘re “permanent residents for tax purposes.”
However, there are the following exceptions:
- He/she has multiple employers. Maybe she works for an English school here, does a translation job there, etc. In this case, she needs to file her own tax return.
- He/she has a side income of >¥200,000. If you’re making significant returns in real estate, this means you. Even if you just rent out a single one-room or 1K, this is probably you.
- He/she plans to leave Japan on/before December 31 of the current year. The reason for this is that December 31 is the end of the tax year. In other words, if he/she plans to leave Japan by the end of the tax year, then he/she needs to file one.
- His/her employer doesn’t withhold taxes. For example, an employee has a salary of ¥250,000 yen per month. Every month, precisely ¥250,000 shows up in his bank account, with not even ¥1 taken out. In this case, the employee would have to file a tax return. This can happen in Japan, or perhaps the employer is outside of Japan.
- His/her income is >¥20,000,000 for that tax year (the tax year runs January 1-December 31). Hopefully, at this income level, she’ll be able to fill out a Japanese tax return. Or at least she can hire an accountant or other tax professional who can.
For an above-listed situation, the most common type of tax return is Tax Return B (確定申告Ｂ, Kakutei Shinkoku B). Anyone can use B. However, B is more complicated than A, so for individuals with a relatively simple financial situation, A is preferable. B is usually better for freelancers, sole proprietors, etc.
What Type Of Tax Return Should You File?
If you choose “B,” then there are two tax forms from which you can choose. They’re the White Tax Form and the Blue Tax Form. Each one has pros and cons.
In certain cases, you should file a “White Tax Form” (白色申告, Shiro Iro Shinkoku). The “White Tax Form” is simpler.
White Tax Form Pros:
- It’s simpler, less complicated. Whereas a Blue Tax Form requires basic accounting knowledge, (double-entry) bookkeeping, and (general) ledgers, the White Tax Form does not.
- It has generous deductions for dependents. There’s an ¥850,000 deduction for a spouse. There are further ¥500,000 deductions for each dependent family member or relative.
- It requires no prior approval. Just file it between February 16 and March 15 the year after you earned the income.
White Tax Form Cons:
- It has no special deductions. If you’re single and have no children, then you don’t need the deductions for dependents on the White Tax Form. It would be much better for you to get the Blue Tax Form’s ¥650~750,000 special deductions.
- It doesn’t allow the range of business-related deductions of the Blue Tax Form.
You should file the “Blue Tax Form” (青色申告, Ao Iro Shinkoku) in certain cases requiring a more complicated tax return. The category you should concern yourself with for real estate purposes is called “income” (給与, kyūyo). Employment income (e.g. from salaried work as either a full-time or part-time “employee”) falls under this category. So does real estate investment income.
Blue Tax Form Pros:
- It allows deductions for more things. You can claim many home expenses, such as utility bills, as deductions if your home is a home office.
- It has special deductions. Sure, you can’t get a spousal or dependent family member/relative deduction as with the White Tax Form, but… You get ¥650,000 by default. If you use “simple bookkeeping,” you’ll get another ¥100,000 deduction.
- It allows you to roll over profits and losses. Just as the tax office doesn’t really care if this is the year of the Rat or the Ox, if you’re filing a White Tax Form, they also don’t really care if this is a year of profit or a year of loss. However, with the Blue Tax Form, they allow you to roll over your profits/losses. You can spread them more evenly over three years.
For example, James and John are both real estate investors. Both of them lost ¥10,000,000 in 2018. However, both of them profited, with a taxable income of ¥10,000,000 in 2019.
James files a White Tax Form. In 2018, he pays nothing. In 2019, he pays a marginal tax rate of 33%.
What about John? Well, he files a Blue Tax Form. He’s able to roll over his 2018 loss:
-¥10,000,000 (2018 loss) + ¥10,000,000 (taxable income from 2019 profit) = ¥0 taxable income (2018-2019)
His taxable income is ¥0 overall in both years, so in both 2018 and 2019, he pays no income tax.
Blue Tax Form Cons:
- It’s more complicated. It requires basic accounting knowledge, (double-entry) bookkeeping, and (general) ledgers.
- It has no deductions for dependents. You don’t get to deduct ¥850,000 for a spouse or ¥500,000 for other dependent family members/relatives.
- It requires pre-approval. E.g., if you want to file a Blue Tax Form in 2025, you need pre-approval by March 15, 2024. Otherwise, you’ll have to wait until 2026 to use it.
Can I Start With The White Tax Form, For Simplicity’s Sake, And Use The Blue Tax Form Later On?
Yes, this is possible. Make sure to mind the deadline above.
If The Blue Tax Form Is More Complicated, How Do I File It?
The Blue Tax form is more complicated, but the rewards often outweigh the complexity. However, to file it, you’ll need a Balance Sheet (賃借対照表, Chinshakutaishōhyō) and a Profit and Loss Statement (損益計算書, Son’ekikeisansho). Get a tax professional to do it for you. Alternatively, there are software packages available that simplify the process greatly, such as Yayoi and freee. However, they’re only in Japanese.
What About Selling A Property, Is There Anything You Need To Do With Your Tax Returns?
When buying/selling a property (land and/or buildings), there may be capital gains or losses. These matter on your taxes. If transferring, file Tax Return For Separate Taxation/Declaration Table 3 (申告書第三表（分離課税用）, Shinkokusho Daisanhyō (Bunrikazeiyō)).
Where And When Do You File Your Tax Returns?
File your taxes at the tax office (税務署, zeimusho) or using the e-Tax system online. If you prefer, use a local Japanese tax professional instead.
The window to file your tax return is February 16-March 15, in principle. However, if the start or finish date is on a weekend or national holiday, the filing window may be narrower. For example, in 2020, the window will be February 17-March 14, because both start and finish dates fall on weekends. If you pay by automatic bank transfer, then the last time to do this is in the middle of April.
Note that pre-payment may be a requirement if you made income the previous year. This is “yotei nōzei” (予定納税).
What Types Of Tax Returns Are There In Japan? Conclusion
Usually, salaried employees in Japan don’t file their own tax returns; their employers file Tax Return A. For freelancers, sole proprietorships, etc. (including real estate investors), Tax Return B is usually the better choice. Within Tax Return B, there is the simpler White Tax Form and the more complicated Blue Tax Form. The Blue Tax Form generally allows more deductions and rolling over profits and losses, reducing overall taxation. It’s usually the better choice for a real estate investor. However, it’s more complicated, so either learn basic accounting, keep the proper records, and/or use an app such as Yayoi or freee, or hire an accountant/tax professional. If transferring land/buildings, remember to file Tax Return For Separate Taxation/Declaration Table 3.