Nobody likes paying taxes, especially in Japan, where taxes are significantly high. As much as taxes are essential to keep economies running, it’s always a pain knowing that you “lose” part of your income to the taxman. Luckily, there are tax deductions you can use to save some money.
Whether you own a small business or are self-employed, you can find a way to reduce your tax bill in Japan. If you are a foreigner who lives live in Japan, which tax deductions can you claim? Let’s take a look at some of them.
Home Loan Tax Deduction
This is a pretty big one, and it applies to people that purchased their residence in Japan.
Currently, this deduction gives you 1% of the remaining home loan value (up to 40M JPY) per year as a tax credit for up to 10 years. So, for example, if you have a home loan of 50M JPY, you receive a pretty hefty 400,000 JPY credit every year for ten years.
Certain restrictions apply; for example, your home must be larger than 50 square meters and cannot be a certain age. This only applies to your primary residence, so you don’t get this on a holiday home, or an investment property. Also, if your taxable income is more than 30M JPY, you are not eligible. We recommend you check with your real estate broker or tax accountant to confirm whether you and your home qualify for this.
Resident taxpayers who earn an employment income are eligible for earned income deduction. This amount is deducted based on the amount of employment income you make. Therefore, you can claim this to reduce your tax bill.
A permanent or non-permanent resident employee can take an earned income deduction. The minimum standard deduction is JPY 550,000 or gross employment income, whichever is lower. The deduction is currently capped at JPY 1.95 million.
Spousal Tax Deduction
Japan has a spousal tax deduction that reduces the annual taxable income of the household’s primary earner. This reduction ensures that the main earner pays less in taxes.
Under the spousal tax break laws in Japan, the dependent spouse is making JPY 1.03M or less each year, the taxable annual income of the household’s primary earner is reduced by JPY 380,000. If the income is above 1.03 JPY, the taxpayer does not qualify for a deduction.
According to the Ministry of Finance in Japan, charitable contributions are eligible for tax deductions only if the charity organization is in Japan. The total deduction is restricted to 40% of the income less JPY 2,000. For instance, if you give a JPY 10,000 donation, you get a JPY 3,200 tax reduction.
The Tax Reform Act Japan defines this capital surplus. Therefore, if you make donations, you can reduce your tax bill. However, you first need to confirm if the charitable organization you choose is qualified.