What are the main types of taxes I need to pay in Japan? (e.g., Income Tax, Resident Tax)

Hello! If you've just arrived in Japan or are preparing to come, the topic of "taxes" might seem overwhelming. Don't worry—for most of us salaried workers, the process is simpler than you think. Let me break down the main taxes you need to know about, so you have a clear picture.

The Two Core Taxes: Income Tax & Resident Tax

These are the "big ones" that come out of your income and are the most important to understand.

1. Income Tax (Shotokuzei)

What is it? This is tax paid to the national government, calculated based on your personal income in the current year. The higher your income, the higher the tax rate. Think of it as Japan's "personal income tax."
How do you pay? If you're a company employee, it's very straightforward. Your company estimates the amount based on your salary, dependents, etc., each month and deducts it directly from your paycheck. This process is called "Withholding Tax" (Gensen Chōshū).
What happens at year-end? At the end of the year, your company performs a "Year-End Tax Adjustment" (Nenmatsu Chōsei). This is like an annual settlement, comparing the tax you actually owe for the year with the tax you pre-paid each month. Any overpayment is refunded, and any underpayment is collected. For example, if you paid for life insurance or supported dependents during the year, you can declare these to reduce your tax. Most people get a small refund.

In short: Income Tax is paid to the national government based on current year income. Your company pre-pays it monthly, and it's settled at year-end.

2. Resident Tax (Jūminzei)

What is it? This is tax paid to your local government (e.g., your city or ward). This money primarily funds local public services like garbage collection, schools, libraries, park maintenance, etc.
How do you pay? This is the tax salaried workers often find confusing and are most likely to be "surprised" by.

The key characteristic of Resident Tax is: It is calculated based on your income from the [previous year] and paid in [the current year].
An example to make it clear: Suppose you started working in Japan in April 2023.
- 2023: You just arrived. Since your income in Japan for 2022 was 0, you do not pay Resident Tax this year. Your take-home pay feels relatively high, and life feels great.
- Starting June 2024: The tax office calculates your Resident Tax based on your total income for 2023. Then, starting in June 2024, this tax is divided into 12 monthly installments and deducted from your salary by your company.

Key point: Many people working in Japan for their first year think, "Huh? Why haven't I paid this tax?" and feel their tax burden is light. But don't celebrate too soon—the "surprise" bill arrives around June of the second year. You'll suddenly see a noticeable chunk missing from your monthly take-home pay because of this tax.

Other Taxes That Affect You Daily

Besides the two big ones above, here are others you'll encounter almost every day.

3. Consumption Tax (Shōhizei)

This one is very familiar, similar to VAT in China or sales tax in the US. When you buy any goods or services in Japan, the price labeled "税込" (zeikomi) is the price including consumption tax. The current rate is 10% for most goods and services (8% for some daily necessities like food and beverages). It's the most invisible yet ever-present tax.

4. Social Insurance Premiums (Shakai Hokenryō)

While technically not called a "tax," it's a significant mandatory deduction from your salary each month, just like taxes, so it must be mentioned here. It mainly includes:

Health Insurance (Kenkou Hoken): Ensures you only pay 30% of medical costs when seeing a doctor in Japan.
Employees' Pension Insurance (Kōsei Nenkin): Pension contributions for your retirement.
Employment Insurance (Koyō Hoken): Provides unemployment benefits if you lose your job.
Long-Term Care Insurance (Kaigo Hoken): Paid by those aged 40 and over to fund future nursing care services.

This amount is typically split 50/50 between you and your employer and is also deducted directly from your salary.

Summary & Important Tips

For an ordinary salaried worker, the main things you need to focus on are:

Income Tax: National tax, paid on current year income, withheld by your company.
Resident Tax: Local tax, paid in the current year based on last year's income, withheld by your company. This is key!
Consumption Tax: Automatically paid when you buy things.
Social Insurance: Mandatory deductions from your salary for healthcare and retirement.

Advice for you:

Be mentally prepared for your salary to "shrink" in your second year. This isn't a pay cut; it's just you starting to fulfill your Resident Tax obligation.
If you are self-employed or have significant side income, you need to file your own tax return, called "Final Tax Return" (Kakutei Shinkoku), every year between February and March.
If you plan to leave Japan, make sure to settle your final Resident Tax payment, or you might face issues. Usually, your company will deduct it in one lump sum from your final paycheck or severance pay.

I hope this explanation gives you a clear understanding of taxes in Japan!