Withholding Income Tax in Japan: A Guide for New Business Owners

Hi, my name is Taisei Koshida, and I am a certified public accountant and licensed tax accountant in Japan.

I help foreign business owners navigate Japan’s tax system in English. If you find Japanese tax procedures or paperwork challenging, I can assist you with your accounting and tax filings.

If you are unsure when withholding income tax applies in Japan, this article explains the basic rules for business owners.

What Is Withholding Income Tax?

Withholding income tax is a system under which a business deducts income tax from certain payments, such as salaries or professional fees, before paying the recipient. The business then pays the withheld tax to the Japanese tax office on behalf of the recipient.

This system helps ensure that income tax is collected throughout the year rather than all at once when an individual files a tax return.

When Must Withholding Tax Be Paid?

In general, withheld income tax must be paid to the tax office by the 10th day of the month following the month in which the payment was made.

However, small businesses that meet certain requirements may apply for a special payment schedule. Under this system, withholding taxes are paid only twice a year instead of every month, which can significantly reduce administrative work.

Due Dates for Filing and Payment

If you are eligible for the special payment schedule, the due dates are generally as follows:

• By July 10: Withholding tax for payments made from January through June.
• By January 20 of the following year: Withholding tax for payments made from July through December.

If you are not using the special payment schedule, withholding tax is generally due by the 10th day of the following month.

Missing these deadlines may result in penalties and interest, so it is important to make payments on time.

Businesses Required to Withhold Income Tax

Both sole proprietors and corporations that employ staff are generally required to withhold income tax from salaries.

Payments made to an independent sole proprietor for business services are generally not treated as wages, so withholding is usually not required. In contrast, salaries paid to a corporate director or company president are subject to withholding income tax.

Individuals Subject to Withholding Tax

Individuals subject to withholding income tax include directors and employees who receive salaries, as well as certain licensed professionals—such as certified public accountants, tax accountants, attorneys, and judicial scriveners—who receive professional fees.

Sole Proprietors Without Employees

A sole proprietor who does not employ anyone is generally not required to withhold income tax when paying professional fees, such as accounting or tax advisory fees.

For more information about filing and paying withheld income tax, please see our related article:

Understanding Japanese Taxes: Year-end Tax Adjustment

Our accounting firm has extensive experience assisting foreign business owners in Japan with accounting and tax matters.

If you have any questions about withholding income tax or other Japanese tax obligations, please feel free to contact us through our inquiry form.