Year-End Adjustment of Income Tax & Tax Return Procedure When Retiring OR Career Change (For Foreigners!)
What Is Year-End Adjustment?
In Japan, there is a tax on the income of an individual, which is called “Income Tax.”
There are 2 ways to pay the“Income Tax”
- Withholding：IF you work for a Japanese company, the company deducts “Income Tax” from your monthly salary and pays the tax office for you.
- Tax Return：IF you do not work for a company in Japan, you will have to “Confirm” your income & “Report” your income & tax payment to the tax office.
The year-end adjustment refers to the procedure that a company performs when withholding.
At the time of withholding, the amount of “Income Tax” deducted from the salary in advance every month is the amount calculated “Approximately” by the company based on the income of the previous year.
As a result, there may be a difference at the end of the year when the income of one year is confirmed. The year-end adjustment refers to adjusting the difference between the annual income tax deducted from this salary and the amount that should be paid originally at the end of the year.
In case of a tax return, this year-end adjustment does not occur because the income of one year is confirmed at the time of the declaration.
Withholding of foreign nationals and year-end adjustment
The treatment of income tax for foreigners is very different between residents and non-residents.
Let’s go on and check whether you are a resident or a non-resident!!!
Resident：（A person who applies to one of the following）
• A person who has an address in Japan
• A person who has lived in Japan for more than a year
• A person who DO NOT apply to the above
IN MOST CASES, foreigners who have obtained a status of residence that is permitted to work in Japan and have entered Japan are most likely to be RESIDENTS.
For A Resident
For foreigners who’d want to apply for a residency in Japan, the treatment of income tax is the SAME treatment Japanese citizens get.
IF you are enrolled in a Japanese company, income tax is deducted from your salary in the same way as Japanese employees, and you will make year-end adjustments as well.
HOWEVER, in the following cases, even residents may not be subject to withholding and year-end adjustments, so please BE CAREFUL!!!
- A person whose total salary that is determined to be paid more than 20 million yen in one year
- A person who has received a deferred collection OR refund of income tax and reconstruction special income tax for the year according to the provisions of the Disaster Reduction and Exemption Act
IF You Are A Non-Resident
IF you are a non-resident, you will not be able to carry out the year-end adjustment and only the procedure of withholding. Besides, the tax rate at the time of withholding is fixed, and it is taxed at 20.42%.
HOWEVER, income tax may be reduced OR exempted if there is domicile in the country where the tax treaty is conducted.
To use this system, it is necessary to submit a “Notification Form Concerning Tax Conventions” to the company in advance. As soon as you decide to join the company, submit the notification form to the company.
Year-End Adjustment Or Filing A Final Tax Return When Retiring In The Middle of The Year
REGARDLESS of nationality, IF you are a resident that enrolled in the company as of December 31st, including part-time workers, and those who are paid will be subject to year-end adjustments.
In other words, whether you are a foreigner or a Japanese, if you retire in the middle of the year, you must complete the “Year-End Adjustment” OR “Tax Return” procedure yourself. The contents of the procedure will change depending on the timing of your retirement or joining the company, so make sure you don’t make mistakes.
To Change Careers By The End Of The Year：Year-end Adjustment At The New Company
When you leave the company and change careers within the year, you will have to make year-end adjustments at the new company. To calculate the income tax by combining the salary of the previous company and the salary at your new company, it is necessary to submit a “Withholding Tax Form” to your new company.
(Withholding tax form: Is a document that describes how much salary you received per year and how much tax you paid.) It is one of the documents you will receive at the time of your resignment.
In this case, the company will take care of the procedure on your behalf, so follow the company’s instructions to submit the required documents. IF you have any questions, please MAKE SURE to check with your company.
IF You Pass New Years Without A Job：Tax Return
When you are not enrolled in any company as of December 31 after you left your old company, you will NOT have to make year-end adjustments, but oftentimes, you MIGHT be paying too much income tax.
We RECOMMEND that you file a final tax return on your own at the beginning of the year.
Let us get back to this later, but please be noted that the tax return requires few different documents you need to collect. Please take plenty of time to collect these documents.
When Departing (Becoming A Non-Resident From Resident)
IF you leave your company and return to your home country, please BE CAREFUL as the procedure of the final tax return & the year-end adjustment will change depending on the date of return. The procedure can be divided into 3 MAIN CATEGORIES.
① When You Depart After The Last Payday
Since you are in Japan at the timing of your last payday = (You are still a resident), withholding tax and year-end adjustment, including the last salary, will be made.
② When Your Depart before the Last Payday
When you leave Japan before your last payday, (Becoming a non-resident), the company makes year-end adjustments, excluding the salary paid on the last payday. For the last salary paid, you will be treated as a NON-REDINET, so you will be subject to a tax of 20.42%.
③ When You Are Paid After The Day of Your Retirement/Day of Departure
IF you leave Japan DURING the calculation of your last salary you become a (non-resident), the company makes the year-end adjustments, excluding the salary paid on the last payday. The salary paid after returning will be subject to foreign source income and not be taxable.
IF you can’t understand with the explanation above, it may be easy to understand assuming the actual date, so let’s take a look at the case below!!!
If the salary for February (February 1 to February 29) is paid on March 25
① If you leave Japan on March 31 (after the last salary payment date)
February salaries are subject to domestic withholding and year-end adjustments.
② IF you leave Japan on March 1 (Before the last salary payment date)
Since February’s salary is subject to withholding tax for non-residents, a flat tax of 20.42% will be applied. Therefore, not subject to year-end adjustments.
③ IF you leave Japan on February 10th (During the payroll period)
February salary is not eligible for withholding and year-end adjustment.
Documents Needed When Making Year-End Adjustments at your new company
When your new company makes year-end adjustments, you will need to submit the necessary documents from late November to December. In particular, care MUST be taken with the withholding tax form.
IF the time of your career change is at the end of the year, it may not be in time to receive the withholding tax form of the previous company. In that case, there is also a way to file a final tax return on your own at the beginning of the year.
BUT, PLEASE consult with your new company as soon as Business
Since the timing of the year-end adjustment can be made by foreigners in various dedications, let’s confirm that there is no leakage when writing necessary documents.
Also, if you have a family member or spouse who you are supporting outside Japan, please check the “About family support & deductions outside Japan” below.
Declaration of dependent deduction (transfer) for salary earners
This document is used to receive dependent deductions, etc. IF you have a family member who is taking particular financial care of your income, you can file a dependent deduction declaration here. You need to write the name, date of birth, my number, etc. of the family member you support, be prepared so that you understand EVERYTHING.
IF you have relatives who you are supporting outside the country, please fill in “○” in the “non-resident relatives” of the application form. In the “Facts to Make a Living” section, you fill the total amount of money you transferred to the relatives.
Insurance premium deduction declaration for salary earners
People with various types of insurance, such as life insurance, may be eligible for deductions. The insurance premium deduction report should include the name of the insurance company and the amount of the insurance premium.
Declaration of Spouse Deduction, for Salary Earners
IF you have a spouse, you may be eligible for deductions, depending on your spouse’s income. You will need to include your spouse’s name, date of birth, my number, and the income of the year.
IF you have a spouse who you are supporting outside Japan, you may be eligible for deductions by the application. When applying, please fill in the “Spouse who is a non-resident” column “○” and fill the amount of money you sent to the spouse in “The fact that you make a living” column.
Special deduction declaration of housing loans for salary earners (Specific extensions & renovations)
Once you have a mortgage, you may be eligible for deductions. When you receive a deduction, you must file a final tax return instead of the year-end adjustment for the first year. After the second year, you can receive deductions by year-end adjustment.
How To File A Final Tax Return if You’re Not Re-employed Within The Year
IF you’re not enrolled in a company as of December 31st, you will need to file a final tax return. Also, if the timing of the career change is not in time to submit a withholding tax form to the new company destination at the end of the year, OR if you forget to submit a “Declaration form for receiving retirement income”, you will also have to file a final tax return.
Because the withholding tax form is necessary at the time of the final tax return, let’s keep it safe where you won’t LOSE IT!!!
Since you have to do all the procedures yourself, you need to collect information. When you fail to file a final tax return, you will be asked to pay additional payments, such as “undeclared additional tax” OR “delinquent tax”. Let’s do the procedure firmly without leaving it on the back burner because it is a lot of TROUBLE.
The final return of retirement allowance & unemployment insurance
Foreigners may also receive retirement allowances and unemployment insurance at the time of retirement. IN THAT CASE, what will be the procedure for filing a tax return?
Retirement allowance: Submit a “Declaration on receiving retirement income” to your company. Your company that received the tax return also performs tax payment procedures with withholding tax on retirement allowances, so you DO NOT need to file a final tax return.
DO NOT forget to submit this declaration form because IF you forget it, 20.42% will be deducted as income tax, but you can receive a refund by filing your tax income.
Unemployment insurance: Unemployment insurance that foreigners can also receive does not need to be filed at the time of tax return.
Period of tax return
To file a final tax return, you must finish the procedures between February 16th ~ March 15. (There is a possibility that it may be back and forth depending on the day of the week, so it is necessary to confirm.)
IF there is a correction to the contents of the tax return, it is possible to correct it within the period. When you correct after the deadline, you may incur delinquent tax, so be SURE to declare it early with plenty of time.
The flow of The Tax Return
Obtaining the final tax return, preparing the additional documents, and submit it to the tax office within the period.
1. Identification Document：This is a document to confirm whether the person who is performing the procedure is him/herself. You need 2 types of documents (My Number Card, Resident Card) that can confirm your My Number and Identify Verification Documents (Residence Card, Passport, Driver’s License, etc.).
2. Seal：Please note that you cannot use self-inking rubber stamp (the mass-produced rubber stamp that can be easily impersonated) . If you are a foreigner living in Japan, many people do not have a seal. For foreigners, you can substitute it with a signature, so if you do not have a seal, you can go ahead and SIGN IT.
3. Declaration Form：This is a document that summarizes your income. The tax return is in A and B. The A style is for those who receive pensions, and B style is a general-purpose form that anyone can use, so if you are in doubt, choose B style. You can print the declaration form from the national tax agency page. When you apply online, you do not need to print.
（Reference：Tax Return National Tax Agency）
4. Something to prove your bank account：You will need something to know the account number of your bank account in your name.
5. Documents proving your income：You need documents that can accurately grasp your current income. People who receive a salary from the company submit withholding tax forms, payment records, etc.
6. Documents for receiving deductions： To receive the deduction, you will need a document that can prove that you are the person in charge of the deduction. Since it is obtained through the legal Affairs Bureau or a real estate company, let’s apply for issuance with plenty of time.
- IF the medical expenses exceed 100,000 yen (about 1000 US dollars)
- Medical expense statement
- Receipt of transportation expenses, etc.
- IF you are using a mortgage deduction for the first time
- Certificate of all matters of land & buildings
- Copy of land sales agreement
- Copy of building contract & trade agreement
【How To Submit】
To submit the needed documents to the taxation office, there are exactly 3 WAYS.
- Submit documents directly to the tax office that has jurisdiction over your address
- Use e-tax to process via the Internet
- Submitting the documents to the tax office by mail (you can send the documents to the tax office by mail and you can send back the receipt by placing a stamp on the return envelope and enclosing it. )
When you use e-Tax, which is an electronic tax return and tax payment system of the National Tax Agency, you can perform all procedures related to the tax return on the net.
At the time of registration, it is necessary to obtain a “User identification Number”, but this is also a very convenient system because it takes about 15 minutes to submit the “Embark notification form” online.
English? No Problem!
IF you have any tax relating questions, you can contact the National Tax Agency directly in English!!!
TOKYO REGIONAL TAXATION BUREAU:03-3821-9070
OSAKA REGIONAL TAXATION BUREAU: 06-6941-5331
NAGOYA REGIONAL TAXATION BUREAU: 052-971-2059
Support & Deductions For Family Members Outside of Japan
IF you have a dependent, you can receive a dependent deduction. In that case, you need to BE CAREFUL because the method of applying will change when the dependent is in Japan & overseas.
As mentioned above, if you have dependents overseas, you must prepare the “kinship documents” & “remittance documents” in addition to the deduction declaration form. You will also need a translation of these 2 types of documents.
What is the “Kinship Document”?
This is a document to confirm that the dependent is a relative. Documents (1) OR (2) MUST be submitted to the company (withholding obligor). In the case of a final tax return, the following documents will be submitted to the tax office along with other documents.
- A copy of the family register, other documents issued by the national or local public entities, and a copy of the passport of a relative living outside the country.
- The documents issued by foreign governments or foreign local governments are limited to those with the name, date of birth, address or residence of a foreign resident’s relative. Specifically, documents such as family register, birth march certificate, and marriage certificate are applicable.
※Multiple documents may be used together to use dependent deductions.
What is “Remittance Related Documents”?
This will be a document to see if you have paid the cost of living, education, etc. of a relative outside the country that year. Specifically, documents such as a receipt for a foreign remittance and a credit card statement are applicable.
You can check the national tax agency’s website and Q&A for more information on the deduction for dependents from overseas.
Don’t Forget To Adjust Your Year-end Adjustment & Final Tax Return When You Retire!!
Tax-related procedures are particularly complicated and time-consuming in various procedures that occur due to changing careers.
HOWEVER, if you forget the procedure or leave it to do for later, you may lose money, or you will not be able to receive a refund.
Depending on the situation, the procedure will be different, so check what you need to prepare so you can have plenty of time to go over the year-end adjustment and final tax return procedures.