Japanese income tax is charged on income for the calendar year. Employment income is taxed after a deduction for employment expenses, set by formula, and then personal deductions for the taxpayer, spouse, dependants and social insurance contributions. The rates rise in seven bands: 5%, 10%, 20%, 23%, 33%, 40% and 45%, with the 45% band starting at 40 million yen of taxable income. The tax is increased by a special reconstruction surcharge of 2.1% of the tax due. From January 2027 that surcharge falls to 1.1% and a new defence surcharge of 1% is added, so the combined rate stays the same while the reconstruction charge is extended to 2047.
What is taxed depends on residence status. Non-residents pay only on Japanese-source income, generally at a flat 20.42% for pay. Residents who are not Japanese nationals and have lived in Japan for five years or less out of the last ten are non-permanent residents: they are taxed on Japanese-source income and on foreign income only to the extent it is paid in or remitted to Japan. Everyone else is taxed on worldwide income.
For 2026 the government raised the basic deduction and the minimum employment deduction, so a salaried person now pays no income tax on earnings up to 1.78 million yen. For senior employees the change is small; the marginal rates at the top did not move.
What it means for a foreign employer
- High rates are part of the returnee problem. Japanese professionals working abroad who are asked to come home face high Japanese tax as well as a smaller local package. That double penalty is why repatriation rarely works as a hiring strategy unless family reasons are already pulling the person back.
- Gross offers need a net view. At senior levels, combined income and inhabitant tax take more than half of each additional yen, before social insurance. Compare offers on net pay, especially against Singapore or Hong Kong.
- The first five years have an advantage. A foreign hire who is a non-permanent resident is not taxed on foreign investment income left offshore, which matters to internationally mobile senior people.
- Equity from the parent is taxable. Shares and options from a foreign parent are taxed as employment income and usually need a personal tax return.
Sources
- Income Tax Act, Articles 2, 7 and 89.
- Special Measures Act for Securing Financial Resources for Reconstruction (special reconstruction income tax); fiscal 2026 tax reform legislation (defence special income tax from January 2027 and the 2026 changes to the basic and employment deductions).
- National Tax Agency, income tax rate table.