Taxes in Japan and declaring back home
Maintaining your finances can be ‘taxing’ enough without the additional hurdles of a foreign language and unfamiliar accounting practices. As all Gaba instructors are expected to comply with Japanese tax laws, we have included a basic guide. It’s really not that complicated!
Depending on the nationality of the instructor, there may or may not be the need to declare income earned in Japan back in the country of citizenship. Below the guide to Japanese taxes are links to explanations for several of the most common nationalities amongst Gaba instructors. Dutch, French, German, Singaporean, and Swedish instructors are directed to the United Kingdom page.
Please be aware that tax laws are subject to periodic change and it is the responsibility of the instructor to stay current and compliant.
Japanese Taxes
1. Withholding tax/income tax “shotokuzei” (所得税)
Yes, there is income tax in Japan. Gaba deducts a flat 10.21% of monthly earnings for this purpose. What this means is that instructors can expect to take home almost 100% of their gross earnings on a monthly basis (10% consumption added, 10.21% withholding tax deducted for a take-home of 99.79%).
The “withholding tax” is paid to the government on behalf of the instructor. In December of each year, Gaba provides all instructors with a shiharai chousho (支払調書) , which roughly translates to annual tax report. From this, you can see how much you have earned over the year and how much withholding tax you have paid.
Believe it or not, filing withholding taxes is relatively straightforward in Japan. Tax time is from mid-February to mid-March; it’s a matter of visiting the ward/city tax office with the aforementioned shiharai chousho and receipts for any deductions to be claimed. The staff there are willing and eager to assist with the paperwork. Deductions can include travel expenses, suits, and just about anything else that is essential to teaching at Gaba. There is also a separate section on the form for those enrolled to deduct National Health Insurance contributions.
Following deductions, calculations are made to determine how much income tax is owed. If the amount is less than what was already withheld by Gaba, the instructor will receive a tax refund, which is usually deposited directly into the bank account a month after filing. Indeed, the 10.21% that was withheld each month is generally more than enough to cover the majority of instructors’ dues. One common reason why further taxes might be owed is that the instructor has sources of income other than Gaba and has not had a portion of this income withheld for tax purposes. In such an event, the instructor should be prepared to pay.
Most tax offices will have at least one employee who can speak English and who will be on hand to help any non-Japanese citizens to fill out the forms.
2. Consumption tax “shohizei”(消費税)
Instructors are independent contractors and Gaba is ‘buying’ from instructors ‘lesson services’ for its clients. As the purchaser, Gaba is obliged to pay instructors consumption tax, currently 10%. Through Gaba’s system, instructors invoice Gaba for the lesson services they provide and, on the 25th of each month, receive payment for all lessons taught in the previous month. Consumption tax is added to the lesson payment.
To contract with Gaba, instructors need to be registered as Qualified Invoice Issuers within the Japanese government Qualified Invoice System. Qualified Invoice Issuers report the consumption tax they receive from Gaba through a separate tax filing each year and pay a portion of this tax to the government.
Registering to be a Qualified Invoice Issuer is a simple and free process that can easily be completed when first contracting as a Gaba instructor for those who are not already registered.
3. Resident tax “juuminzei” (住民税)
Instructors will also be responsible for paying resident tax in their ward/city. The amount due is calculated from the previous year’s taxable income (i.e. income after any deductions have been made). Payment can be made in one lump sum or in four installments throughout the year. The payment slips for resident tax are usually sent directly to the instructor’s home in June for payment at a bank or convenience store. Whilst how much instructors need to pay will vary depending on circumstances, it is usually around 10% of taxable income.
It is important to pay resident tax as it is a legal requirement for all citizens living in Japan. If an instructor is unable to make the payments for any reason, the instructor should seek consultation at the tax office to explain the situation.
Australia
Instructors from Australia may or may not need to declare their Gaba income when filing their tax returns in Australia. This is dependent on whether or not the instructor is considered to be a resident for tax purposes in Australia. In order to decide this, you will need to complete a questionnaire which can be found online.
If you are not considered to be a resident for tax purposes, you do not need to declare your Gaba income and will not be required to pay any further income tax.
If you are a resident, you will need to declare your Gaba income when filing your tax return in Australia. This is usually due by October 31st. Since all instructors pay a 10% withholding tax, this can be claimed as a foreign income tax offset to avoid paying tax twice on the same income. Claiming up to AU$1000 is fairly straightforward. However, if you are hoping to claim more than this, you will need to calculate your foreign income tax offset limit.
Please visit http://www.ato.gov.au/ for any additional information
Canada
Instructors from Canada may or may not need to declare their Gaba income when filing their tax returns in Canada. This is dependent on whether or not the instructor is considered to be a resident for tax purposes in Canada. In order to decide this, you will need to complete form NR73 which can be found at www.cra.gc.ca.
If you are not considered to be a resident for tax purposes, you do not need to declare your Gaba income and will not be required to pay any further income tax.
If you are a resident, you will need to declare your Gaba income when filing your tax return in Canada. Fortunately, there is a tax treaty between Japan and Canada to avoid double taxation. Due to the nature of the Gaba contract, as long as instructors do not have an office back in Canada from which they teach, Gaba income will not be taxable in Canada.
New Zealand
There exists a Double Tax Agreement between Japan and New Zealand which states that all independent contractors are exempt from income tax in New Zealand as long as:
you are in New Zealand for 183 days or less in any 12-month period or income year, and/or,
you do not have a fixed base in New Zealand. Therefore, instructors who meet these requirements do not need to pay any further income tax in New Zealand on their Gaba income. If the above criteria are not met, Instructors will need to complete a questionnaire to determine whether or not they are a resident for tax purposes in New Zealand, which can be found here.
If you are not considered to be a resident for tax purposes, you do not need to declare any income earned outside of New Zealand and will not be required to pay any further income tax.
Instructors who are determined to be a resident for tax purposes in New Zealand will need to declare their Gaba income on their tax return. However, any tax paid in Japan is able to be used as a tax credit in the income tax return.
For more information, please visit http://www.ird.govt.nz/.
United States
According to US tax law, all income earned by US citizens, including foreign income, is subject to income tax in the US. Therefore, instructors from the US need to be prepared to file taxes on their Gaba income. This is generally due by April 15th of the following year though this can be extended to as late as December 15th with the permission of the IRS.
However, there is an upside. Instructors may qualify to treat a certain amount, if not all, of their Gaba income as not taxable by the US. In order to be eligible, instructors must either pass the ‘Bona Fide Residence Test’ or the ‘Physical Presence Test.’ To find out whether or not you meet the criteria, look for more information here.
Gaba income may also be subject to state income tax. This varies from state to state, so it is recommended that instructors contact the state in which they were most recently a resident to find out whether or not they need to file a state income tax return.
For more information, and access to all official forms, please visit www.irs.gov.
Other Nations
The following countries do not require citizens to pay income tax on foreign earned income:
- The UK
- The Netherlands
- Singapore
- Germany
- Sweden
Please note that there may be exceptions and you may be required to inform the taxation office of your move to Japan. Gaba, therefore, recommends that all instructors do their own research and speak to a tax representative in their own country to confirm their obligations.