Taxable Income

IMPORTANT NOTE: The information on this page is NOT financial or tax advice and does NOT replace a tax accountant. Some of this information may be incorrect. If you learn something that conflicts with anything on this page, let us know! You are responsible for correctly filing your own taxes. Use this guidance at your own risk.

There are two main taxes to be filed in Japan that you should be aware of:

1. Shotokuzei (income tax) - paid to the national government
2. Jūminzei (resident tax) - paid to the local government (prefecture/city)

The tax return you're required to file depends on your taxable income. The steps for finding your taxable income are the first four steps of filing an income tax return:

1. Seperate any taxable gifts, as well as any non-taxable income, from your overall income
2. Find out your amount of taxable income
3. Subtract necessary expenses from your taxable earnings to get your income
4. Subtract any income tax exemptions and deductions to get your taxable income

If your taxable income is more than ¥1000, you owe income tax and must file an income tax return. You also owe resident tax but do not need to file a separate resident tax return. Your local government will use your income tax return to decide how much resident tax you owe.

If the result of your calculations is ¥1000 or less, your taxable income is considered ¥0, so you don't owe income tax. But if you were living in Japan on 1 January*, you still need to file a tax return. You can either file an income tax return or a resident tax return. The tax return you choose will not change how much tax you owe, but the resident tax return is simpler to fill out. (Of course, if you file an income tax return, you won't be charged any income tax in this case.)

Gifts and Non-Taxable Income

Gifts vs Earnings

The Japanese government taxes gifts separately from income, but only if you receive more than ¥1,100,000 over the tax year. As a YWAMer, some money people give you might be gifts rather than earnings. Excluding these gifts when you calculate your earnings will lower how much income tax you owe. To tell between the two, ask yourself two questions:

1. Who gave you the money? If it's from a group, it's an earning, not a gift. (Money from your sending church are earnings. So is money that comes through organisations like EquipNet or Stewardship.)
2. Did you do something to receive the money? If so, it's an earning, not a gift.

It's not always clear what's a gift and what's an earning. For example, if a friend sends you money, is it to pay you for your work, to fund your work, or to help you with living expenses? The tax office says we should usually classify the support we receive as earnings. So it may be better to also consider the money received from individual supporters as earnings, unless they specifically tell you it's a gift.

Non-Taxable Gifts

If you're from outside of Japan and a gift (not an earning) is sent from overseas, many gifts you receive may not be taxed.

A gift you receive is not taxed if you:

• Are not a Japanese citizen
• Have not lived in Japan for more than ten years in the last 15 years

And the person giving the gift:

• Does not live in Japan
• Has not lived in Japan as a Japanese citizen in the last ten years

Tax-Free Money

There are several other situations where you can receive a tax-free payment. Two relevant ones for YWAMers are:

• Money from immediate family members for daily expenses or education
• Money specifically designated to fund work for the public good, including religious work

For the first situation, the money has to come directly from a family member, not through a group. The second situation describes, for example, designated donations set aside to fund one of your ministries or a mission trip (not general "missionary work").

Gift Tax

After separating gifts from your earnings, and taxable gifts from tax-free money, add up the taxable gifts. If the total is less than ¥1,100,000, you do not need to file or pay gift tax. If you need to file a gift tax return, check the NTA website for guidance.

Taxable Income

When to Start Filing Tax Returns

Most YWAMers only have to start paying taxes on their income starting their second year in the country. You begin earning taxable income in Japan when you arrive, so any income from before your arrival should be taxed overseas.

If you moved to Japan recently, you first need to find out when you should start filing tax returns. This mostly depends on the day you moved to Japan. For example:

• 1 January - You will need to file a tax return during this year's tax season. You did not earn any taxable income in the previous year, so you will not owe any taxes. But you'll miss out on health insurance discounts without filing a tax return anyway. You will report your income for all of the current year at the next year's tax season.
• 2 January - Ignore this year's tax season, as you did not earn any taxable income during the previous year and were not living in Japan on 1 January. Report your 2 January to 31 December of the current year's income during next year's tax season.
• 1 April - You missed this year's tax season. Report your 1 April to 31 December income during next year's tax season.

For each example above, you would only have to begin paying taxes, if you owe any, starting in the following year.

Residential Status and Taxable Income

Though Japan's taxes are residency-based, some of your income may not be taxable in Japan, depending on your citizenship and when you moved to Japan.

The National Tax Agency (NTA) considers you a non-permanent resident if:

• You're not a Japanese citizen and
• You've lived in Japan for less than five years in the past decade

Non-permanent residents must pay taxes on domestic income, foreign income paid in Japan, and foreign income remitted (or sent) to Japan. But they do not need to pay taxes on foreign income if it's left overseas.

The NTA considers you a permanent resident (no relation to the immigration status of the same name, confusingly) if:

• You're a Japanese citizen or
• You've lived in Japan for more than five years in the past decade

Permanent residents must pay taxes on all their global income, no matter where it was earned or received.

Domestic vs Foreign Income

The source of your income (domestic or foreign) is where you worked, not where the payment came from or where you received the payment.

All income earned by working in Japan is considered domestic. So, the money you get for being a missionary in Japan is domestic income. It does not matter if the person or group paying you is overseas. Neither does it matter whether the bank account you receive the money in is overseas.

Even if you live and work in Japan, you may still have foreign income if you made money while on an overseas trip. You may also have foreign income if you have assets or investments overseas. All foreign income like this is taxed if you're a permanent resident. But if you're a non-permanent resident, only foreign income paid in or sent to Japan is taxed.

How to Calculate Foreign Income Sent to Japan

Remember, Japan taxes the foreign income of a non-permanent resident only if it's paid in or remitted to Japan. It's not hard to calculate how much of your foreign income got paid into a Japanese bank account—you can add the payments. But how do you calculate how much of your foreign income you sent to Japan? Your foreign income is most likely going into a bank account together with savings from previous years. Asking if a transfer was part of your income for the tax year is like asking if a cup of lake water is rain from this year.

So, rather than look at individual transfers, the NTA looks at how much money you send to yourself from abroad over a year:

Total amount sent to Japan during the tax year - domestic income paid overseas = foreign income sent to Japan

With this formula in mind, let's consider an example. Imagine your total income for a year was $13,000. Of this, $8,000 was support for your mission work paid into an overseas account, and $5,000 was for a property overseas that you own and rented out. You sent a total of $10,000 to Japan over the year. In this case, the foreign income ($5,000) counted as sent to, and thus taxable in Japan, is $2,000 ($10,000 − $8,000).

When calculating how much money you sent/remitted to Japan, you need to consider transfer services such as Wise and PayPal, using (including withdrawing cash) a foreign credit/debit card, and traditional bank wire transfers. These all count as sending money to Japan.

Categorising Your Earnings

One of the first things to include in your tax return is how much of each category of earnings you made in the tax year.

As YWAMers, most money we earn does not fit neatly into the typical earnings categories. That means most of the support you get will likely fall into the catch-all category of "miscellaneous earnings."

Payments from Groups:

• "Employment Earnings" (Row オ in the income tax return) — Money you receive from an employer, like a salary or bonus. You might receive these if you're in an employment contract as a pastor or worship leader. The group paying you this kind of earning should give you a form like the gensen chōshūhyō (源泉徴収票) or the U.S. W-2.
• "Occasional Earnings" (Row サ in the income tax return) — Money you receive from groups like a church without doing anything in return. You do not need to report these earnings in your tax return unless you get over ¥500,000 in a year.

Payments from Groups or Individuals:

• "Miscellaneous Earnings (Operations)" (Row キ in the income tax return) — Money you get for work, like giving a lecture or leading worship.
• "Miscellaneous Earnings (Other)" (Row ク in the income tax return) — Money that does not fit into any other category.

There is no clear line between the two miscellaneous earnings categories above. The NTA website says income from personal dealings like babysitting or tutoring can go into either of the categories. But two factors might help you decide between the two:

• "Miscellaneous earnings (operations)" is the category for earnings that fail to qualify for "business earnings." So, this category seems like the best place to put the money you earn providing a specific service.
• You can subtract necessary expenses from "miscellaneous earnings (operations)" but not from "miscellaneous earnings (other)." That suggests you could include general missionary support in "miscellaneous earnings (operations)."

For either of these two miscellaneous earnings, you might get a shiharai chōshō (支払調書) or a U.S. 1099-NEC.

Remember, donations from individuals for a ministry or mission trip are tax-free if they're kept separate from personal expenses.

Less Common Types of Earnings

The other types of earnings are:

• "Real Estate Earnings"
• "Interest Earnings"
• "Dividend Earnings"
• "Miscellaneous Earnings (Public Pensions)"
• "Capital Gains"
• "Timber Earnings"
• "Retirement Earnings"

Subtracting Necessary Expenses

Income = earnings − necessary expenses

Your income is the amount left over from your earnings after subtracting the amount you spent making it. For example, if you earned ¥5,000 giving a lecture but spent ¥1,500 on travel, your income would be ¥3,500 (¥5,000 − ¥1,500). The government only taxes the income left over, not all of your earnings. So, claiming necessary expenses helps lower the taxes you owe.

When should expenses be recorded?

Necessary expenses need to be recorded on an accrual basis, meaning right when you buy something, not necessarily when you pay for it. Say, for example, you purchased 24 hours of unlimited data in December 2022 but got the bill for it in January 2023. Can you include this expense for January 2023? The answer is no. With accrual basis accounting, the record should go in December 2022.

Things You Can Include

You can only claim necessary expenses for:

• Business earnings
• Real estate earnings
• Miscellaneous earnings (operations)

You cannot claim expenses for gifts or any other types of earnings.

To figure out if an expense is necessary, ask yourself:

• Can you prove it was necessary if the tax office asks? For example, if you want to claim a meal with a supporter as a necessary expense, you need to be able to say who you met with and why you needed to meet them over food.
• Was it a reasonable expense for your job? For example, if you earn ¥1,500,000 a year, a few fancy meals with supporters might be acceptable. But spending over ¥100,000 a month at bars and calling it a necessary expense would make anyone suspicious.
• Was the expense needed to make money? To answer this, you need to show that it was related to your work and necessary for you to keep receiving support.

The income tax return's statement of earnings and expenses already includes many different expense categories. But there are several blank boxes where you can add your own. See Expense Categories in the Supplements for descriptions of each default expense category and for examples of others you can add.

Things That Are Tricky but Possible to Include

You can include parts of your rent, electricity, and internet bills if you work from home. But you can only count the amount needed for your work. For example, if your office takes up 30% of your apartment, you can count 30% of your rent as a necessary expense. Or, if you use electricity for 12 hours a day and work for half that time, you can count the electricity bill for 6 hours as a necessary expense.

Things You Cannot Include

You can't claim these as necessary expenses:

• Things for yourself
• Things that are reasonably speaking too fancy for your business
• Paying for doctors or gym memberships
• Income tax and resident tax

Remember also donations to fund your ministry or a mission trip, kept separate from your personal expenses, are tax-free. If a designated offering already covered the cost, you can't claim it as a necessary expense.

Requirements for Claiming Necessary Expenses

To claim necessary expenses, you need to have proof. In general, this needs to include the following:

• Name of the person who made the payment
• The amount paid
• Why was there a payment (what did you get and what was its purpose)
• Who received the payment
• The date of the payment

You cannot get receipts for certain expenses, like when riding the train. For situations like this, you can use other types of evidence instead:

• Delivery note
• Credit card slips
• ATM statements or bankbook records
• Emails confirming online purchases
• Payment slips

"Payment slips" don't have to look a specific way. You can even combine multiple payment slips into a spreadsheet, as long as it has the five things listed above and a total.

Lastly, remember to keep records like receipts and payment slips for 5 years.

Exemptions & Deductions

What are exemptions and deductions?

Exemptions and deductions reduce the taxes you owe by decreasing your taxable income. Remember, this is the part of your income that the government taxes. You can calculate how much tax you owe by using the tax rate on your taxable income.

Basic Exemption

Everyone can subtract a basic exemption of ¥480,000 from their income before calculating how much income tax they owe. That means you will not owe any income tax if your income is under ¥480,000.

Resident tax also has a basic exemption and minimum income threshhold. Please check with your local city/prefectural office for more details.

Deduction for Social Security Premiums

If you pay for National Health Insurance, National Pension, or similar benefits for yourself, your spouse, or relatives living in your household, you qualify for this deduction.

The income tax and resident tax deductions let you subtract the total amount you paid for social security.

If you pay into the National Pension, Japan Pension Service will mail you a deduction certificate in the autumn or winter before tax season. If you file an income tax return online, you do not need this certificate. Otherwise, you should attach it to your tax return form. You do not need a certificate to claim the amount you paid for National Health Insurance.

Note that you cannot claim this deduction for similar overseas payments (except ones in France).

Exemption/Special Exemption for Spouses

You can claim a spouse exemption if you and your spouse meet the following requirements:

• You are legally married
• You share living expenses
• Your spouse's income is less than ¥480,000 (or ¥1,003,000 if they only earn employment income)
• Your spouse is not an employee of your family business

You cannot claim the spouse exemption if your spouse earns more than ¥480,000. However, you may claim the special exemption.

For the amount you can deduct for income tax, see here. For the amount you can deduct for resident tax, please check with your local city/prefectural office.

You only need to submit documents if your spouse lives abroad.

Exemption for Dependents

You can claim the exemption for dependents if you have dependents (other than your spouse) who are 16 or older. You and your dependent need to meet the following requirements:

• Your dependent is a family member, either by blood or through marriage
• You share living expenses
• Your dependent's income is less than ¥480,000 (or ¥1,003,000 if their only income is employment income)
• Your dependent is not an employee of your family business.

You cannot claim this exemption for a person if they are already the reason a different person can get an exemption/special exemption for spouses or exemption for dependents.

For the amount you can deduct for income tax, see here. For the amount you can deduct for resident tax, please check with your local city/prefectural office.

You only need to submit documents if your dependent lives abroad.

Deduction for Medical Expenses

You can claim this deduction if you have spent over a certain amount on medical expenses for yourself, your spouse, or relatives living in the same household.

For income tax, you can deduct all medical expenses minus any insurance reimbursements and ¥100,000. For resident tax, please check with your local city/prefectural office.

To claim this deduction, attach a medical expense notice issued by your medical insurer (your local city office if you have National Health Insurance). Otherwise, you can use your receipts to fill out a statement.

Deduction for Donations

You are eligible for this deduction if you made donations to organizations like local governments (cities or prefectures), certified non-profits, or other approved organizations.

The deduction equals your total annual donations or 40% of your yearly income (whichever is lower) minus ¥2,000. There is also a tax credit option for benefiting from donations, but you have to choose one or the other.

About one in eight people use the hometown tax system, which takes advantage of this deduction and a credit for resident tax. By donating to a local government (even if it's not your hometown), you can claim a total benefit equaling the amount you donated minus ¥2,000. But there is a limit to how big a benefit you can receive, so you should use an online calculator to determine the maximum amount for your donations.

The hometown tax system can help support struggling local governments, but most of its popularity is because local governments send gifts to their donors.

Depending on the type of group you donated to, you will need to attach different documents to your income tax return.

There's no donation deduction if you're filing a resident tax return. Instead, there's a credit for donations. That's why you can still benefit from donations made through the hometown tax system, even if you're filing a resident tax return.

Employment Income Deduction

If you're employed, you can claim a special deduction of up to ¥550,000 or more, depending on the amount of your employment income.

Occasional Income Deduction

If you earn occasional income, you can claim a deduction of up to ¥500,000. That means you don't need to report occasional income unless you received more than this amount.

Other exemptions and deductions

Other exemptions and deductions are available for both income tax and resident tax. See here for information on other income tax exemptions and deductions.

Calculating your taxable income

We can finally be sure whether you need to file an income tax return!

To find your taxable income, subtract any exemptions and deductions you're eligible for from your total income and round down to the nearest ¥1,000. If your taxable income is ¥1,000 or more, you must file an income tax return. If less, you can file a resident tax return instead.

Reference the following table to find out how much tax you should pay on your income:

Taxable Income	Income Tax Rate (Taxable Income x Rate - Deduction
¥1,000 to ¥1,949,000	Taxable Income x 5%
¥1,950,000 to ¥3,299,000	Taxable Income x 10% - ¥97,500
¥3,300,000 and higher	Taxable Income x higher percentages - higher deductions