What Is Withholding Income Tax in Japan? A Simple Guide to the July 10 Payment Deadline

 

What I Learned About the July 10 Payment Deadline

We all pay various kinds of taxes throughout our lives.

The types of taxes and tax rates may vary from country to country, but one thing is true everywhere—we all have to pay taxes.

Since moving to Japan and starting my own business, I've found myself learning about many taxes that I had never really thought about before.

A few days ago, I received a payment slip for Japan's withholding income tax, and I noticed that the payment deadline was July 10.

As I was preparing to make the payment, I started wondering:

"What exactly is withholding income tax?"

"Why does the business owner have to pay it on behalf of someone else?"

Curious to learn more, I spent some time researching the topic.

In this post, I'd like to share what I learned in the hope that it may also help others who are running a business in Japan or thinking about starting one.

What Is Withholding Income Tax?

In Japan, withholding income tax is called Gensen Shotokuzei (源泉所得税).

It is a system in which a company or business owner deducts income tax before paying salaries or certain types of compensation.

Instead of paying the full amount to the employee or contractor, the business first deducts the required income tax and then pays the remaining amount.

The deducted tax is then paid to the National Tax Agency on behalf of the person who earned the income.

This process is known as withholding tax.

When Is Withholding Tax Required?

At first, I thought withholding tax only applied to employee salaries.

However, after doing some research, I discovered that it also applies to other types of payments.

Some common examples include:

• Employee salaries

• Bonuses

• Retirement allowances

• Certain freelance payments

• Writing fees

• Speaking fees

• Professional fees paid to tax accountants, lawyers, and other specialists

If you're running a business in Japan, it's worth checking whether withholding tax applies to the payments you make.

Why Does the Business Owner Pay It?

This was the part that confused me the most.

I kept thinking,

"Shouldn't people pay their own taxes?"

But that's exactly how the withholding tax system works.

Income tax is collected at the moment income is paid.

From the government's perspective, it's much more efficient for businesses to deduct and submit the tax than to collect it individually from every employee or contractor later.

That's why this system is used throughout Japan.

Why Is July 10 an Important Date?

Normally, withholding income tax must be paid by the 10th day of the month following the payment of salaries or compensation.

For example, if salaries are paid in June, the withholding tax must be paid by July 10.

However, many small businesses can use a special system called the Special Payment Due Date System (納期の特例 / Nōki no Tokurei).

Under this system, instead of paying every month, withholding tax can be paid just twice a year.

The deadlines are:

• January 20 — for payments made from July to December of the previous year

• July 10 — for payments made from January to June of the current year

When I received my payment slip this time, I realized once again,

"Ah... it's that time of the year already."

What Happens If You Pay Late?

Withholding income tax isn't really the business owner's own tax.

Instead, it's tax that has been temporarily collected from employees or other recipients.

Because of that, missing the payment deadline may result in:

• Late payment penalties

• Additional tax charges

Repeated late payments may also create unnecessary problems during future tax reviews.

It's definitely one of those deadlines that's worth remembering.

How Does It Relate to the Year-End Tax Adjustment?

Paying withholding tax throughout the year doesn't mean your taxes are completely settled.

The tax deducted each month is only an estimated amount.

At the end of the year, Japan performs a Year-End Tax Adjustment (年末調整 / Nenmatsu Chōsei) to calculate the correct amount of tax.

If too much tax was withheld, you'll receive a refund.

If too little was withheld, you'll need to pay the difference.

Final Thoughts

Japan's withholding income tax system may seem confusing at first.

But once I understood that it's simply a system for collecting income tax in advance whenever income is paid, everything started to make much more sense.

For many small business owners, January 20 and July 10 are important dates to remember because of the special payment schedule.

I'm still learning as I go, but writing everything down like this also helps me review what I've learned.

I hope this article is helpful to anyone who is running a business in Japan or planning to start one in the future.

Paying taxes always seems to make my wallet feel lighter... and my heart a little heavier. 😅

I'd like to believe I'm not the only one who feels that way.

So today, just like always, I'm spending a little time petting this innocent little one, who has absolutely no idea what taxes are.

It's the perfect way to find a little peace of mind after making another tax payment.

How about you? How do you find your peace of mind after paying your taxes? 😊

🔍 View E-Tax Withholding Tax Filing Guide