If you have been living in Japan for a certain period of time, you probably know about the resident registry network of Japan. All residents who reside in Japan for 3months or longer are required to register their address at a local municipal office. But do you know that you are obliged to pay a residential tax once your registration is complete? If you work for a company, your employer withhold all the tax obligations from your monthly salary, therefore you actually need to do nothing. Otherwise, you must pay residential tax by yourself. A residential tax system is a little complicated and it is easy for foreign nationals to overlook it as it is not familiar to them. But you should be very careful. It may be cause a huge trouble if you keep neglecting residential tax payment.
What is residential tax?
Residential tax is a local tax paid to the city you live in as at 1st day of January each year. It consists of two parts: Municipal tax and Prefectural tax. Each tax further divided in two components: “Income basis” part is calculated based on the previous year’s income, and “Per capita basis” part is imposed equally to all residents. Tax rate of income basis part is 10%, 4% of Municipal tax and 6% of Prefectural tax. Income basis part is calculated by applying this tax rate to the previous year’s taxable income. Per capita basis part of residential tax differs by each city, but normally stays around 5,000yen and there are few cities charge more than 6,000yen.
The purpose of residential tax is mainly to maintain infrastructures, social welfare and wages of public workers. It is important income source for local cities to develop a comfortable environment for all residents. Therefore all residents regardless of their nationalities must pay residential tax.
Exemption from residential tax
Those who fall into the following categories are exempt from residential tax.
Exempt from both income basis tax and per capita basis tax
Person who is receiving benefits under Public Assistance Act
Disabled person, under aged person, widow or widower whose total annual income is 1,250,000yen or under
Person whose previous year’s income is lower than the amount determined by the municipality
Exempt from income basis tax only
Person whose total household income is lower than the sum of: 350,000yen times the number of dependent family member plus 320,000yen, and single person whose previous year’s income is lower than 350,000yen.
How to pay residential tax
Residential tax based on the previous year’s income is to be paid in full or by 4 installments. There is no difference in the total amount to be paid by your choice of payment method. If you are an employment income earner, your residential tax is withheld from your monthly salary. Otherwise, you need to pay your residential tax by using payment slip issued by local municipal office. A payment can be made at local municipal office, bank or convenience store by cash, or, some cities accept payments by credit card or internet banking.
What happens if you don’t pay residential tax?
Your residential tax must be paid by the due date printed on a payment slip. If you fall behind on the payments, the local government starts taking action. How and when they contact you may vary depending on each local government, however, they don’t leave it for long at all.
1. Get a reminder
Once your payment is about a month late, you receive notices from your local government. At this stage, they just intend to remind you of delay of payment, due date you must pay the sum of overdue residential tax and interest tax. If you pay the amount on the reminder by due date, there will be no further action from the local government.
2. Get demand letters
About a month later after the first reminder, you receive a demand letter. Text of the demand letter is almost the same as the first reminder. That is, reminding you of delay of payment, due date you must pay the sum of overdue residential tax and accumulated interest tax.
3. Get a notice of seizure
If you keep neglecting these reminders, you will receive a notice from the local government to seize your assets that is worth the sum of unpaid tax and interest incurred. To avoid a seizure of asset, you need to clear the amount you owe by the deadline printed on the notice.
4. Seizure of assets
There is no advice on the notice about exact date of seizure of asset. Practically, your assets may be seized anytime after the deadline by freezing your bank account, or by forcible collection of your salary, jewels, valuable metals or motor vehicle that is worth the sum of the tax and interest owed.
What you should do when you can’t pay residential tax
As the same as National Health Insurance tax, residential tax is calculated based on the previous year’s income. If you currently have a financial difficulty because your income has significantly dropped in this year compare to the previous year, you may not be able to pay residential tax. In such a case, immediately visit your local municipal office to explain your situation and seek advice. You may be permitted to pay by more frequent installments or reduced amount.
The most important thing is, the longer you delay, the more interest tax is charged. If you delay your tax payment until your assets is actually seized, the amount you are required to pay in the end becomes far higher than the amount of residential tax you originally owe.
Be on time!
Collection of residential tax is stricter than you may imagine. Same as National Health Insurance tax, local government takes a strict action against delay of payments, but they seem to react more promptly. Of course you never want to face such thing as seizure of your assets. But before that, you should never delay tax payment otherwise interest tax starts accumulating from the first day your payment is overdue. Besides, interest rate is not low at all. It is very important you pay residential tax before due date.
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