Resident Tax Information
All residents are taxed on their worldwide income; however, non-residents and foreign nationals are taxed on their income derived in Japan.
Income tax rates in Japan are progressive based on an individual’s income. The Japanese income taxes are as below —
Social Security
Contributions toward social security are mandatory in Japan. The Japanese social security includes the following areas –
- Pensions
- Health insurance
- Unemployment insurance
- Workplace injury
- Family allowance
The employer and employee contributions toward each fund include —
Statutory Benefits
An employer must pay certain statutory benefits to their Japanese employees. Statutory benefits in Japan include —
- Statutory leaves
- Pension or superannuation
- Old-age pensions leaves
- Disability pension
- Survivors' pension:
- Social security
- National Health Insurance
- Longevity Healthcare System
Statutory leaves
All employees are entitled to a certain set of leaves as laid out by the Japanese labor laws. This has been covered extensively in the previous section.
Pension or superannuation
- Superannuations are provided to regular employees (also classified into Type 2 Insured) and part-time employees Type 2 employees are covered by the Employees' Pension Insurance plan (Kosei Nenkin). The premiums toward the Employees' Pension Insurance Plans depend on the employee's gross salary.
- It is mandatory for all employers to ensure that the enrollment procedures are settled Contributions as premiums are borne by both the employer and the employee and are split equally between both.
Old-age pensions
In Japan, all employees are entitled to old-age pensions at the legal retirement age of 65 years. Employees must have contributed toward National Pension for 10 continuous years before they can receive benefits from it in addition with their final salary.
Disability pension
Employees are entitled to a disability pension in cases of injury or sickness There are three categories of disability benefits depending on the seriousness of the disability The three classes of disability include —
- Class I: Complete disability that requires constant care/attendance
- Class II: The Degree of disability that restricts the employee's ability to live independently
- Class III: The degree of disability that restricts an employee's ability to work
The employee must have contributed at least one third of their previous participation period.
Survivors' pension
The survivor's pension is a generous benefit that ensures the dependent can live comfortably with their income. The employee must pay contributions from 1/3rd or more of past participation period, but this payment isn't required if they're dead by themselves.
Social security
All employees are covered under social security for several aspects that include
- Pensions
- Health insurance
- Unemployment insurance
- Workplace injury
- Family allowance
However, contributions by both the employer and the employee are mandatory.
National Health Insurance
The Japanese social security system offers a similar package of benefits to health care under National Health Insurance. Employees not covered by any type of insurance must be enrolled in order for them and their family members' medical needs be met, at least 70% on average (with higher percentages available depending upon height). The local government determines the contribution amount, which is based on
- The total income of the employee and
- The number of dependents of the employee
Longevity Healthcare System
With the Longevity Healthcare System, employees are provided with benefits when they reach age 75. In addition to this protection from economic shocks at old ages there is also disability coverage that begins between 65 and 74 years of age for individuals who have certain disabilities.
13th-month pay
There is no legal requirement to provide employees with an annual bonus like a 13th salary.
Fringe Benefits
Fringe benefits are provided by the employers in addition to their compensation and benefits. Commonly provided fringe benefits in Japan include —
- Flexible working hours
- Housing allowance
- Commuting allowance
- Travel vouchers
- Additional paid days off
- Meal
vouchers
Exempt Benefits
There are certain benefits in Japan that are exempt. Exempt benefits in Japan include —
- Life insurance premiums
- Tax credits on mortgage interests
- Business expenses such as travel and entertainment expenses
Long-term Incentives
Long-term incentives are given to employees for a time horizon that extends beyond 12 months. These benefits can be seen as an integral part of your company's strategy, with the goal being retention and strong growth potential in future years.
Commonly provided long-term incentives in Japan include —
- Group life insurance
- Group personal accident insurance
- Group long-term disability insurance
- Group medical top-up insurance
- Family allowances
- Allowances for the spouse — 10,000 to 15,000 yen monthly
- Allowances for children — 3,000 to 5,000 yen monthly
- Although uncommon in Japan, many employers also provide employee stock options
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