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2013年4月 6日 (土)

Japanese Taxation of Individuals vol.3(Employee Services)


Employee Services:

Gross employment income includes not only base salary, wages and bonuses but also allowances, such as living allowances, tuition allowances, tax reimbursements, housing allowances, and other economic benefits provided by an employer.

If an employer provides a staff member with accommodations (either owned or leased by the employer), only a rather small portion (empirically, 5 to 10 percent) of the rental is taxable (cf. administrative instruction of the Japanese Individual Income Tax§36-45). 
The taxable portion is known as "economic rent." 

On the other hand, the taxable portion for a director of a corporation is 50 percent of the rent except where the dwelling house provided by a company is considered luxurious.  If an amount equivalent to 35 percent of the rent is collected from the director, the balance is usually not taxable.   
Dwelling house provided by a company to a director may be treated as luxury housing after taking into account all the facts and circummstances, such as the floor area of the property (over 240㎡), purchase price of the dwelling house, amount of the rental payments, and interior/exterior equipments.  The economic rent on luxury dwelling house is 100 percent of the fair market value (i.e., usually actual rent).

A housing allowance paid in cash is fully taxable to both employees and directors. 
A reaonable amount of moving expenses and costs of annual leave to the home country, including those for family members, is regarded as non-taxable income. 

For directors and employees, income arising from exercising stock options is generally treated as employment income and taxed when exercised. 
However, income arising from certain qualified stock options granted by Japanese corporations under the Company Law is not taxable when exercised but taxed as capital gains when the stocks given by exercising the options are transferred when certain requirements are met.

Employment income related to services performed in Japan is regarded as Japan-source employment income regardless of the location or currency of payment. 
Allocation of employment income on the basis of the number of days in Japan against the total number of days covered by the income (less the number of days outside Japan for home leave, if any) is generally acceptable in determining the income related to services performed in Japan.
Vacation days spent abroad other than those spent during the course of home leave, however, would be considered as days spent in Japan for the purpose of this allocation.

As indicated in the following blog article (↓),


during the first aggregate 60 months of residency of the past 10 years, an expatriate resident taxpayer is subject to Japanese individual income tax on the sum of Japan-source income and that part of non-Japan source income that is either paid in or remitted to Japan.
Local payments and/or remittances to Japan are first regarded as paid or remitted from Japan-source income and then from non-Japan-source income. 
Unless exempted by tax treaty, compensation paid to non-residents is subject to a 20 percent tax (this is usually satisfied through withholding). 

Resident taxpayers are allowed certain statutory deductions from gross employment income. 
(Regarding those deductions, I'd like to give you an overview later.)

(To be continued....)

公認会計士 税理士/CPA・CPTA
URL: http://ogasawara-accounting.my.coocan.jp
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