Glossary for Tax-related Terms

Blue tax return – one of two types of income tax returns that allow an additional 650,000 yen deduction, but require double-entry bookkeeping and an accurate account of all financial transactions. The other type is the white tax return.

Tax depreciation – a model of tax deduction based on the cost divided by the predetermined usable lifetime of a given tax-deductible asset. Examples would be vehicles, computers, hardware, etc.

Final tax report – the finalized yearly income tax report to be submitted between February 15th and March 15th.

Municipal tax – the sum of both shiminzei and kenminzei, 6% and 4% respectively, of the previous year’s taxable income. This tax is generally split into 4 payment periods; June, August, October, and January.

Income tax Prepayment – mandatory for all freelance taxpayers paying 150,000 yen or over in income tax. This income tax prepayment amounts to one-third of your last income tax paid twice – once each in July and November. This prepaid tax will be deducted from your next income tax leaving you to only pay the remainder. You will be reimbursed in the case where your prepaid tax is greater than your actual income tax. This tax can be seen as the equivalent of tax withholding for company employees.

Settobakku – The reclaiming by the city of the land area within 2 meters of the center of a public road when building or rebuilding on private property. If the opposite side of the road is a river, railroad track, etc, from which land cannot be taken, then land within 4 meters of the opposite edge is reclaimed. This setback is generally a condition for new building permits on the land in question. Consequently, less ambitious land owners often intentionally leave old structures up. This also has the added benefit of a lower fixed asset tax due to the worthless (in terms of resale and/or tax value) structure. A bare plot of land has a higher tax rate than one on which there is a structure (the structure itself may or may not have additional tax value). This is a factor one must take into account when considering land purchase. Land claimed for setback is still taxed until the road is actually built, but yet you can’t build on it or otherwise place anything large or stationary. Also, and this is likely the clincher, you don’t get paid for it. Gasp. Yes, for land reclaimed for roads under 4 meters in width, you don’t get a single dime (or in this case, yen).

Special reconstruction tax – a tax introduced after the 2011 Tohoku earthquake, to aid in the reconstruction of the affected areas. This tax is levied in 3 main forms: 2.1% of individual income tax for 25 years, a 10% hike in corporate tax for 3 years, and a 1000 yen per capita hike to the municipal tax for 10 years.

Special spousal deduction – you are eligible for a special spousal deduction if your spouse is earning more than 380,000 yen and less than 760,000 yen per year in after-deduction, taxable income.

Spousal deduction – you are eligible for a spousal deduction if your spouse is earning less than 380,000 yen in after-deduction, taxable income. So in order for this to be possible, your spouse cannot earn more than 1.03 million yen per year, as the maximum deduction is 40% or 650,000 yen (whichever is greater) for those earning up to 1.8 million yen. The deduction percentage decreases as you earn more.

Tax collected at the source – income tax deducted by an employer prior to payment of wages.

White tax return – the simpler of two types of income tax returns, the white return only requires a simple tax statement and the keeping of all receipts in the case of an audit. When compared to the blue return however, white only allows the 380,000 yen base deduction — which blue allows along with an additional 650,000 yen.

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