In the year you leave Japan, getting the order of the procedures wrong can mean losing refunds. There are three points to check.
Income tax and the tax representative
If you file a notification appointing a tax representative (nōzei kanrinin) by your departure date, you can file your final return for the year as usual, by 15 March of the following year. If you leave without appointing one, you must instead file, by the time of departure, a return covering your income from 1 January to the departure date (a so-called quasi-final return).
Resident tax and the 1 January rule
Resident tax is charged, on the previous year’s income, to those who have an address in Japan on 1 January. If you are in Japan on 1 January, the full year’s resident tax is due even if you leave later that year. If you leave on or after 2 January, fix the payment method before departure — a lump-sum deduction from salary, payment through your tax representative, and so on.
The pension lump-sum withdrawal payment
A foreign national who has paid Japanese public pension contributions for six months or more can claim a lump-sum withdrawal payment within two years of leaving Japan. Income tax of 20.42% is withheld when it is paid, but that withholding does not close the matter: because the lump-sum withdrawal payment is treated as retirement income (a "retirement allowance") under tax law, a refund may be available by the route below.
A brief outline of how retirement income is taxed. For residents, retirement income is computed as "(receipts − retirement income deduction) × 1/2". The retirement income deduction is ¥400,000 × years of service where service is 20 years or less (minimum ¥800,000), and ¥8,000,000 + ¥700,000 × (years of service − 20) where it exceeds 20 years. Taxing retirement income on this favourable basis reflects its character as a reward for long service.
Retirement pay received by a non-resident is subject to a flat 20.42% withholding, but by electing the resident-style taxation of retirement income ("elective taxation on retirement income"), the tax can be recomputed on the basis above, and the difference refunded through a return filed via your tax representative.
Worked example of the refund
Worked example (assumptions: 3 years of pension coverage; lump-sum withdrawal payment ¥600,000): the withholding is ¥600,000 × 20.42% = ¥122,520. Under the election, the retirement income deduction is ¥400,000 × 3 years = ¥1,200,000, which exceeds the ¥600,000 received, so taxable retirement income is nil — and the entire ¥122,520 withheld is refunded.
Each of the three procedures starts from the appointment of a tax representative (see the separate article). Some of them take time, so start early once your departure date is set.
Leaving Japan soon?
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