Understanding Combined Income Tax and Resident Tax Rates
1. “Japan’s Income Tax Is Not That High”… Is That Really True?
Many people hear:
“Japan’s income tax rate is moderate.”
That statement is only half true.
In Japan, income tax and resident tax are separate,
but in reality, they work together and should be viewed as a combined tax burden.
👉 When combined, the effective tax rate becomes much higher than expected.
2. Two Different Taxes on the Same Income
Japan taxes personal income using two main taxes:
① National Income Tax (所得税)
- Progressive tax
- Paid to the national government
② Resident Tax (住民税)
- Flat-rate structure
- Paid to local governments
- Typically 10% of taxable income
👉 Even if income tax looks reasonable, resident tax adds a heavy layer.
3. Japan’s Income Tax Rates (National Tax Only)
National Income Tax Rates (Simplified)
| Taxable Income | Income Tax Rate |
|---|---|
| Up to ¥1.95M | 5% |
| ¥1.95M – ¥3.3M | 10% |
| ¥3.3M – ¥6.95M | 20% |
| ¥6.95M – ¥9M | 23% |
| ¥9M – ¥18M | 33% |
| ¥18M – ¥40M | 40% |
| Over ¥40M | 45% |
At first glance, these rates appear similar to other developed countries.
4. Resident Tax: The Hidden 10%
Resident tax is generally:
- 10% flat rate (prefectural + municipal)
- Applied after income deductions
- Paid regardless of income level
👉 This means everyone above the basic exemption pays it.
5. The Real Problem: Combined Tax Rates
When income tax and resident tax are combined:
Example: High-Income Earner
- National income tax: 45%
- Resident tax: 10%
✅ Combined rate: 55%
👉 This is why Japan’s top earners often feel the tax burden is extreme.
6. Marginal Tax Rate vs. Effective Tax Rate
Japan uses a progressive system, so:
- Not all income is taxed at the highest rate
- But additional income may be taxed at over 50%
This creates strong psychological resistance to earning more.
“Half of my additional income disappears.”
This feeling is not wrong.
7. Why Japan Chose This Structure
Japan’s tax system reflects its social structure:
- Universal healthcare
- Public pension system
- Local government funding through resident tax
Resident tax ensures stable local revenue, even if national tax policy changes.
8. Comparison with Other Countries (Simplified)
| Country | Top Personal Tax Rate |
|---|---|
| Japan | ~55% (combined) |
| United States | ~37% (federal only) |
| UK | ~45% |
| Singapore | ~24% |
| Hong Kong | ~17% |
👉 Japan stands out as one of the highest when local taxes are included.
9. Why High Income Earners Need Tax Planning
With combined rates exceeding 50%, proper planning becomes essential:
- Timing of income
- Use of deductions and allowances
- Business structuring
- Coordination with inheritance and gift tax planning
Without planning, tax inefficiency is guaranteed.
10. Summary: Why Japan’s Income Tax Feels So Heavy
✔ Two separate taxes on the same income
✔ Flat 10% resident tax adds significant weight
✔ Top marginal rate exceeds 50%
✔ High earners feel the impact most
✔ Planning is essential, not optional
