For 2025, the withholding tax rates in Japan depend on the type of income and the residency status of the recipient. Below are the key withholding tax rates:
1. Withholding Tax on Salaries (Payroll Tax)
For Residents (Japanese Citizens & Permanent Residents)
- Employers withhold income tax based on a progressive tax rate (ranging from 5% to 45%) depending on salary amount.
- Social insurance (Shakai Hoken), including health insurance, pension, and employment insurance, is also deducted.
For Non-Residents (Staying in Japan for Less Than 1 Year)
- A 20.42% flat tax rate applies to salary income.
- This includes a 20% withholding tax + 2.1% reconstruction special income tax.
2. Withholding Tax on Dividends, Interest, and Royalties
| Income Type | Residents | Non-Residents |
|-------------|------------|-------------|
| Dividends from Listed Companies | 20.42% | 20.42% |
| Dividends from Private Companies | 20.42% | 20.42% |
| Bank Interest | 15.315% | 15.315% |
| Royalties (Intellectual Property, Software, etc.) | 10.21% | 20.42% |
| Real Estate Rental Income | No Withholding | 20.42% |
3. Withholding Tax on Freelancers, Consultants, and Service Payments
For Domestic Payments (Resident Individuals)
- 10.21% withholding tax applies to freelancers, consultants, and subcontractors for certain professional services.
- Not all services are subject to withholding (e.g., IT work often isn’t).
For Foreign Contractors (Non-Residents)
- 20.42% withholding tax applies to payments made to overseas consultants, freelancers, and service providers.
- Tax treaties may reduce or exempt this rate (companies must check applicable treaties).
4. Withholding Tax for Foreign Companies (Cross-Border Payments)
| Payment Type | Default Rate | Tax Treaty Rate |
|--------------|-------------|----------------|
| Dividends | 20.42% | 0%-15% (depending on treaty) |
| Royalties (e.g., IP, software, licenses) | 20.42% | 0%-10% (depending on treaty) |
| Technical Services / Consulting Fees | 20.42% | 0%-10% (depending on treaty) |
| Interest | 15.315% | 0%-10% (depending on treaty) |
💡 Check Japan's tax treaties to see if a lower rate applies: Japan Tax Treaty List (National Tax Agency)
5. Special Reconstruction Tax (2025 Update)
- The additional 2.1% reconstruction tax is still applicable in 2025.
- This applies to most withholding tax categories.
- Example: If normal withholding is 20%, the final rate is 20.42% (including the 2.1% surcharge).
6. Conclusion
- Residents pay tax progressively on salaries, with 10.21% withholding for certain freelancers.
- Non-residents face a flat 20.42% withholding on salaries, services, and dividends.
- Foreign payments are subject to 20.42% withholding, unless a tax treaty reduces it.
Would you like help with tax calculations, exemptions, or treaty benefits? Let me know! 😊