JapaneseAccounting, payroll, HR, and admin outsourcing services for your Japanese subsidiary - HTM Tokyo

Year-End Tax Adjustment Overview


Online YETA system walkthrough

Watch video
This video explains how HTM's bilingual HR management and payroll systems and processes are used to do the Japanese Year-End Tax Adjustment. Tax regulations in Japan require companies to withhold an estimated individual tax amount from an employee's monthly payroll and bonus payments, and to use up-to-date HR management information. Monthly payroll withholding is an estimate of the employee's annual income tax based on an employee's HR information and their monthly salary and bonus payments. In December the employee's actual annual tax is calculated based on the employee's total annual compensation and HR information as of December 31. The difference between the total monthly payroll withholding and the required annual income tax is adjusted in the employee's December payroll. This adjustment is called the Year-End Tax Adjustment or YETA for short.

Read the transcript

Introduction
Hello - I'm a member of HTM's Systems and Process Design Team. In this video I'll describe the Year End Tax Adjustment, YETA for short. Earnings in Japan are subject to income tax. Each month, your employer withholds an estimated tax amount from your salary. When your annual income tax is calculated in December, you may have had too much or too little tax withheld throughout the year. This is because calculation of your annual income tax and the monthly withholding estimates differ in three ways:
Monthly withholdings consider only your compensation in the current month, whereas annual income tax considers total annual compensation and income other than compensation, such as investment income. Monthly withholdings consider your circumstances - such as marital status or number of dependents - as of the current month, whereas annual income tax considers your circumstances as of Dec 31. Additionally, for the monthly tax withholdings calculation,8 deductions are applicable, whereas for the annual income tax calculation, 11 deductions and a housing loan tax credit are applicable. We'll look at what those deductions are later in this video. The difference between your annual income tax and your 12 monthly withholdings is adjusted in your December salary. This adjustment is called the Year-End Tax Adjustment - or YETA for short.

Requirements
The YETA process has two functions: one is to calculate your annual income tax; the other is to declare your primary employer for the following year. You must declare your primary employer each year during the YETA process. If you have more than one employer, you can only declare one of them as your primary employer. If you do not declare a primary employer, your monthly tax withholding will be significantly higher. It is standard practice to declare as your primary employer the employer from whom you receive the highest compensation. This employer must do the Year-End Tax Adjustment for you if you are:
 • Employed as of December 31st
 • You are a tax resident of Japan, and
 • you received an annual compensation  of 20 million yen or less.
Even if you do not meet the requirements for the Year-End Tax Adjustment, you still must declare your primary employer using the YETA process to receive the reduced monthly tax withholding for the following year. Separately from the YETA process, you can file your taxes yourself, directly to the tax office, with a Tax Return by March 15th of the following year. As a salaried employee, you are required to file a Tax Return if:
 • You have an annual compensation
  greater than 20 million yen
 • Have additional income of more than
  200,000 yen from another employer or
  source
 • Received payment from which tax was
  not withheld or
 • You did not declare your primary
  employer
You may choose to file a Tax Return in addition to doing the Year-End Tax Adjustment if you are entitled to more deductions than are available in the Year-End Tax Adjustment process. You can claim for medical expenses, foreign taxation, lost assets, and charitable donations.

Exceptions If you leave Japan before December 31st you must file a Tax Return before leaving the country or nominate a tax representative to file on your behalf by March 15th. If you transfer to an overseas branch of the same company for over a year, your employer must process the Year-End Tax Adjustment for you based on your circumstances on the day you leave Japan. This adjustment will be included in your final payroll.

Breakdown Now, let’s break down the Year-End Tax Adjustment.

Income In December, your annual compensation is established. This is your salary, bonuses, and allowances throughout the year from your primary employer, excluding non-taxable allowances such as commuting.
 • From this, a standard income exemption for average expenses is subtracted.
 • If your compensation is greater than 8.5 million yen, and you, your spouse or any of your relatives is severely disabled, or you have a dependant under 23 years old, an additional income adjustment exemption is subtracted.
Subtracting these exemptions from your annual compensation gives your income after exemptions. If you have other income, such as dividends, real estate income, or compensation from another employer, these are added to your income after exemptions to give your adjusted income. This adjusted income is used in determining eligibility to receive 5 of the 11 tax deductions, as well as the housing loan tax credit.

Deductions Next let's look at the 11 possible tax deductions. A basic deduction for living costs is applied. Six deductions may be applied based on you, your spouse, and your dependents' income and status on December 31st. There are deductions for:
 • Working students and
 • Single parents
 • A Widow deduction - which includes
 divorcées who have not remarried
 • Spouse and
 • Dependent deductions, and
 • a Disability deduction - if you, your
 spouse, or any of your dependants are
 disabled.
Eligibility to receive these 5 deductions is based on your adjusted income. To claim the spouse or dependent deductions, or to claim the disability deduction for a spouse or dependant, their income is used to determine eligibility. There are four deductions available for insurance premiums:
 • Life, Medical and Personal Pension
 Insurance premiums
 • Earthquake Insurance premiums
 • Social Insurance premiums - You can
  also include any premiums you paid in
  addition to those withheld monthly. And
 • Small Business Mutual-Aid premiums
It is possible to claim more than one insurance policy for each insurance type. Your deductions are subtracted from your income after exemptions to give your taxable income. Your provisional tax is calculated as percentage of your taxable income.

Tax Credit Then a tax credit for housing loans may be applied. Your eligibility to receive the housing loan tax credit is determined based on your adjusted income. Unlike a tax deduction, which reduces your taxable income, a tax credit is subtracted directly from your provisional tax. The first time you claim this tax credit, you must file a tax return. After that, it can be claimed during the regular YETA process.

Total Finally, the earthquake recovery tax is added, giving your annual income tax. The difference between your Annual income Tax and the Total Tax Withheld from salary throughout the year is your Year-End Tax Adjustment.

Recalculations If your circumstances change - for example, an additional dependant - or you receive additional compensation, after YETA is calculated, but before December 31st, your employer must recalculate your adjustment, taking into account these changes. The deadline for recalculations is January 31st; if recalculation cannot be completed by this date, you must declare these changes yourself in a Tax Return. Changes which occur after December 31st will be counted in the following year's YETA.

Calculator To estimate your Year-End Tax Adjustment for yourself, use the calculator on our website. As with all our systems, the calculator is available in both Japanese and English. The calculator allows you to input your data to get an estimate of your adjustment amount. So that you can clearly understand the calculation, and how changes to your input affect the eventual adjustment, the calculator is broken up into four sections:
 • Income
 • Deductions
 • Tax credits and
 • Total
Explanations are available by clicking on the question mark icon. Any supporting documents you may need are highlighted below.

Traditional forms vs online YETA
At HTM, we provide an Online YETA system to gather the data needed to calculate the Year-End Tax Adjustment. Traditionally, the data is gathered in 4 paper forms provided by the National Tax Office. The sections for claiming deductions are spread across these 4 forms, with instructions written on the back. HTM's Online YETA system removes the need for these forms. It:
 • Shows you all possible deductions in
  one place
 • Is prefilled with your current
  information
 • Gives you instructions as you fill in
  each section, and
 • Is available in both English and
  Japanese
HTM's online YETA system maximises your deductions and informs you of the required supporting documents for your claims. You can upload supporting documents to the system unless an original proof is required. For documents which require original proofs, HTM sends a prepaid envelope to your registered address. HTM’s online YETA is backed up by a knowledgeable support team. For a walkthrough of the system and its benefits, please watch our video about the Online YETA system. Thank you for watching.

read what our clients are saying Read what our clients are saying    Email us Email us or call +81-3-5789-7900