(B)Local Inhabitant tax

Resident for National income tax purposes as of January 1^st of each year is subject to Local Inhabitant tax based on the income for the preceding year.  The taxable income for Local Inhabitant tax purposes is almost identical to the one for National income tax purposes.

(1)Tax rate

Tax rate is 10%, a flat rate.  Precisely, 4% (2% for a designated prefecture) is for a prefecture and 6% (8% for a designated city) is for a city.

(2)Tax payment

Local Inhabitant tax on employment income is assessed by local government based on remuneration information provided by employers.  Local government provides the assessed tax amount information with employers and employers withhold the monthly assessed tax from employees’ monthly payroll.  The Local Inhabitant tax withheld is paid to each local government by the employers.
For the sake of understanding, let me explain the tax withholding mechanism by using an example.  Where an employee gets paid in Year 1 when the employment starts, there is no Local Inhabitant tax payment in Year 1. Then starting from June in Year 2, the employer will withhold the monthly Local Inhabitant tax assessed by the local government from employee’s monthly payroll.  The monthly tax withholding will continue for 12 months until May in Year 3 in this case.

The below annual tax calculation will give you an idea of the tax burden on employment income in Japan.

Assumption:
Annual total salary/bonus/benefit is amounting to 8,000,000 yen.
Spouse has no income.
They have two kids who are 5 years old and 3 years old, respectively.
No deduction other than Spouse/Dependents Deduction

National income tax calculation:
Gross salary                 ¥8,000,000
Employment Income Deduction <2,000,000>
Basic Deduction                <380,000>
Spouse Deduction              <380,000>
Dependents Deduction          <760,000>
(a)Taxable income            ¥4,480,000
(b)National Income Tax
(a)X 20% less ¥427,500        ¥468,500

Local Inhabitant tax calculation
Gross salary               ¥8,000,000
Employment Income Deduction<2,000,000>
Basic Deduction                <330,000>
Spouse Deduction                <330,000>
Dependents Deduction                <660,000>
(c)Taxable income                ¥4,680,000
(d)Local Inhabitant tax
(c)X10%                ¥468,000
Minimum Tax                4,000
(e)Total Local Inhabitant Tax                ¥472,000

National +Local Taxes
(b)+(e)                ¥940,500

Effective income tax rate
¥940,500/¥8,000,000             11.75%