The exchange rate of the Japan yen against the U.S. dollar, the British pound and other exchange rates have significantly declined in recent years, which continuously hit the lowest record over the past few decades. Although Japan's largest labour union has demanded the increase of salaries by over 5% to the government, the decline of the yen's exchange rate is much faster than the increase of salary in Japan, and the purchasing power of the Japanese yen as a major importer of resources is decreasing, which leads to worries of Japanese nationals about the increasing burden of living in Japan.

Under the revision of the tax law for the fiscal year ending December 31, 2024, a flat-amount cut of personal income tax for fiscal year ending December 31, 2024 has been implemented for the purpose of relieving the burdens of Japanese citizens, which is intended to support Japanese citizens from the difficulties of living due to the high cost of goods.

In this passage, Kaizen will base on the information released by the National Tax Agency Japan, briefly introduce the flat-amount cut scheme that will come into effect on June 1, 2024, summarizing the applicable groups and the basic measures of the scheme, for a reference to our existing and potential clients. Furthermore, we provide services of calculating and paying social insurance premiums and salaries for employees of Japanese companies, please contact our consultants for further information.

1. Outline of the system
   
   Flat-amount cut is a system that from Jun. 1, 2024, a tax deduction will be made to deduct the total amount of income tax paid of a taxpayer. The tax deduction amount would consider both the taxpayer and the number of spouses living in the same household and dependent relatives.
   
   
2. Persons qualified for flat-amount cut
   
   For income tax flat-amount cut, qualifier are residents (an individual who has a domicile in Japan or an individual who has had a residence in Japan for a year or more in succession up to the present) who are taxpayers of income tax for 2024 and whose total amount of income pertaining to income tax for 2024 is 18,050,000 yen or less (If only salary income is earned, the amount of salary income is 2,000,000 yen or less.).
   
   For resident tax flat-amount cut, qualifier are residents who are taxpayers of resident tax with per income levy (an individual who have an address in Japan as of Jan. 1, 2024) and whose total amount of income pertaining to income tax for 2024 is 18,050,000 yen or less (If only salary income is earned, the amount of salary income is 2,000,000 yen or less).
   
   
3. Amount of the tax cut
   
   The amount of deduction for the tax flat-amount cut of income tax and resident tax is shown in the table below:
   

   	Flat-amount cut for income tax deduction (JPY)	Flat-amount cut for resident tax deduction JPY)
   Person himself/herself	30,000	10,000
   Spouse living in the same household and dependent relatives (income tax) or claimable spouse (resident tax)	30,000	10,000
   Dependent	30,000 per person	10,000 per person

   
   For example, if a taxpayer, who is the qualifier of flat-amount cut, has one spouse and two children, he will be entitled to an income tax reduction of 120,000 yen and a residential tax reduction of 40,000 yen.
   
   
4. Methods of the tax deduction
   
   

   (1)

   Income tax For taxpayers who are employment income earners (corporate employees) are deducted from the amount of withholding at source of salaries on the first salary from June 1, 2024. If the amount of income tax reduction is greater than the amount of the withholding at source of salaries in June, it continues to be deducted from the amount of withholding at source of salaries on a monthly basis from July until the amount of tax reduction is fully deducted, or if it is not fully deducted until December, it will be deducted in the year-end adjustment. If the flat-amount cut is still not fully deducted in the year-end adjustment, it will be disbursed to the taxpayers in the form of a supplementary allowance. For taxpayers who are business owners (self-employed, freelancers) are deducted from the amount of the first installment of the income tax. If the amount of income tax reduction is greater than the amount of the first installment of the scheduled payment, it will be deducted from the amount of the second installment of the scheduled payment. If there is any remaining balance after the deduction from the 2nd installment of the estimated taxable amount, the amount will be actuarially calculated in the tax return. If the business owner is not subject to estimated tax payment, the amount of income tax deduction will be adjusted in the tax return. Income tax deductions for spouses and dependents are generally deducted at the time of filing a tax return, but can also be deducted from the 1st installment of the estimated tax amount by filing an application for an estimated tax deduction.

   (2)

   Resident tax For taxpayers who are employment income earners (corporate employees) the withholding at source of salaries of resident tax (also known as special collection) will be suspended in June 2024, calculate the balance of the annual resident tax minus the flat-amount cut for resident tax, and divide it into eleven equal portions from July 2024 to May 2025, and collect it from the source of salary. If the annual amount of residential tax is less than the amount of residential tax reduction, the excess amount of reduction is expected to be paid to taxpayers in the form of a supplementary payment. For taxpayers who are business owners (self-employed, freelancers), the tax will be deducted from the amount of the first installment of the resident tax. If the amount of the flat-amount cut for resident tax is greater than the amount of tax paid in the first period, it will be deducted from the amount of tax paid for the second installment. If there is a balance left over after the deduction from the second installment, the remaining amount of tax reduction is expected to be paid to the taxpayer in the form of a supplementary payment

   
   
5. Spouse and Dependent
   
   The owner of the business or the person responsible for calculating the payroll should be aware of the employee's spouse and dependents, especially when the spouse is earning an income.
   
   

   (1)	Spouse living in the same household According to the National Tax Agency Japan, spouse living in the same household is defined as of December 31 of the year concerned should meet all following conditions: i. Is a spouse under the Japan Civil Code. (Excluding spouses in unregistered marriages) ii. Living expenses are paid from the same resources as the taxpayer. iii. The total amount of income is 480,000 yen or less. (If only salary income is earned, the amount of salary income is 1,030,000 yen or less) iv. Employees who have not received any salary payments for the entire year for those filing blue returns or are not an employee filing white returns.
   (2)	Tax cut for a spouse qualified for deduction available A spouse of the resident taxpayer whose total amount of income is or less than 10,000,000 yen living in the same household.
   (3)	Dependent relatives According to the National Tax Agency Japan, dependent relatives defined as of December 31 of the year concerned should meet all following conditions: i. The relative of a Resident other than the Resident's spouse (a relative by blood within the sixth degree and a relative by affinity within the third degree) or children appointed to be cared for by prefectural governors, or elderly people appointed to be supported by the mayor of the municipality. ii. Living expenses are paid from the same resources as the taxpayer. iii. The total amount of income is 480,000 yen or less. (If only salary income is earned, the amount of salary income is 1,030,000 yen or less) iv. Employees who have not received any salary payments for the entire year for those filing blue returns or are not an employee filing white returns.

   
   
6. Requirements for recording of payroll details
   
   From June 1, 2024, employers should record the amount of income tax deductions for the tax flat-amount cut in the payroll statement given to workers, reflect the amount of tax cut, present the amount of tax cut on withholding record prepared after the completion of the year-end adjustment, state the amount of tax cut at the year-end adjustment that has been actually deducted in its “(Remarks)” or the balance of the flat-amount cut etc.