# Local inhabitant tax



## Patch66

As I may be leaving japan i am now only really aware of the obligation of LIT, ie if I leave before year end I essentially owe LIT for all of 2013, is there an expectation that I pay this in full before I leave or do I have time to clear this. I'm curious also how this is policed, dual tax treaty with next destination, also can we mitigate amount due by offset somehow. I would be rather surprised if there is expectation to pay this full, what happens to those who simply can't afford it....


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## larabell

Technically, you're supposed to either pay it when you leave or make arrangements for someone else to pay it when it's due (for 2013, that would be May 2015 through April 2016). Presumably your employer would make those arrangements for you if you were working on a salaried basis.

The tax guys aren't going to be impressed with "I can't afford it" because, in theory, it's a percentage of what you've already earned and you should have been putting it aside. That said, a lot of departing foreign workers don't pay it at all (if you believe what they say on various forums). It would likely affect your ability to get another working visa in the future. I've never heard of anyone being pursued outside of Japan by way of tax treaties but since the US has been cracking down on international tax evaders lately, Japan can't be far behind. If I had to venture a wild guess... right now... I'd say there's only a 10% chance, plus or minus 50%, that you would eventually be caught -- assuming you don't try to come back to Japan to live. But if it were me, I'd pay it... or at least make some kind of deal to pay some part of it over time... since you *do* owe the money.


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## Patch66

Thanks for reply,so essentially not mandatory to pay in full before departure but during window you indicated to keep a clean sheet .? I'm sure this must catch a lot of folk out










larabell said:


> Technically, you're supposed to either pay it when you leave or make arrangements for someone else to pay it when it's due (for 2013, that would be May 2015 through April 2016). Presumably your employer would make those arrangements for you if you were working on a salaried basis.
> 
> The tax guys aren't going to be impressed with "I can't afford it" because, in theory, it's a percentage of what you've already earned and you should have been putting it aside. That said, a lot of departing foreign workers don't pay it at all (if you believe what they say on various forums). It would likely affect your ability to get another working visa in the future. I've never heard of anyone being pursued outside of Japan by way of tax treaties but since the US has been cracking down on international tax evaders lately, Japan can't be far behind. If I had to venture a wild guess... right now... I'd say there's only a 10% chance, plus or minus 50%, that you would eventually be caught -- assuming you don't try to come back to Japan to live. But if it were me, I'd pay it... or at least make some kind of deal to pay some part of it over time... since you *do* owe the money.


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## Patch66

*to confirm - LIT*

its clear to me now, with LIT you are paying for the proceeding year, so in 2014 I am paying LIT for 2013 thru my regular pay/taxes. the key is in order not to have to pay LIT for 2014 you have to permanently leave the country by 31st Dec of that year, if your still in the country on 1st Jan 2015 then you are liable for ALL 2014 LIT tax.


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## larabell

Technically, your LIT for any given year, payable from May of that year to April of the next year, is a percentage of your National Income Tax as reported in March of that same year. So if you left Japan on the last day of 2013, you would still be required to file a tax return for 2013 (due on March 15 of 2014 unless your employer does it for you at the end of December 2013) and that would trigger LIT to be payable in 2014, starting the following May. Even though that money would be taken out of your paycheck in 2014, had you still been working in Japan, it's not a tax on your 2014 income. It's a tax on your 2013 income that's simply delayed by a year. That's why when you first come to Japan, you don't pay LIT until the second year you're here -- because the way LIT is calculated, it's always delayed by a year.

I don't think you can get out of paying your 2014 LIT by leaving by the end of 2014. If you earned enough income during 2014 to cross the zero-tax threshold, you're on the hook for 2014 LIT, even if you're out of the country when it comes due.


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## Patch66

*cont*

thanks again, will speak with E&Y again as the message Im getting is get out of Japan before year end else you will have to pay LIT for 2014......appreciate the info.


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## shamar

If you leave Japan before the end of the year and hand in your ALIEN reg card then you will not be liable for any inhabitants tax because they cannot calculate the total yearly salary, ie it may only be 364/365 of a year.


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## Patch66

*reply*

your wrong buddy, you are paying for previous year. 
I met with tax lawyer last week. income tax is Jan - Dec but LIT cycle is June - next May. 
IE thru until end May 2014 your still actually paying inhabitants tax for 2012. payment cycle of LIT is June - next May , so if you leave by end Dec 2014 you still have the LIT payments for 2013 to clear which would normally be deducted via payroll thru until June 2015. you can continue to clear thru payroll each month but if you leave the country for good you need to clear whats left of 2013 LIT by Jan 2015. Also important to leave by year end so you dont get hammered for the 2014 LIT round of payments. So if you dont want to pay LIT for 2014 income then leave the country before 1 Jan 2015. Thats why most EXPAT leave at year end so not to have to pay a further full year of LIT.


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## larabell

shamar said:


> ... they cannot calculate the total yearly salary, ie it may only be 364/365 of a year.


I'm pretty sure the tax office has calculators. If you're living and working in Japan for 364/365 of a year, then 99.72% of your annual income for that year is taxable in Japan. If your employer doesn't do the final round-up for your December paycheck, then you're still obligated to file a return by 15 March of the following year (or designate someone to do it for you if you're not in the country).

Patch66 is right -- if you worked a significant part of any given year, you will owe both National Tax and Inhabitant's Tax for that year, even if you leave before the year is over [1]. However, if you leave the country on the 10th of January, then only about 3% of your income for that year will be taxable in Japan. If you earned around 6 million yen that year, the portion that would be taxable in Japan would only be about 160K yen, which I don't think is enough to put you over the threshold for even filing, much less paying. So the trick isn't to leave before the 1st of the year but to leave before you earn more than 650k yen (approximately the amount you whack off the top when you're computing your taxable income). Of course, anyone leaving early in the year might want to run the numbers through the tax form first and not rely on my hastily contrived rule-of-thumb.

[1] This is true even if you hand in your jumin card when you leave. Of course, if you're leaving for good, it's doubtful they'll extradite you for a few hundred thousand yen. But in these days of computers and biometric passports, you might get dinged if you come back again later. And if your employer was your guatantor, they might get a nasty phone call as well.


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## larabell

Patch66 said:


> ... but if you leave the country for good you need to clear whats left of 2013 LIT by Jan 2015.


Thanks for posting that. I didn't know the exact deadline for people who had already left the country so that's useful information for the archives. I assume the same applies to people who quit working at some point but don't leave the country.


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## shamar

Yes, I imagine the technical answer might be that you have an obligation to pay LIT. I have left Japan twice in the same manner, having stayed there for several years, handed in my Gaijin card and then subsequently filed tax return from o/s, I never received an assessment of LIT in the middle of the following year, and they did not garnish any money from the bank accounts that I retained in Japan. I have heard from other people that it is a different case for any NHI payments which are outstanding when you leave Japan, if you maintain a bank account. 

If it were me, i would leave before, dec 31st, if you never have an assessment forwarded to you, then no drama, if an assessment is forwarded to you (which has not been my experience) then you can make the judgement on whether it is important for you to make that payment or not.

I am just speaking anecdotally about my experience, but in my experience the lodgement of the tax return seems to have no bearing on the LIT, and it seems to me that it also needs the status of residence on the final day of the year


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## shamar

Prefectural inhabitants’ tax and municipal inhabitants’ tax are generically called 
inhabitants’ tax. The inhabitants’ taxes are levied on a per-income base and a 
per-capita basis on those who have a domicile as of January 1. For those who 
have an office or a house, even if they do not live there, the inhabitants’ taxes are 
levied on a per-capita basis. 

I think this means that the LIT assessment that you receive mid 2013 is dependend on you being a resident in Japan on Jan 1st 2013, if you are not a resident on that date then you will not get an assessment.

Correct me if I am wrong


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## larabell

It looks like you may be right. It took quite a bit of looking but I finally found a document published by Deloitte [1] that says:



> These taxes are referred to combined as Local Inhabitants Taxes (LIT), and are imposed on taxpayers who have a domicile in Japan on January 1 of a year.
> 
> Income subject to LIT is the Japan taxable income for the previous year, i.e. a taxpayer is subject to LIT on income for 2012, if the taxpayer has a domicile in Japan on January 1, 2013.
> 
> Therefore if the taxpayer was to leave Japan permanently before January 1, 2013, no LIT would be payable on 2012 income. However, Japan taxable income for 2012 remains subject to National tax.


So it looks like you really can escape paying LIT by leaving (ie: turning in your residents card at the airport on the way out) before the 1st of January.

[1] http://www.tohmatsu.com/assets/Dcom...gesbrochure_individualtaxation2013_190813.pdf


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