When making payments to an overseas company or individual,a withholding obligation may arise in Japan. If withholding is omitted, the payer is responsible for remitting the tax.

This Is a Particularly Common Source of Problems in International Transactions.

Statutory definition

Article 212(1) of the Income Tax Act.

Non-residentA person making a payment in Japan to such a person of domestic-source income listed in Article 161, paragraph (1),items (iv) through (xvi)（domestic source income(excluding items prescribed by Cabinet Order), orforeign corporationmaking a payment in Japan to such a person of domestic-source income listed in that paragraph,items (iv) through (xi) or (xiii) through (xvi),… must withhold income tax from that domestic-source income at payment and remit it to the national governmentby the 10th of the following month.

The Relevant Items Differ Between Non-Residents and Foreign Corporations.First establish whether the recipient is an individual or a corporation.

Tax Rates (Article 213, Paragraph (1), of the Income Tax Act)

For item (i), Article 213, paragraph (1), item (i)(a)–(c), provides deductions from the tax base for pensions, prizes, and similar payments. For some categories, the rate is not simply multiplied by the gross payment.

Article 161, paragraph (1), item (v), concerning consideration for land and similar property, excludes payments prescribed by Cabinet Order. Article 281-3 of the Order for Enforcement of the Income Tax Act excludespayments not exceeding JPY 100 million made by an individual acquiring the property for use as a residence for themselves or a relative. In this case, the payment does not constitute domestic-source income under that provision.

For income arising during 2026, Article 28, paragraphs (1) and (2), of the Reconstruction Financing Act requires withholding and payment of Special Income Tax for Reconstruction equivalent to2.1%of the income tax required to be withheld.

Under the FY2026 reforms, income tax on income arising on or after January 1, 2027, is supplemented by Special Income Tax for Reconstruction at 1.1% and Special Defense Income Tax at 1%. The combined 2.1% remains unchanged, as do the table's rates of 20.42%, 10.21%, and 15.315%. The period for the reconstruction surtax is extended by ten years through December 31, 2047.

Japanese Withholding Obligations May Remain Even When Payment Is Made Abroad

Article 212, paragraph (2), of the Income Tax Act.

Where domestic source income specified in the preceding paragraph ispaid outside Japan,where the payer has a domicile or residence in Japan, or an office, place of business, or equivalent establishment in Japan, that payer's payment of the domestic-source income ispaying the domestic source income in Japan,, and that paragraph applies. In this case, “by the 10th of the following month” is read as“by the last day of the following month.”" is used.

Sending Money Abroad from an Overseas Account Does Not Necessarily Remove the Obligation.The payment deadline also changes.

Treaty Reductions and Exemptions Require Advance Notification

tax treaty Even whereprovides maximum tax rates or exemptions, they do not apply automatically.

Article 2, paragraph (1), of the Ministerial Order implementing the Act on Special Provisions of the Income Tax Act, the Corporation Tax Act, and the Local Tax Act Incidental to Enforcement of Tax Treaties and Other International Agreements provides that, for a treaty partner resident resident or similar recipient seeking treaty reduction or exemption on dividends and similar payments,for each withholding agent,after the treaty takes effect,by the day before the first payment is received,submit the notification through the withholding agent. Separate rules apply to bearer shares, bonds, and similar instruments.

Without Notification, Domestic Rates Must Be Applied at Payment.However, the treaty benefit itself is not lost; paragraphs (8) and (9) provide fora refund claim. Cash-flow and administrative burdens remain.

For treaties containing limitation-on-benefits clauses, Article 9-2 and subsequent provisions of the same Ministerial Order separately prescribe notifications and related procedures for persons claiming those benefits.For Some Treaties, a Single Notification Form Is Not Enough.

What Happens If Withholding Is Omitted?

Article 67, paragraph (1), of the Act on General Rules for National Taxes provides that, where national taxes collected through withholding or similar means are not fully paid by the statutory deadline, a non-payment penalty is imposed on the notified tax amount and related amounts at a rate often percent. That paragraph contains a proviso.

However, paragraph (2) provides that, where payment is made after the statutory deadlinewithout anticipatingthat a payment notice would be issued, the rate is5%. Paragraph (3) provides that paragraph (1) does not apply where the case falls within circumstances prescribed by Cabinet Order indicating an intention to pay by the statutory deadline, and payment is madewithin one month after the statutory payment deadline.The Sooner You Pay After Discovering the Omission, the Lower the Burden.

And the Payer Is Responsible for Remitting the Tax.Article 222 of the Income Tax Act allows the payer to claim an amount equal to unwithheld income tax from the person from whom it should have been withheld. Whether that amount can actually be recovered is another matter.

Points that require care in practice

• Are Fees Paid to an Overseas Freelancer Covered?It depends on the category of domestic-source income involved.
• Are Cloud Service Fees Royalties?The contractual terms matter.
• What If the Recipient Says, “We Do Not Pay Tax in Japan”?Withholding is the payer's obligation.
• What If the Contract Promises a Net Payment?This raises the issue of grossing up.
• What If the Recipient's Country of Residence Is Unknown?You cannot determine eligibility for treaty benefits.
• What If Payments Have Been Made Without Withholding for Years?Tax payment notices may be issued retroactively.

Check Before Sending the Money.Once payment has been made, your options narrow. Consult us once the type of overseas payment is known.

Legal basis

• Article 161, Paragraph (1), of the Income Tax Act (Domestic-Source Income)
• Article 212 of the Income Tax Act (Withholding Obligations)
• Article 213 of the Income Tax Act (Amount of Tax to Be Collected)
• Article 281-3 of the Order for Enforcement of the Income Tax Act (Consideration for Transfers of Land and Similar Property Located in Japan)
• Article 222 of the Income Tax Act (Deduction of Uncollected Tax from Payments, Claims for Payment, etc.)
• Article 28 of the Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction Following the Great East Japan Earthquake (Withholding Obligations, etc.)
• Article 2 of the Ministerial Order implementing the Act on Special Provisions of the Income Tax Act, the Corporation Tax Act, and the Local Tax Act Incidental to Enforcement of Tax Treaties and Other International Agreements
• General Act of National Taxes, Article 67 (Additional Tax for Nonpayment)
• Article 5-26(1) and (2) of the Act on Special Measures for Securing Financial Resources Necessary for Fundamentally Strengthening Japan's Defense Capabilities and Related Measures (effective January 1, 2027)

An individual determination requires confirmation of the contract and counterparty.