When making a payment from Japan to someone living overseas,the payer withholds income tax and remits it to the government.If this is forgotten, the payer faces additional tax collection.
Who bears the obligation?
Article 212(1) of the Income Tax Act, titled “Withholding Obligation.”
Non-resident A person who pays in Japan to such a person domestic source income specified in Article 161(1)(iv) through (xvi) (domestic source income Domestic Source Income),excluding that prescribed by Cabinet Order,who makes such a payment,orforeign corporation to a foreign corporation,in Japan, pays domestic source income under that paragraph'sitems (iv) through (xi) or (xiii) through (xvi),as specified therein, excluding income falling underArticle 180(1)or Article 180-2(1) or (2), and income prescribed by Cabinet Order, must comply with the withholding requirement.at the time of payment,with respect to this domestic source income,withhold income tax and pay it to the government by the tenth day of the month following the month of withholding.。
The obligation is on the “person making the payment.”It is not on the recipient.The payer bears the tax payment obligation.
The covered items differ for nonresidents and foreign corporations.
| Recipient | Domestic source income covered |
|---|---|
| Non-resident | Article 161(1)Items (iv) through (xvi) |
| foreign corporation | Article 161(1)Items (iv) through (xi)andand (xiii) through (xvi) |
For foreign corporations, item (xii), covering salaries, remuneration, pensions, and similar income, is excluded.This is because corporations do not earn salaries.For foreign corporations, income covered by Article 180(1), including cases where a certificate is held by a foreign corporation with permanent establishment such an establishment, and other specified provisions is excluded.
Payment abroad also requires withholding (paragraph (2))
Where domestic source income specified in the preceding paragraph ispaid outside Japan,and the payerhas a domicile or residence in Japan, or an office, place of business, or equivalent in Japan,that person is treated aspaying the domestic source income in Japan,and the preceding paragraph applies. In that case, the words“by the tenth day of the following month”are read as“by the last day of the following month.”" is used.
Even a transfer from one overseas bank account to another is subject to withholding if the payer has a base in Japan.
Only the payment deadline changes.The tenth day of the following month → The last day of the following month。The obligation remains; only the deadline is extended.
Three rate categories (Article 213(1))
The Article is titled “Amount to Be Withheld.”
(i) For domestic source income specified in paragraph (1) of the preceding Article, excluding income listed in the following item and item (iii), the amount (...) is multiplied bytwenty percent.is applied to calculate the tax.
(ii) Article 161(1),item (v),For the domestic source income specified therein, the amount is multiplied by the applicable rate.ten percentis applied to calculate the tax.
(iii) Article 161(1),Items (viii) and (xv)For the domestic source income specified therein, the amount is multiplied by the applicable rate.fifteen percentis applied to calculate the tax.
For income arising in 2026, Special Income Tax for Reconstruction is added under the pre-amendment provisions of Article 28(1) and (2) of the Reconstruction Finance Act.
The amount of Special Income Tax for Reconstruction to be withheld under the preceding paragraph is ...“the amount of income tax”……the amount calculated by multiplying the income tax amount by a rate of 2.1%.That is its role.
The 2.1% is applied to the income tax amount.It is not applied to the payment amount. Thus, 20% × 1.021 = 20.42% the combined rate. The composition of the surtaxes changes from 2027, but the combined rate remains the same, as discussed below.
| Rate under the Income Tax Act | Income covered (item in Article 161(1)) | Rate including surtaxes |
|---|---|---|
| 15%(item (iii)) | Interest and similar income（Item (viii)）、Compensatory payments, interest, profits, and gains（Item (xv)） | 15.315% |
| 10%(item (ii)) | Consideration for transfers of land, buildings, and similar property（Item (v)） | 10.21% |
| 20%(item (i)) | All income other than the above | 20.42% |
Item (i) is the catch-all, excluding “income listed in the following item and item (iii).”All income other than items (v), (viii), and (xv) is subject to 20.42%.
| Item | Content | Tax rate |
|---|---|---|
| Item (vi) | A business primarily involving the provision of personal services:consideration for that business | 20.42% |
| Item (vii) | Real estate and similar property in Japan:Loanconsideration arising from its use | 20.42% |
| Item (ix) | Dividends and similar income | 20.42%(special provisions under the Special Measures Act apply to listed shares and similar securities) |
| Item (x) | Interest on loans | 20.42% |
| Item (xi) | Royalties(industrial property rights, copyrights, and similar rights) | 20.42% |
| Item (xii)(a) | Salaries and remuneration | 20.42% |
| Item (xii)(c) | Retirement allowances and similar payments | 20.42% |
| Item (viii) | Interest and similar income(including interest on national government bonds, local government bonds, and bonds issued by domestic corporations) | 15.315% |
| Item (xv) | Compensatory payments, interest, profits, and gains | 15.315% |
“Interest” cannot be treated as a single category.Interest and similar income under item (viii), such as bond interest, is subject to 15.315%,while interest on loans under item (x) is subject to 20.42%.It is.The same word “interest” can refer to income taxed at different rates.
Consideration for a business primarily involving personal services falls under item (vi) and is subject to 20.42%.It is not item (viii).
Items not shown in the table above also fall on the 20.42% side.Item (iv): allocation of profits from a partnership business;item (xii)(b): public pensions and similar payments;item (xiii): advertising prizes; item (xiv): insurance annuities; and item (xvi): distributions of profits under silent partnership agreements.Of these, items (xii)(b), (xiii), and (xiv) are calculated on the balance after the deductions described next.
Not everything paid to a nonresident is subject to 20.42%, but much of it is.
However, that statement is limited to looking only within the Income Tax Act.Under Article 213(1) of the Income Tax Act, only items (v), (viii), and (xv) have lower rates,but there are two additional routes.
(1) Special provisions under the Special Measures Act.Article 9-3 of the Act on Special Measures Concerning Taxation (Special Provisions on Withholding Tax Rates for Dividends on Listed Shares and Similar Securities) provides, for certain dividends and similar income, that“the twenty percent rate specified in ... Article 213(1)(i) ... shall be fifteen percent.”That is the statutory rule.Dividends on listed shares and similar securities are subject to 15.315%.
However, item (i) has a limitation.Payments must be received by a person other than “an individual holding shares or equity interests equivalent in number or amount tothree percent or moreof the total number or amount of the domestic corporation's issued shares or equity interests (... referred to as a‘major shareholder or similar person’).”This is the defined term.Persons other than those individualsare eligible recipients.Individuals holding 3% or more fall outside this special provision.
② tax treaty。This is discussed below.
Item (i) also has a parenthetical deduction provision:pensionsunder item (xii)(b) are calculated after deducting from the pension amount¥50,000 × the number of months;this deduction applies.Prizesunder item (xiii) are subject to their specified deduction.JPY 500,000this deduction applies.Insurance annuitiesunder item (xiv) are calculated on the balance after deducting corresponding premiums and similar amounts.
Special Income Tax for Reconstruction has an end date
The parenthesis in Article 28(1) of the Reconstruction Finance Act, as amended in FY2026, applies to income tax on income arising on or after January 1, 2027.
At the time of withholding (limited to withholding required between January 1, 2013 and December 31, 2047),
the taxable period for Special Income Tax for Reconstruction is extendedto December 31, 2047by ten years. For income tax on income arising on or after January 1, 2027, Special Income Tax for Reconstruction of 1.1% and Special Income Tax for Defense of 1% are added. The total remains 2.1% of the income tax amount, so the combined rates of 20.42%, 10.21%, and 15.315% remain unchanged.
A tax treaty may reduce the rate
The domestic-law rate of 20.42% is not necessarily the final rate.If a tax treaty provides a maximum rate, the treaty takes priority. However,applying the treaty generally requires submission of an Application Form for Income Tax Convention.
Without that form, tax is withheld at the domestic-law rate.A subsequent refund procedure exists, but arrangements should first be made to obtain the form from the recipient before payment.
What happens if you forget?
Withholding is the payer's obligation.Even if you forget to withhold and transfer the full amount, the obligation to remit the tax remains.The payer pays out of pocket and seeks reimbursement from the recipient.That is the resulting process.
In addition,Delinquent Tax Additional Chargeanddelinquent tax interestadditional charges apply. Overseas payments are often large,so even a low rate can produce a substantial amount.
Points that require care in practice
- Does the obligation apply merely because payment is made to an overseas account?Under Article 212(2), it applies if the payer has a base in Japan; the payment deadline is the last day of the following month.
- Is the rate always 20.42%?Consideration for transfers of land, buildings, and similar property (item (v)) is subject to 10.21%; interest and similar income (item (viii)) and compensatory payments and similar income (item (xv)) are subject to 15.315%. Other income is subject to 20.42%.
- What about consideration for a personal services business?It falls under item (vi), at 20.42%.
- What about retirement allowances?They fall under item (xii)(c), at 20.42%.
- Which rate applies to “interest”?Interest and similar income under item (viii) is subject to 15.315%; interest on loans under item (x) is subject to 20.42%.
- Is the surtax applied to the payment amount?It is applied to the income tax amount. From 2027, it comprises Special Income Tax for Reconstruction of 1.1% and Special Income Tax for Defense of 1%, leaving the total unchanged at 2.1%.
- Can a treaty reduce the rate?Submission of the application form is a prerequisite.
- What if the recipient is a foreign corporation?Item (xii), covering salaries and similar income, does not apply. Cases involving a certificate under Article 180(1) and other specified cases are also excluded.
- I forgot to withhold and sent the full amount.The payment obligation remains. Additional tax and delinquent tax also apply.
For overseas payments, it is safer to determine the rate and arrange the treaty application form when preparing the contract.If you notice only after remitting the money, you may be unable to recover it from the recipient. If you plan overseas payments of royalties, fees, or real estate purchase prices, consult us before signing the contract.
Legal basis
- Article 212(1) and (2) of the Income Tax Act (Withholding Obligation)
- Article 213(1), each item, of the Income Tax Act (Amount to Be Withheld)
- Article 161(1)(iv) through (xvi) of the Income Tax Act (Domestic Source Income)
- Article 180(1) of the Income Tax Act (Special Tax Treatment of Domestic Source Income Received by Foreign Corporations with a Permanent Establishment)
- Article 9-3(i) of the Act on Special Measures Concerning Taxation (Special Provisions on Withholding Tax Rates for Dividends on Listed Shares and Similar Securities)
- Article 28(1) and (2) of the Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction Following the Great East Japan Earthquake
- 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)
This article does not cover treaty maximum rates and application procedures, the “items prescribed by Cabinet Order” excluded by the parenthesis in Article 212(1), items (ii) through (iv) of Article 9-3 of the Special Measures Act, or calculations of additional tax and delinquent tax. Individual determinations require confirmation of the payment's nature and the recipient's country of residence.
This article is a general explanation based on laws and regulations as of September 7, 2026. Please consult us about your individual circumstances before taking action.
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