Chapter 3: Year-end adjustment (income tax)

1.The year-end adjustment is the process whereby the payer of salary, etc. settles the discrepancy for each person between the total amount of income tax withheld from each payment of salary, etc. made during the year and the tax amount to be paid for total salary, etc. paid during the year at the time of the last payment of salary, etc. in the year. For most people receiving a salary, etc., therefore, the year-end adjustment plays an important role as a substitute for filing a final return.

2. The year-end adjustment process requires the employer to collect various declarations from the employee in order to calculate deductions. This includes changes to dependents, spouse’s income, and insurance payments.

<Process>

(1) Confirmation of various deductions for exemption for dependents, life insurance/earthquake insurance premiums, (special) exemption for spouses, basic exemption, special credit for loans, etc. related to a dwelling (specific additions or improvements, etc.) and exemption of amount of income adjustment.

(2) Settlement of any discrepancy and payment by year-end adjustment.

(3) Withholding record delivered to the taxpayer and submitted to a tax office.

<Form used>

Application for Exemption for dependents for Employment Income Earner,

Application for Deduction for Insurance Premiums for Employment Income Earner,

Application for Exemption for Spouse of Employment Income Earner,

Application for Basic Exemption of Employment Income Earner,

Application for Special Credit for Loans, etc. Related to a Dwelling (Specific additions or Improvements, etc.) for Employment Income Earner, and

Application for Exemption of Amount of Income Adjustment.

Based on the above process and form used, the appropriate annual tax amount is calculated by taking into account physical deductions and personal deductions.

3.Employment Income Withholding Record

Any person paying a salary, etc. in Japan is required to issue to the recipient a payment slip stating the amount of the salary accrued and determined during the period between January 1 and December 31 of the relevant year , the amount of tax withheld, and certain other necessary matters" at the time of payment.

The payer of salary shall prepare two copies of an “Employment Income Withholding Record”.

One copy should be submitted, together with a totalized table, to the tax office by January 31 of the following year, and the other copy should be issued to the beneficiary.

NAKAJIMA TAX & ACCOUNTING OFFICE provides one-stop “Accounting”, “Taxes”, and “Payroll” outsourcing service for foreign companies starting up business in Japan and foreign founders starting up business in Japan.

NAKAJIMA TAX & ACCOUNTING OFFICE also assists to prepare year-end Financial Statements closing and e-filing Corporate Tax Return and Consumption Tax Return.

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