Starting in 2027, a revised minimum tax regime will apply to certain high-income individuals in Japan. While JPY165 million is used as a calculation threshold, additional tax is only triggered where the minimum tax exceeds the regular income tax liability. The reform is intended to ensure a minimum level of taxation, particularly where a significant portion of income is derived from investment or equity-based sources.
The strengthening of the rule reduces the income exclusion threshold and raises the minimum tax rate to 30%. This change will result in a broader range of taxpayers being subject to the rule, as well as increased tax liabilities for those already within the scope of the minimum tax. This also extends to foreign residents and cross-border investors operating in Japan.
Japan’s individual income tax system is based on progressive tax rates ranging from 5% up to 45% (approximately 55% including the 10% local inhabitant tax). However, certain types of income—such as capital gains and dividends—are subject to separate taxation at a flat rate of approximately 15% (20% including the 5% inhabitant tax). As a result, individuals with substantial investment income may have a lower effective tax rate compared to those earning primarily employment income.
To address this imbalance, Japan implemented a minimum tax rate for high-income individuals. This mechanism requires a dual calculation: tax is first figured under the standard rules and then re-calculated under a separate minimum tax regime. The taxpayer is ultimately liable for whichever amount is higher, ensuring that the total tax paid does not fall below a set percentage of total income.
Under the current rules (effective from 2025), individuals with total income exceeding JPY330 million may be subject to a minimum tax calculation. This does not automatically result in additional tax; instead, a comparison is made between the regular income tax liability and the minimum tax amount, with additional tax arising only if the minimum tax exceeds the regular tax liability.
The minimum tax is generally calculated as a fixed percentage of income above a specified threshold and compared with the regular tax amount.
Starting in 2027, the scope will be significantly expanded. The income threshold will be reduced from JPY330 million to JPY165 million, and the applicable rate will increase from 22.5% to 30%. As a result, individuals who were previously outside the scope of the rule may become subject to additional taxation—particularly in years with large one-time income events, such as capital gains or real estate sales, where the minimum tax is more likely to exceed the regular tax liability.
The impact of the reform can be understood in two ways: first, by expanding the range of individuals affected, and second, by increasing the level of tax exposure for high-income individuals.
Assume an individual earns:
This results in total income of JPY600 million.
Under the current rules:
Since this amount is lower than the calculated standard tax liability of ~JPY118 million, the minimum tax does not apply.
Using the same income assumptions:
Total income remains JPY600 million.
Under the revised rules:
The minimum tax now exceeds the standard tax liability of ~JPY118 million, resulting in additional tax of approximately JPY13 million as shown in the table below:
* All tax figures include the Reconstruction surtax (and the new Defense tax for 2027) to ensure an accurate comparison.
* The Final Tax Due reflects the higher of the standard tax liability or the revised 30% minimum tax floor. Figures are rounded for illustrative purposes.
This rule applies only to national income tax and does not extend to inhabitant tax. However, the additional tax is subject to the reconstruction surtax.
It is also worth noting that reducing taxable income through deductions—such as those arising from Furusato Nozei contributions—may not reduce the overall tax burden under this rule and, in some cases, may increase the additional tax due to the structure of the calculation.
Individuals expecting significant income events should consider advance tax projections and planning to ensure sufficient liquidity in meeting potential tax liabilities.
This rule may affect foreign individuals depending on their tax residency status and the scope of income subject to taxation in Japan. In particular, the interaction between Japanese tax rules and cross-border income can result in unexpected negative tax consequences that differ from initial expectations.
For non-permanent residents (individuals who are not Japanese nationals and have lived in Japan for five years or less within the past ten years), taxation generally applies to Japan-source income and for foreign-source income, only to the extent it is paid into or remitted to Japan. However, taxable income is not limited to just these two categories. Under Japanese tax law, certain income - referred to as income other than foreign source - may still be taxable in Japan even if it is not Japan-sourced.
As a result, the scope of taxable income for non-permanent residents can become broader than expected.
For non-residents (those who are temporary visitors or individuals whose primary residence is elsewhere), only Japan-source income is considered. However, where substantial income arises—such as from Japanese real estate sales—the effective tax rate may approach 30% in certain cases under this new regime.
These considerations may be particularly relevant for foreign executives receiving equity-based compensation, cross-border investors with overseas assets, and individuals who expect significant one-time income events.
The strengthening of this rule represents a significant shift in Japan’s taxation of high-income individuals. From 2027 onward, the bar for additional taxation will be lower, targeting income levels previously not impacted and applying to a wider range of financial situations.
Careful planning will be essential, particularly for individuals anticipating large capital transactions or cross-border income flows.
* Disclaimer: These calculations are estimates based on the proposed tax reforms. Actual tax liabilities may vary depending on individual circumstances and future detailed tax regulations.
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CRS等による各国税務当局間の情報交換が進むなか、海外資産に関する税務コンプライアンスの重要性が高まっています。本稿では、日系企業の進出が拡大するインドにおける海外資産の申告制度について、概要や対象資産、未申告時の罰則等を解説します。
日本でのビジネスを計画する際、投資環境はもちろん、法務、会計、税務、そして人事に関する枠組みについての知識は、事業を成功に導くために不可欠です。 本ガイドは、日本での事業展開に関心をお持ちの皆様を支援するために作成されました。事業開始にあたって生じるであろう、重要かつ広範な疑問にお答えすることを目指しています。
As part of the 2025 tax reform, revisions have been introduced to reduce the tax burden amid rising wages and to aid flexible employment arrangements. The reform includes an increase in the basic exemption and the minimum amount of the employment income deduction, as well as the introduction of a new special exemption for specific dependents.
