Japan’s FY2026 Tax Reform – Part 3Tax Returns and the Recent Income Tax Changes

As Japan enters the tax return season, many foreign residents are preparing to file their individual income tax returns.

This year, it is important to understand how the recent income tax reforms relate to tax returns, and what they do – and do not – affect.

Do the new income tax changes apply to this tax return?

In short: mostly no, but preparation is important.

The income tax changes announced in the FY2026 Tax Reform Outline are future oriented. They mainly apply to income earned after the reforms take effect, not to income being reported now.

However, understanding these changes early helps avoid confusion.

Key points for this tax return season

1. This year’s tax return is based on current rules

Your current tax return must be prepared using:

• The existing basic deduction

• The current employment income deduction

• The rules that were already in force during the tax year

Planned increases in deductions do not apply yet.

2. Who must file a tax return?

Foreign residents often need to file a tax return if they:

• Are self-employed

• Have multiple sources of income

• Have income not fully adjusted through payroll

• Claim deductions not handled by year-end adjustment

Relying on assumptions based on other countries’ systems can lead to mistakes.

3. Be careful when seeking help

During tax season, some foreign residents rely on:

• Friends

• Language support staff

• Unlicensed advisors

In Japan, only licensed tax accountants (Zeirishi) are legally allowed to provide tax filing services for others.

Using unqualified help can result in:

• Incorrect filings

• Penalties

• Missed deductions

Why these matters going forward

Even though the recent tax reform changes do not fully apply yet:

• Payroll systems

• Year-end adjustment

• Next year’s tax returns

will be affected once the reforms are implemented.

Understanding the direction of the changes now makes future filing much easier.

What’s next in this series?

Next time, we will look at:

• How the income tax changes may affect foreign residents in practice

• Who is likely to benefit most from the revised deductions

※ Note: Japan’s tax system relies heavily on year-end adjustment and deductions, which differ significantly from many other countries. Early understanding helps avoid filing errors.