Japan’s FY2026 Tax Reform – Part 4What Will Change for Foreign Residents?

After looking at the tax reform outline and its relation to tax returns, the key question for many foreign residents is simple:

“How will this change affect me?”

Below is a practical summary of what is likely to change — and what is not.

1. Lower income tax for many foreign residents

The planned increase in:

• the basic deduction, and

• the minimum employment income deduction

means that many foreign residents will have less taxable income.

This mainly benefits:

• Employees with low to middle income

• Foreign residents working full-time or part-time in Japan

For most people, this reduction will be reflected automatically through:

• payroll, and

• year-end adjustment

2. Easier understanding of take-home pay

For foreign employees, Japan’s tax system can feel complex and unpredictable.

With higher deductions:

• Monthly tax withholding may decrease slightly

• Take-home pay becomes more stable

This makes Japan’s system a bit easier to understand and plan for, especially for those unfamiliar with Japanese deductions.

3. Impact on self-employed foreigners

For self-employed foreign residents:

• The higher basic deduction can reduce final income tax

• However, proper bookkeeping and filing remain essential

Unlike employees, self-employed individuals must still:

• calculate tax manually, and

• file a final tax return

The reform does not remove this responsibility.

4. What does NOT change

It is important to note:

• Filing deadlines do not change

• Reporting obligations do not change

• Japan’s residency-based taxation system remains the same

Foreign residents are still taxed based on:

• residency status, and

• type of income earned

5. Why early awareness matters

Even small tax changes can cause confusion if misunderstood.

By understanding the reform early:

• Foreign residents can avoid filing mistakes

• Employers can prepare payroll systems

• Advisors can give clearer guidance

This is especially important in Japan, where tax rules differ significantly from many other countries.

What’s next?

In the next article, we will focus on:

• Common misunderstandings among foreign residents

• Practical tips to avoid tax trouble during filing and year-end adjustment

※ Note: Japan’s tax reforms are announced first as policy outlines. Actual tax savings depend on final laws and individual circumstances.