Japan’s 2025 tax reform includes significant changes to personal deductions, including the basic deduction and the newly established special deduction for specific dependents. In light of recent inflation trends, the basic deduction has been increased for individuals with total annual income of JPY 23.5 million or less. Additionally, a new special deduction for specific dependents has been established for taxpayers with dependents aged 19 to 22 whose total annual income exceeds JPY 580,000.
Out of many changes in the 2025 tax reform, this article focuses on these deductions and their implications for global mobility.
For income tax years from 2025 onwards, the basic deduction for individuals with a total annual income of JPY 23.5 million or less will be increased by JPY 100,000, changing the basic deduction amount from JPY 480,000 to JPY 580,000.
For 2025 and 2026 only, a special basic deduction will be applied. Individuals with a total annual income of JPY 6.55 million or less will have their basic deduction amount increased to JPY 580,000, with an additional deduction amount added based on their income (see Table 1).
Table 1: Basic Deduction Amount by Income Level
Due to these amendments, the nontaxable income threshold for salaried employees for income tax purposes will be raised from the current annual income of JPY 1.03 million to a maximum of JPY 1.60 million for 2025 and 2026 (total of JPY 950,000 basic deduction and JPY 650,000 employment income deduction).
However, the basic deduction amount for local inhabitant tax has not been increased in the 2025 tax reform, and it remains unchanged.
The 2025 tax reform introduces a new deduction called “special deduction for specific dependents,” allowing taxpayers to receive income deductions for dependents aged 19 to 22.
Previously, dependents aged 19 to 22 were recognized as “specific dependents” and were eligible for a dependent deduction of JPY 630,000. However, if the total income of the dependent exceeded JPY 480,000, they were excluded from the deduction. With this tax reform, starting from the 2025 tax year, the total income requirement for dependents eligible for the deduction has been raised to JPY 580,000. Furthermore, even if the dependent’s total income exceeds JPY 580,000, if the dependent is aged 19 to 22 and lives with the taxpayer (excluding spouses and blue-form return business employees), and the taxpayer’s total income is JPY 1.23 million or less, a certain amount can be deducted from the taxpayer’s income (see Table 2).
Table 2: Special Deduction for Specific Dependents (Dependents aged 19–22)
The special deduction for specified dependents will also be introduced for local inhabitant tax, allowing a certain amount to be deducted from the taxpayer’s income starting from the year 2026 (applicable to 2026 local inhabitant tax to be assessed on 2025 income).
Effective Date
The amendments related to personal deductions will apply to income tax from the 2025 tax year; however, since the effective date is 1 December 2025 for salaried employees, the changes will be reflected for the first time in the 2025 year-end adjustment ("Nenmatsu Chosei") or in the 2025 individual income tax return filed in March 2026.
During 2025, the withholding tax on monthly salary payments by companies will be based on the current deduction amounts before the amendments. The updated withholding tax tables will apply to payments made from January 2026 onwards. Therefore, there will be no significant changes in the monthly withholding tax amounts during 2025, but it is expected that any excess tax withheld will be refunded during the year-end adjustment. Additionally, for employees who cannot undergo the usual year-end adjustment, such as those on overseas assignments or those who resign midyear, special considerations will apply, as detailed below.
The new deductions are not immediately applicable to employees who depart Japan by 30 November 2025. Because the effective date of the amended law is 1 December 2025, the year-end adjustment at the time of departure will be calculated based on the current law before the amendment. To apply the new deduction under the amended law to the income tax calculation, employees who received a year-end adjustment at the time of departure must appoint a tax agent ("Nozei Kanrinin") and file a tax return ("Kakutei Shinkoku") through that tax agent. This will allow the application of the new deduction amounts and enable a tax refund (when the employee’s income is only salary from one employer).
If a quasi-final tax return ("Jun Kakutei Shinkoku") is submitted for income earned up to the departure date by November 30, 2025, the tax calculation is based on the current law before amendment. Therefore, to apply the new deduction under the amended law, the employee is permitted to file an application for downward tax assessment ("Kosei no Seikyu") through the tax agent appointed by the employee. The employer’s Human Resources department should provide guidance to the affected employees regarding these procedures.
The amendments also affect hypothetical tax or net-pay guarantee calculations used in global mobility schemes. For long-term international assignees whose compensation structure is designed to guarantee the same net pay as if they remained working in Japan, recalculations will be required under the new deduction rates. Employers should review and adjust compensation packages accordingly, clearly communicating changes to the affected employees.
Employers covering taxes for employees seconded to Japan from overseas might need to revisit budgets for their Japanese tax liability due to potential changes in income tax liability resulting from the amendments. While this can present cost-saving opportunities, it's essential to reassess and reconcile any discrepancies against previously established budgets, ensuring timely accounting adjustments and revisions.
Japan's 2025 tax reforms address the impact of inflation and labor market concerns by enhancing personal income deductions and introducing new deductions for dependents aged 19 to 22.
This article summarizes key points regarding the basic deduction and the special deduction for specific dependents. Other amendments not discussed include increases to the employment income deduction and the easing of income thresholds for the single parent and spousal deductions.
For more information on the effect of the 2025 tax reform on global mobility issues, please consult your regular BDO contact or the author of this article.
Yasutake Hirano
BDO in Japan
Out of many changes in the 2025 tax reform, this article focuses on these deductions and their implications for global mobility.
Basic Deduction
For income tax years from 2025 onwards, the basic deduction for individuals with a total annual income of JPY 23.5 million or less will be increased by JPY 100,000, changing the basic deduction amount from JPY 480,000 to JPY 580,000.For 2025 and 2026 only, a special basic deduction will be applied. Individuals with a total annual income of JPY 6.55 million or less will have their basic deduction amount increased to JPY 580,000, with an additional deduction amount added based on their income (see Table 1).
Table 1: Basic Deduction Amount by Income Level
| Taxpayer’s Total Income Amount (JPY) | Basic Deduction Amount (JPY) | ||
| Current | CY2025–2026 | From CY2027 | |
| 0～1,320,000 | 480,000 | 950,000 | 580,000 |
| 1,320,001～3,360,000 | 880,000 | ||
| 3,360,001～4,890,000 | 680,000 | ||
| 4,890,001～6,550,000 | 630,000 | ||
| 6,550,001～23,500,000 | 580,000 | ||
| 23,500,001～24,000,000 | 480,000 | 480,000 | |
| 24,000,001～24,500,000 | 320,000 | 320,000 | 320,000 |
| 24,500,001～25,000,000 | 160,000 | 160,000 | 160,000 |
| 25,000,001～ | 0 | 0 | 0 |
Due to these amendments, the nontaxable income threshold for salaried employees for income tax purposes will be raised from the current annual income of JPY 1.03 million to a maximum of JPY 1.60 million for 2025 and 2026 (total of JPY 950,000 basic deduction and JPY 650,000 employment income deduction).
However, the basic deduction amount for local inhabitant tax has not been increased in the 2025 tax reform, and it remains unchanged.
New Special Deduction for Specific Dependents
The 2025 tax reform introduces a new deduction called “special deduction for specific dependents,” allowing taxpayers to receive income deductions for dependents aged 19 to 22.Previously, dependents aged 19 to 22 were recognized as “specific dependents” and were eligible for a dependent deduction of JPY 630,000. However, if the total income of the dependent exceeded JPY 480,000, they were excluded from the deduction. With this tax reform, starting from the 2025 tax year, the total income requirement for dependents eligible for the deduction has been raised to JPY 580,000. Furthermore, even if the dependent’s total income exceeds JPY 580,000, if the dependent is aged 19 to 22 and lives with the taxpayer (excluding spouses and blue-form return business employees), and the taxpayer’s total income is JPY 1.23 million or less, a certain amount can be deducted from the taxpayer’s income (see Table 2).
Table 2: Special Deduction for Specific Dependents (Dependents aged 19–22)
| Dependent’s Total Income amount (JPY) | Deduction Amount (JPY) | ||
| Income Tax | Inhabitant Tax | ||
| Dependent deduction | 0～580,000 | 630,000 | 450,000 |
| Special Deduction for Specific Dependents (newly established) | 580,001～850,000 | 630,000 | 450,000 |
| 850,001～900,000 | 610,000 | 450,000 | |
| 900,001～950,000 | 510,000 | 450,000 | |
| 950,001～1,000,000 | 410,000 | 410,000 | |
| 1,000,001～1,050,000 | 310,000 | 310,000 | |
| 1,005,001～1,100,000 | 210,000 | 210,000 | |
| 1,100,001～1,150,000 | 110,000 | 110,000 | |
| 1,150,001～1,200,000 | 60,000 | 60,000 | |
| 1,200,001～1,230,000 | 30,000 | 30,000 | |
The special deduction for specified dependents will also be introduced for local inhabitant tax, allowing a certain amount to be deducted from the taxpayer’s income starting from the year 2026 (applicable to 2026 local inhabitant tax to be assessed on 2025 income).
Impact on Global Mobility (International Personnel Transfers)
Effective DateThe amendments related to personal deductions will apply to income tax from the 2025 tax year; however, since the effective date is 1 December 2025 for salaried employees, the changes will be reflected for the first time in the 2025 year-end adjustment ("Nenmatsu Chosei") or in the 2025 individual income tax return filed in March 2026.
During 2025, the withholding tax on monthly salary payments by companies will be based on the current deduction amounts before the amendments. The updated withholding tax tables will apply to payments made from January 2026 onwards. Therefore, there will be no significant changes in the monthly withholding tax amounts during 2025, but it is expected that any excess tax withheld will be refunded during the year-end adjustment. Additionally, for employees who cannot undergo the usual year-end adjustment, such as those on overseas assignments or those who resign midyear, special considerations will apply, as detailed below.
Employees Departing Japan Before 30 November 2025
The new deductions are not immediately applicable to employees who depart Japan by 30 November 2025. Because the effective date of the amended law is 1 December 2025, the year-end adjustment at the time of departure will be calculated based on the current law before the amendment. To apply the new deduction under the amended law to the income tax calculation, employees who received a year-end adjustment at the time of departure must appoint a tax agent ("Nozei Kanrinin") and file a tax return ("Kakutei Shinkoku") through that tax agent. This will allow the application of the new deduction amounts and enable a tax refund (when the employee’s income is only salary from one employer).If a quasi-final tax return ("Jun Kakutei Shinkoku") is submitted for income earned up to the departure date by November 30, 2025, the tax calculation is based on the current law before amendment. Therefore, to apply the new deduction under the amended law, the employee is permitted to file an application for downward tax assessment ("Kosei no Seikyu") through the tax agent appointed by the employee. The employer’s Human Resources department should provide guidance to the affected employees regarding these procedures.
Impact on Hypothetical Tax Calculations for Outbound Assignees
The amendments also affect hypothetical tax or net-pay guarantee calculations used in global mobility schemes. For long-term international assignees whose compensation structure is designed to guarantee the same net pay as if they remained working in Japan, recalculations will be required under the new deduction rates. Employers should review and adjust compensation packages accordingly, clearly communicating changes to the affected employees.
Tax Liability Borne by Employer for Inbound Assignees
Employers covering taxes for employees seconded to Japan from overseas might need to revisit budgets for their Japanese tax liability due to potential changes in income tax liability resulting from the amendments. While this can present cost-saving opportunities, it's essential to reassess and reconcile any discrepancies against previously established budgets, ensuring timely accounting adjustments and revisions.
Conclusion
Japan's 2025 tax reforms address the impact of inflation and labor market concerns by enhancing personal income deductions and introducing new deductions for dependents aged 19 to 22.This article summarizes key points regarding the basic deduction and the special deduction for specific dependents. Other amendments not discussed include increases to the employment income deduction and the easing of income thresholds for the single parent and spousal deductions.
For more information on the effect of the 2025 tax reform on global mobility issues, please consult your regular BDO contact or the author of this article.
Yasutake Hirano
BDO in Japan