---
title: "Progressive income tax rates, the 6.95 million yen bracket, and taxation of work performed in Japan"
url: https://memocore.ai/memos/6a5f62bb63d783ad68709355
project: "Doing Business in Japan"
tags: "tax-sole-proprietor, japan-business"
updated_at: "2026-07-21T12:14:51.972Z"
---

# Progressive income tax rates, the 6.95 million yen bracket, and taxation of work performed in Japan

Japan's income tax rates are progressive, reaching 33-40%+ on high incomes, plus municipal (resident) tax of about 10%, plus a temporary 2.1% reconstruction surtax on top; combined, the effective rate at some income levels works out to roughly 22.1%. The maximum combined burden on an individual in Japan can reach about 55-60% at the very top income levels. Example from the chat: on a salary of 2.5 million yen, take-home pay is around 1.5 million yen, meaning roughly 1 million yen goes to taxes and contributions. 6.95 million yen of annual taxable income is a specific bracket boundary — the rate moves from 20% to 23% above this level; the figure also comes up when comparing salary and dividends, since for individuals with taxable income up to 6.95 million yen, dividends from one's own company can be more tax-efficient thanks to the dividend tax credit (配当控除). Separately, income from work physically performed in Japan is taxable in Japan from day one, regardless of whether the money is remitted into the country and regardless of non-permanent resident status (非永住者, under 5 years of residence) — the 5-year/remittance rule applies to foreign passive income, not to income from work done in Japan.