Tax implications for side hustle

[jcherni]

I would like to know if there are some caveats regarding to taxes I should be aware of when starting a side hustle.

I have recently been invited by a close friend to help in her start-up company.
In fact I have been involved in her work on and off for a while, on a friendly help basis, even before her company came to be.
The company has picked steam recently (appeared in some newspapers, etc.), so she asked me to work a little bit more "officially".

I have my orthodox 9-to-5 (on paper, at least...) white-collar office job.
So I'll be working for my friend only a few hours per week.
We have agreed on a hourly wage but no details on the payment yet, whether will be 手渡し, etc.

I am aware that this is taxable income (I mean, it is taxable, right?) , but all taxes of my "day job" are handled by my company,
so I have no experience in doing the taxes myself.

For side hustles, I just need to declare this extra income on the 確定申告 in the end of the year?
Or there is something else I need to be careful of?

[RetireJapan]

If you are full-time with your company you will have to check as to whether you are allowed to work outside according to your contract/rules of employment.

If you're on a working visa the new work must be the same visa category or you need permission from the visa office to engage in it.

[captainspoke]

I think if the work is under ¥200,000 yen you can let it slide. When a salaried person, whose company does their taxes for them, makes some extra money, that is the trigger amount for then having to do your own tax return.

Under that, and you can forget about it**, over and you then need to file on your own.



**Technically that's national, and you should go ahead and declare this at the local level regardless of amount), so your 住民税 will go up a little (health insurance too, if you're on 国民健康保険).

[mighty58]

Yeah, the tax implications are just that you need to declare it and pay anything due. The more important issue is whether you're breaking any workplace rules at your 9-5. Many Japanese companies (probably almost all) have rules specifically prohibiting wage-based side gigs (as opposed to investment-based side gigs, including real estate, which are allowed). Whether they find out, and what they'd do if they found out, are all "what if" questions though, and will be completely case-by-case. They may give you a slap on the wrist and tell you to stop, or they may formally reprimand you up to the level of dismissal... it's hard to know for sure, but the fate of your job will be completely in their hands.

As a bit of a side note, I've noticed a lot of these Japanese side-gig promoting youtubers seem to often have a "f*** it! just do it!" attitude, indicating they believe it will be nothing more than a slap on the wrist if you're discovered.

[jcherni]

Thank you people for the answers.

I know for a fact that my company allow side hustles.
There is some kind of internal processes, and a lot of restrictions, but is definitely possible.

The only thing I'm not sure is about the visa category, I didn't think about it.
But my visa says "Specialist in Humanities/International Business", which seems to include pretty much everything if you can explain it well...

Thanks for the answers again.

[RetireJapan]

But my visa says "Specialist in Humanities/International Business", which seems to include pretty much everything if you can explain it well...

I would be careful here. Visas apply to a narrowly defined number of jobs, and breaking immigration law can have very serious consequences (deported and banned for ten years).

[Tkydon]

I think if the work is under ¥200,000 yen you can let it slide. When a salaried person, whose company does their taxes for them, makes some extra money, that is the trigger amount for then having to do your own tax return.

Under that, and you can forget about it**, over and you then need to file on your own.



**Technically that's national, and you should go ahead and declare this at the local level regardless of amount), so your 住民税 will go up a little (health insurance too, if you're on 国民健康保険).

It depends.

The Y200,000 limit ONLY applies if Taxes have been Withheld at Source.

I think so, but will your friend's company withhold taxes at source.

You are NOT required to file a final return if the total amount of income from your friend's company does not exceed 200,000 yenand subject to the Japanese Taxes have been withheld at source.

See the 2020 INCOME TAX AND SPECIAL INCOME TAX FOR RECONSTRUCTION GUIDE
https://www.nta.go.jp/english/taxes/ind ... x_2020.htm
Page 11

You are required to file a final return if;
(1) Your total amount of the earnings of salary etc. exceeds 20,000,000 yen.
(2) Your total amount of income (except for the employment income and the retirement income)
exceeds 200,000 yen when the salary etc. is received from one source only AND all of the
salary etc. is subject to the Japanese withholding.
(3) The sum of your total amount of income (except for the employment income and the
retirement income) and the total amount of earnings from the salary etc. not subject to the
year-end adjustment exceeds 200,000 yen when the salary etc. is received from two or more
sources and all of the salary etc. is subject to the Japanese withholding.
*However, you need not file a final return if the remaining amount after subtracting the total amount of
deductions for income (except for deductions for casualty losses, medical expenses and donations and
basic exemption) from your total amount of earnings from salary etc. is 1,500,000 yen or less as well as your
total amount of income (except for the employment income and the retirement income) is 200,000 yen or
less when all of the salary etc. is subject to the Japanese withholding.

AND if Taxes have NOT been withheld at source.

Therefore, to summarize:

If your friend's company withholds tax, they will issue you a 源泉徴収票 at the end of the year. In that case, if the total income from your friend's company is less than Y200,000, then you do NOT need to file.

If your friend's company withholds tax, and issues you a 源泉徴収票 at the end of the year, but the total income from your friend's company is greater than Y200,000, then you DO need to file.

If your friend's company does NOT withhold tax, then you DO need to file.


There is another alternative:

Establish yourself as a sole proprietor company.
Invoice your friend's company for services rendered.
File a Blue Return
And you can start claiming all sorts of expenses against the income.
If you use a room or part of a room in your home as an office for fulfillment of your services, then you can claim an expense for that portion of your rent and utilities
If you travel for fulfillment of your services, then you can claim an expense for the travel
etc.
This would get you started on the road to reducing taxes and building a company.

For that you should speak to an accountant.

[Beaglehound]

I have read that NTA document, not from start to finish as I continue to value my sanity, and find it really difficult to interpret in several places. And the 200k is one of them. I respect your interpretation and it may be correct, but that document ain’t super clear, and I interpreted it as meaning that all your actual salary (rather than income) had to be from one source. In other words a perk for full time employees who make a bit of cash on the side from whatever source. The U.K. has a dispensation like that, which probably led me to that view.

[Tkydon]

No, Please read Page 11.

Basically it says:
If your Income other than primary employment income is Less Than Y200,000 AND has had Japanese Taxes Withheld at Source, then you don't need to file.
If your Income other than primary employment income is Greater Than Y200,000, Even If has had Japanese Taxes Withheld at Source, then you have to file.
If your Income other than primary employment income is of any value, AND has not had Japanese Taxes Withheld at Source, then you have to file. (This applies to all Foreign Income as Japanese Taxes will not have been withheld at source)


You can see the Japanese equivalent document here, and of course the Japanese Doc is correct, and the English Translation is only for reference

https://www.nta.go.jp/taxes/shiraberu/s ... yuiten.pdf
https://www.nta.go.jp/taxes/shiraberu/s ... ukugyo.htm
https://www.nta.go.jp/taxes/shiraberu/s ... sho/02.htm


Let me rephrase the English on Page 11 to be more easy to understand...

1. Persons with Only Employment Income
*For most people (with only employment income), the income tax is settled by the “year-end adjustment” 年末調整 by the employer, so they do not have to file a return 確定申告.
If you choose to file a final return, you include the information about your salary income from the 源泉徴収票 in the return (to claim credit for the tax withheld).

You Are required to file a final return;

(1) If your total Income exceeds 20,000,000 yen, you have to file.

(2) If your total Income from a source other than your primary employment income or retirement income exceeds 200,000 yen even if subject to the Japanese withholding, you have to file.

Don> Implying that if the additional income is less than 200,000 yen and subject to the Japanese withholding, the Tax has already been paid through Withholding, and you do not have to file... (see later. P.56)

(3) If your total Income from sources other than your primary employment income or retirement income that has not been included in the year-end adjustment 年末調整 exceeds 200,000 yen, even if subject to the Japanese withholding, you have to file

Don> Implying that if the additional income is less than 200,000 yen and subject to the Japanese withholding, the Tax has already been paid through Withholding, and you do not have to file... (see later. P.56)

*However, you need not file a final return if the remaining amount after subtracting the total amount of deductions for income (except for deductions for casualty losses, medical expenses and donations and basic exemption) from your total amount of earnings from salary etc. is 1,500,000 yen or less as well as your total amount of income (except for the employment income and the retirement income) is 200,000 yen or
less when all of the Income is subject to the Japanese withholding.

(5) If (you are Permanent Resident For Tax Purposes and) you receive Income abroad, you have to file

Don> I thought this line was clear, but the reason which is not stated is that any Foreign derived Income has not been subject to Japanese Withholding, and so they have not received their taxes on this income, so you have to file. This includes all Foreign Derived Income from any of the classes of Income; Interest Income, Dividend Income, Real Estate Income, Business Income, Employment Income, Capital Gains, Occasional Income or Miscellaneous Income. You have to report all of it. Non of it has been subject to Japanese Withholding.

(6) If you are a director of a family company or a relative of the director, and you receive payments such as interest on loans, rent for a store, office or factory, or charges for the use of machines and tools besides salary etc. from the company concerned, you have to file.

(7) If the withholding taxes were postponed or you received a tax refund, under the provisions of the “Law Relating to Exemptions, Deductions and Deferment of Tax Collection for Disaster Victims.”, then you have to file.

Even when you fall under any of the above, you are not required to file a final return if the amount of tax calculated based on your Total Taxable Income, after subtracting all of your deductions including the basic exemption, is less than or equal to your Credit For Dividends and Special Credit For Loans etc. related to a dwelling (specific additions or improvements, etc.), which was applied in your year-end adjustment 年末調整.

Don> However, Credit For Dividends ONLY applies to Japanese Equities held with a Japanese Broker, and only when selecting the Aggregate Taxation Method. Therefore, this paragraph does not apply to Foreign Sourced Income. You have to file.

See Page 56

2. System that Eliminates the Need to Declare Dividend and Interest Income
For the following interest and dividend incomes (1) through (7), (The Aggregate Taxation) system is in force that eliminates the need to declare said income because the Withholding Tax will complete the taxation liability for said income. When choosing to use the (Separate Self Assessment) system, however, credit for dividends or the withholding income tax etc. may not be claimed.

Don> I already explained this point. And see 2) below.

3. Dividends, etc. not eligible to Credit For Dividends ( under the Aggregate Taxation Method)
Dividends, etc. that are eligible to Credit For Dividends include dividends from surplus and profits, and distribution of surplus, money and revenues of securities investment trusts earnings, which come from a corporation that is headquartered in Japan, and are limited to dividend income that is subject to the aggregate taxation in filing a final return.

Don> Therefore, dividends, etc. received from foreign corporations are not eligible to Credit For Dividends. You have to file and use the Separate Self Assessment Taxation Method of Foreign Sourced Income.

In addition, the following dividends, etc. are not eligible to Credit For Dividends.

(1) In the case you have not selected and are not required to file a tax return

(2) In the case that the Separate Self-Assessment Taxation is selected.

Don> If you select the better Tax Rate under the Separate Self-Assessment Taxation Method, i.e. Dividend Taxes of 15% National, 0.315% Reconstruction and 5% Residential Taxes, then you cannot use Credit For Dividends.
If you do not select the Separate Self-Assessment Taxation Method, but instead select Aggregate Taxation Method, i.e. Your Marginal Tax Rate National, 0.315% Reconstruction and 10% Residential Taxes are applied to all Income of all types, then you can use Credit For Dividends to offset the difference between the Marginal Rate under the Aggregate Taxation Method and the Dividend Tax Rate under the Separate Self-Assessment Taxation Method

(3) Interest from foundations

(4) Dividends, etc. related to distribution of revenues of management investment trusts, such as private offerings and public corporation bonds
(5) Dividends, etc. related to distribution of revenues of management investment trusts, such as overseas private offerings and public corporation
bonds
(6) Dividends, etc. related to distribution of revenues of specified stock investment trusts that trace overseas stock index
(7) Dividends, etc. related to distribution of revenues of securities investment trusts, such as securities in specified foreign currency
(8) Dividends, etc. that will be received from investment trusts by public offering by qualified institutional investors
(9) Dividends, etc. that will be received from specified trusts.
(10) Dividends, etc. that will be received from specified-purpose companies
(11) Dividends, etc. that will be received from investment corporations

Don> i.e. If you cannot use Credit For Dividends to offset the difference between the Aggregate Taxation Method and the Dividend Tax Rate under the Separate Self-Assessment Taxation Method, then you should file under the Separate Self-Assessment Taxation Method, which means you have to file. Form B - Pages 1&2 AND Page 3...
申告書B【令和2年分以降用】（PDF/1,145KB）
https://www.nta.go.jp/taxes/shiraberu/s ... r02/02.pdf
申告書第三表（分離課税用）【令和2年分以降用】（PDF/571KB）
https://www.nta.go.jp/taxes/shiraberu/s ... r02/03.pdf