If you are an employee in Japan, your main employer generally handles your tax obligations through a process called Year-End Adjustment (Nenmatsu Chōsei).

However, once you introduce a separate stream of income—a side business, freelance work, or other non-employment income—the rules change.

You are likely required to file an Annual Tax Return (Kakutei Shinkoku).

This post will clearly explain the essential information you need to know about declaring your side income.

Exactly is “Side Income” for Tax Purposes?

Understanding Your Income Categories

When you have a side job, your income will typically fall into one of two main categories: Miscellaneous Income (Zatsu Shotoku) or Business Income (Jigyō Shotoku).

For your reference, if you have a primary salary and your side income (either Miscellaneous or Business) is less than ¥200,000 in a calendar year, you are generally not required to file a tax return for that income.

Miscellaneous Income (Zatsu Shotoku)

This is the most common classification for early-stage or small-scale side income.

• Definition: Income that does not fit into any of the other nine categories.
• Examples: Small-scale freelance income (e.g., occasional translation, coding gigs), income from sharing economy platforms (e.g., renting out a room occasionally), etc.
• Key Feature: If your side activity is not conducted continuously, regularly, and with an expectation of profit large enough to support a livelihood, it is often treated as Miscellaneous Income.

Business Income (Jigyō Shotoku)

This applies when your side activity has grown into a significant business.

• Definition: Income derived from a continuous, regular, and independent business activity.
• Key Feature: Declaring your side income as Business Income offers the tax benefit of applying for the Blue Tax Return (Aoiro Shinkoku), which provides major deductions and tax advantages, but requires more detailed bookkeeping.

Why Is Filing a Tax Return (Kakutei Shinkoku) Necessary?

The core reason for filing is that your main employer’s Year-End Adjustment only calculates the tax due on your salary. It does not account for any additional income you earned outside of your employment contract.

The ¥200,000 Trigger

As mentioned, if your gross side income minus your expenses (the net profit) exceeds ¥200,000, you are legally required to file a national tax return.

How to File Your Annual Tax Return (Kakutei Shinkoku)

Gather Your Documents

You will need the following for filing:

• Withholding Tax Statement (Gensen Chōshū Hyō): Received from your main employer, detailing your salary and the tax already paid.
• Proof of Identity/My Number: Your residence card and My Number card/notification.
• Income and Expense Records: Detailed records (invoices, receipts, bank statements) for your side income activity.

Calculation and Form Completion

The forms require you to calculate the net income from your side hustle.

This net income is then added to your salary income (and any other income) to determine your total taxable income.

Submission and Payment

• Submission: Submit the prepared forms/data via your chosen method by the March 15th deadline.
• Payment: If you owe tax, you can pay via bank transfer, credit card (online), convenience store payment (up to a limit), or at the tax office.

Don’t Hesitate to Seek Professional Help

The Japanese tax system is based on self-assessment.

While the basic principles are straightforward, the specifics—especially regarding expense deductions and the transition to a Blue Return—can be complex, particularly if English-language support is limited.

As a Japanese Certified Public Tax Accountant (Zeirishi), we recommend consulting with a tax professional who specializes in foreign resident affairs.

Taking the time to understand and correctly file your taxes will save you stress, penalties, and potentially a significant amount of money in the long run.