Takashi Yamaguchi, English Speaking Japanese Tax Accountant
Tel/Fax : 03-6312-3320
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Dependent deduction for foreign relatives

Foreigners who leave their families abroad and working in Japan, Japanese who leave their families abroad for work reasons, those who send money to children studying abroad … all you may be able to save your income tax claiming “dependent deduction for foreign relatives”.
However, there are various requirements for the deduction.

Dependent Deduction

If a resident has a “deductible dependent relative”, the following amount calculated for each dependent relative based on the type of the next dependent relative will be deducted from the total income amount of the resident for that year. (The Income Tax Law (hereinafter referred to as the “ITL”, Article 2, Para 1 item 34 through 34-4, Articles 84, the Special Taxation Measures Law (hereinafter referred to as “STML”) Article 41-16).

  1. Ordinary dependent relative……380,000 yen
    i.e., A dependent relative aged 16 to 19 or 23 to 70

  2. Specified dependent relative……630,000 yen
    i.e., A dependent relative aged 19 to 23

  3. Elderly dependent relative……480,000 yen
    i.e., A dependent relative aged 70 or older (excluding who fall under the following 4.)

  4. Elderly dependent relative living together ……580,000 yen
    i.e., A person who is a lineal ascendant of the resident or the resident’s spouse and is living with the resident or the resident’s spouse (STML Article 41-16 para1).

Deductible Dependent Relative

It does not necessarily mean that all of your relatives can be qualified as a “deductible dependent relative”.

Scope of the “Relatives” 

First of all, the “Relatives” should be construed as a relative (within the sixth degree by blood or the third degree by in-law) as defined by the Japanese Civil Code.
By the way, a spouse is not counted as a “relative” in the first place (a different deduction system called “spouse deduction” or “spouse special deduction” is applicable to a spouse).
On the other hand, even if he/she is not a relative under the Civil Code, a child entrusted to a foster parent under the provisions of the Child Welfare Law and an elderly person entrusted to a nursing care contractor under the provisions of the Elderly Welfare Law can be qualified as the “relatives” for the deduction purpose (ITL Article 2 para 1 item 34).

Requirements for “Dependent Relative”

Among the above-mentioned “Relatives”, those who depend on the resident for their livelihood and whose total income is 480,000 yen or less are called “Dependent Relatives” (Article 2, Paragraph 1, Item 34).
Therefore the requirements are; “dependent for livelihood” and “total income is 480,000 yen or less”.

“Dependent for livelihood” does not necessarily mean simply living together in the same place.
For example, even if there are relatives who do not live together due to job, studying, medical treatment, etc., such relatives can be regarded as dependent on the resident for livelihood in the following cases (Basic Income Tax Circular (hereinafter the “Circular” 2-47) :

  1. In the case where a a relative who does not live together habitually come home and live together during vacation.
  2. In the case where living costs, tuition and medical expenses etc. are habitually remitted between such relatives

In addition, when relatives live together in the same place, these relatives are regarded as depending on the resident for livelihood unless they are obviously independent for livelihood.

There is no requirement that dependency for livelihood should be limited to among residents of Japan, so families living outside Japan are also dependents as long as they meet the above requirements.
However, even if they fall under the above-mentioned dependent relatives, the person who earns salary for engaging in business of the resident as an full-time employee cannot be regarded as a dependent relative regardless of income amount. (ITL Article 2 para 1 Item 34).

16 years old or older

Then, finally, among the dependent relatives, only those aged 16 years or older are qualified as “Deductible Dependent Relatives” (ITL Article 2, Para 1, Item 34-2).
Therefore, relatives under the age of 16 are not eligible for the deduction.
It seems that the deduction has been suspended because the under 16 are entitled to subsidy so called “child allowance”.

Required procedure for the deduction

Withholding from monthly payroll

Dependent deductions are also reflected in the calculation of income tax withheld from the monthly salary.
However, there are two procedural requirements.

  1. Submission of “Dependent Deduction Form”
    A resident who receives salary payment in Japan should submit “Dependent Deduction Form” to the payer of the salary (a payer of the main salary if there are two or more payers) by the first payday of each year. The form should contain information regarding the Deductible Dependent Relatives, deductible spouse, and disabled persons among the dependent relatives if any.
    If a relative or spouse who is eligible for the deduction for the withholding purpose is a non-resident, such fact should be stated in the form.

  2. Attachment or presentation of “Certification of Relatives”
    When the resident files “Dependent Deduction Form” to claim deduction for a relative living abroad (hereinafter referred to as a “Foreign Relative”) , certain documents certifying that he/she is a relative of the resident should be filed together with (attached to) the form or presented to the payer of the salary.

One of the following is accepted as a certification of relatives.

  1. Copy of either supplemental family register (record of registered address) or certificate issued by the local government, or passport
  2. Documents issued by a foreign government or foreign local government (limited to those with the name, date of birth and address or residence of foreign relatives. Includes translations into Japanese if written in a foreign language)

Year End Adjustment

In order to claim dependent deductions for the year end adjustment, in addition to the Dependent Deduction Form and the Certification of Relatives, “remittance-related documents” should be submitted or presented with the payer of salary before the last payday of each year.
(ITL Article 195-2 para 1 and 2, ITL Enforcement Order (hereinafter “EO”) Article 318-3, ITL Enforcement Rules (hereinafter “ER”) Article 47-2 Para 4 and 5 and Article 74-4).

“Remittance-related documents” means a document (includes translation into Japanese if such document is written in a foreign language) certifying that “foreign relatives” are “dependent for livelihood” on the resident.
The documents should clarify that the resident had transferred money for living costs, tuition from time to time as required over the year (Article 47-2, Paragraph 5, Article 74-4).
More specifically, the followings are acceptable as the Remittance-related documents.

  1. Remittance request form to the financial institution, etc.
    Strictly speaking, the document or copy of the financial institution must be the one proves that the resident remitted to the foreign relatives etc. through the exchange transaction conducted by the financial institution. The term “financial institution” here refers to a financial institution stipulated in Article 2, Item 3 of the Act on Submission of Records Related to International Remittance, etc. to Ensure Appropriate Taxation of Domestic Taxes. Banks should fall under this “financial institution” but unauthorized remittance brokers do not.

  2. Credit card billing statement, etc.
    This is also strictly defined as documents prepared by a “intermediary for credit card purchase” or copy of those.
    The documents shall clarify the fact that foreign relatives purchased goods, right or services from specific providers using credit card and such providers had received or are supposed to receive consideration of them from the resident.

Final tax return filing

If your employer does not make  the year end adjustment on your payroll, you can claim dependent deduction by filing your own income tax return.
In this case, you need to submit the “Certification of Relatives” and “Remittance-related Document” with the final tax return or present them at the tax office (ITL Article 120 Para 3 Item 2).

Procedure for 2015 or before

The above procedural requirements have been applied since 2016.
For 2015 or before, we were able to claim dependent deductions for foreign relatives without “Certification of Relatives” and “Remittance-related documents”.
At that time, those who did not claim dependent deductions despite the fact there were “dependent relatives” outside the country would still be able to claim dependent deductions without “Certification of Relatives” and “Remittance-related documents”.

Those who have submitted the final income tax return for the relevant year will need to submit a procedure called “Request for Correction”, and those who have not submitted will need to submit a “final tax return” from now on before.
However, deduction for the 2014 should be claimed by March 16th of 2020, deduction for the 2015 by March 15th of 2021.
If it is applicable to you, you should hurry.

***

“Certification of Relatives” and “Remittance-related documents” were added to the procedure requirements by the 2015 tax reform.
According to the data released from the Ministry of Finance at that time, foreigners working in Japan tended to have more dependent relatives than Japanese.
It has been said that the revision was suggested by the Board of Audit of Japan since the board pointed out so many cases where it was unknown or suspicious whether the foreign relatives who are said to be dependent on residents are really relatives’ and dependent for livelihood. (is it true?)

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