Do You Need to Pay Taxes on Side Income in Japan ? To Becoming a Sole Proprietor in Japan

Last Updated on 2025-11-11 by Tsubaki

As the end of the year approaches, it’s time to start wrapping up the annual accounts, and to prepare for the upcoming kakutei shinkoku (確定申告｜final tax return) in February. For me, February 2026 will mark my very first tax filing as a sole proprietor in Japan.

While I may share a detailed walkthrough of the tax filing process in a future post, I’d like to start this series by breaking things down into a few chapters and gradually walk you through what it’s like to run a side business and become a sole proprietor in Japan.

In this first post, we’ll focus on the key question:
Do you need to pay taxes on side income in Japan?

If you’ve clicked on this article, chances are you’ve already started earning a bit of side income, and you’re beginning to realize that taxes are something you’ll need to handle properly. I hope this post can help guide you through the process, just like I once needed guidance myself. I know how confusing things can feel at the start, but one step at a time, you’ll find your way. And hopefully avoid a few missteps along the way!

The content of this article is based primarily on my own experience, and I’ve done my best to reference official sources and publications from the Japanese government wherever possible.

However, I’m not a certified tax accountant (税理士) or administrative scrivener (行政書士), and everyone’s situation is different, so please treat this article as a general reference only. For personalized advice, I strongly recommend consulting your local tax office or a qualified professional.

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Doing Side Work in Japan and Becoming a Sole Proprietor – My Personal Experience

Looking back, I actually started earning some side income even before 2024, mainly through my travel blog, which brought in a modest but steadily growing stream of advertising, affiliate marketing commissions, and the occasional paid collaboration.

By mid-2024, things began to shift noticeably, almost as if the universe gave me a little push. Not only did I officially become a contributing writer for a few travel media platforms, but my blog income also continued to grow. On top of that, thanks to the trust of a long-term ad agency partner, I began receiving regular coordination and content creation assignments. Altogether, my side income saw a significant jump.

It was around that time that I realized my total income for 2025 would likely exceed ¥200,000, a number that made me pause and seriously consider the tax and administrative responsibilities I had to start facing. That moment sparked a deep dive into understanding the rules and filing procedures for side businesses in Japan.

Admittedly, I felt overwhelmed at first. But thankfully, I had previously passed the AFP (Accredited Financial Planner) certification and Japan’s Bookkeeping Level 3 exam, which gave me a solid foundation in accounting and tax concepts. That background helped me get oriented more quickly.

Compared to friends who’ve already launched full-fledged companies, I’m still at the very beginning of my journey as a sole proprietor. But I know I’m not the only one who has wrestled with the questions.
“Do I need to file taxes on my side income?”.
“Should I register as a sole proprietor?”.

That’s exactly why I decided to write this series, to support others walking a similar path. Most of the content is based on my personal experience, and I’ll be citing official sources from the Japanese government or reliable publications wherever possible. That said, I’m not a licensed tax accountant or administrative scrivener (zeirishi or gyoseishoshi). And everyone’s situation is different. So please use this article as a general reference only. Consult a professional or your local tax office for advice tailored to your case!

How Much Side Income Triggers Tax Filing in Japan? Understanding the ¥200,000 Rule

When people start earning side income in Japan, the first question that often pops up is:
“I already have a full-time job, do I really need to file taxes on extra income?”.
I asked myself the exact same thing when I was just starting out.

The most common answer you’ll hear is:
“As long as your side income doesn’t exceed ¥200,000 per year, you don’t need to file income tax.”
At first glance, that seems simple enough, but in reality, this “¥200,000 rule” only applies to income tax. It doesn’t exempt you from other types of tax filing responsibilities【1】.

You may have come across the term “20万円ルール” in Japanese. Which refers to the rule that individuals whose annual side income is under ¥200,000 may be exempt from filing a kakutei shinkoku (final income tax return). But here’s a common pitfall:
This exemption does not apply to resident tax (住民税).
In other words, even if your side income is just a few thousand yen, you’re still legally required to file for resident tax【2】.

The Reality of Side Income Filing and the Overlooked Resident Tax Obligation

Let’s say you have a full-time job, but you also earn extra income through freelance work or other side gigs. If your total side income exceeds ¥200,000, then you’ll need to file a final tax return, pay income tax, and choose how to classify your income, as miscellaneous income (雑所得) or business income (事業所得). And also decide between blue-form (青色申告) or white-form (白色申告) filing.

This final return generally includes information for both income tax and resident tax.
However, because there’s no minimum threshold for resident tax, even if your income doesn’t exceed ¥200,000 and you don’t owe income tax, you’re still required to file for resident tax.

This is something many people overlook, especially those who don’t earn much or aren’t in the habit of issuing formal invoices. It’s easy to assume you don’t need to bother, but in reality, municipalities can access income data from various sources, not just from the national tax office. So rather than gamble, it’s safer to just file properly.

Of course, in the real world, there are people who choose not to report. A well-known example is ski instructors who are often paid in cash. This has become a major issue in Japanese ski resorts. I’ve even heard of people receiving payments in cash or via overseas accounts. Without clear tracking, such income may be hard to detect, at least initially.

However, from a legal standpoint, this is considered tax evasion.
While tax authorities may not aggressively pursue every small case, if your side income grows over time, the risk of being audited increases. Especially if your clients are Japanese companies. In those cases, your income records are very likely to be reported.

My Personal Advice:

Even if your side income is relatively small, I highly recommend filing your resident tax properly, it gives you peace of mind. Especially if you plan to apply for permanent residency or naturalization in the future.

If your total side income exceeds ¥200,000, then you’ll need to file for both income tax and resident tax. And again, if your clients are primarily Japan-based companies, tax authorities will likely already have access to that data.

So don’t leave it to chance, file honestly and stay ahead of the curve.

What About Consumption Tax? Do You Need to Worry About That Too?

When you start researching how to report taxes on your side income in Japan, you’ll probably come across terms like “Qualified Invoice Issuer” (適格請求書発行事業者) . Or “Tax-Exempt Business” (免税事業者).
Honestly, when I first started looking into this topic, I was completely confused too.

So let me make things a bit simpler for you here:
If your total revenue from side work doesn’t exceed ¥10 million during your base period, you generally don’t need to stress about these terms just yet.

These terms are mainly related to consumption tax (消費税), not income tax or resident tax. As long as your combined miscellaneous income and business income during your base period (usually the fiscal year two years prior) is less than ¥10 million, you’re considered a tax-exempt business and are not required to file or pay consumption tax【3】.

For most people just getting started with a side hustle, or those earning only a modest amount. This won’t apply right away.

In fact, I learned this the hard way.

Back then, I didn’t fully understand the system and assumed that every sole proprietor “had” to register for a Qualified Invoice Number, a.k.a. the Invoice Number (インボイス番号). Which starts with a “T” followed by 13 digits, similar to a business tax ID.

This system was originally created to help the Japanese government track consumption tax transactions. But because I didn’t grasp the context at the time, I rushed to apply for it.

As a result, I got my invoice number in 2025, which at first felt quite “official” and “professional”… . But it turned out to be a major hassle.

Once you’re issued an invoice number, you’re officially classified as a taxable business (課税事業者). That means when you file your final tax return next year, you now have to file for consumption tax in addition to income and resident taxes.

Not only did this mean I had to hire a tax accountant to help me with the extra paperwork, but it also created more admin work on my end, like issuing qualified invoices and keeping more detailed records. It made my whole accounting process a lot more complicated.

That said, while the process was bumpy, it did teach me a lot about the Japanese consumption tax system. And for what it’s worth, my corporate clients were happy because they could now claim tax credits on my invoices… At least someone benefited!

Still, moving forward, I’m planning to cancel my Qualified Invoice Issuer registration in 2026. After all, that 10% consumption tax can really add up….

So, To Recap. Do You Need to File Taxes on Side Income If You Have a Full-Time Job?

・If your side income is under ¥200,000 a year, you don’t need to file income tax. Although you may still be required to file resident tax.

・If your side income exceeds ¥200,000, you must file both income tax and resident tax.

・If your total side income is under ¥10 million, you don’t need to file or pay consumption tax.

Quick Reference: Taxes on Side Income in Japan

Common Questions (FAQ)

1) “If my side income is under ¥200,000, do I still need to file resident tax?”
→ Yes, you do. Even small amounts must be reported for resident tax purposes.

2) “Can I file a white return (白色申告) without registering a business (開業届)?”
→ Yes, you can. You’re not required to submit a business registration (kaigyō todoke) in order to file a white tax return.

3) “How do I cancel my Qualified Invoice Issuer registration?”
→ You’ll need to submit a cancellation form (登録取消申請書) to your local tax office. Once approved, you will no longer be classified as a taxable business for consumption tax purposes.
Important: After cancellation, your business clients may no longer be able to claim input tax credits on your invoices, which could potentially impact future collaborations.

Final Thoughts

I originally just wanted to write a quick post answering whether side income needs to be reported, but as you can see, it ended up expanding into something much bigger (whoops!). There’s just so much that ties into this topic, and I wanted to share both the practical info and my own experiences in case it helps someone like you.

Hopefully, this article helped you figure out which taxes you need to report for your side income.
In the next post, I’ll be talking about:
Can you do side work while on a work visa in Japan? Will your company find out?
Stay tuned!

Feel free to stick around, leave a comment, or subscribe to my newsletter.
Don’t worry, my newsletter only notifies you about new posts. No spam, ever!

Sources Mentioned in This Post:

[1]Japan National Tax Agency – “Who Needs to File a Tax Return”https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1900.htm

[2]City of Kodaira (Tokyo) – “Do I Need to File Resident Tax on Non-Salary Income?”https://www.city.kodaira.tokyo.jp/faq/001/001415.html

[3]Japan National Tax Agency – “Exemption from Consumption Tax Liability”https://www.nta.go.jp/taxes/shiraberu/taxanswer/shohi/6501.htm

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