Sorry if this has been asked before. Had a quick search and couldn’t really find anything.
I’m at the position where I’m able to find and rent an apartment myself, where my name will be on the contract.
The other option is that the company I’m working for will rent an apartment under the company and reducing my salary to pay the rent.
I’d like to ask if I chose the latter, would it be more beneficial especially in terms of taxation? As in, I’ll then be in a lower tax bracket.
Thanks.
17 comments
From the company’s perspective, that makes it harder for you to leave. Are you sure you want to be tied to the same company for your residence, long term?
Of course, why do you want to pay more tax?
Usually the company will lease the apartment, pay rent to the landlord, and you will pay the company “legal rent” of, say, 10%. The amount the company pays in rent is not taxed so, depending on your tax bracket, you can reduce your overall tax burden (or increase the amount you spend on an apartment). It can also open up some apartments that might otherwise be closed to you in your own name (assuming you have a weird strange foreign name)
Yeah it’s free money for you.
If you want to apply for permanent residency in the future and then get a loan to purchase an apartment or house, you will want to show as much official income as possible. But by that point you may be working or living somewhere else entirely.
Be sure you still pay to your company a bit of the rent (10% as u/PeanutButterChikan mentions, is a common figure). The remaining 90% is basically untaxed income.
If you don’t pay anything, and the company pays 100% of the rent, then this is an income in kind and it does not change anything in terms of taxation whether you pay it or the company.
YES! Up until the time I bought my own house, my company did this for me. It’s basically free money.
Yes, if the company uses a portion of what would otherwise be your income, your taxable amount will be lower. Will you be in a lower tax bracket? Maybe, but regardless, you will still have a lower taxable amount so there is still a benefit.
That means your company will legally be the tenant, not you. Everything will go through them, which could be good or bad. For example, if the air conditioner breaks, you will have to notify your company, which will then handle it with the management company. If your Japanese isn’t good, this can be good for you.
If you change jobs, they will terminate the contract. Then, if you want to stay in the apartment, it can be as messy as the management company wants to make it. This could range from: not wanting to rent to you directly, so you have to move out; to wanting to rent directly but you have to move all your stuff out so they can make an inspection, charge whatever they want of the deposit, and then you can move back in; to: cool, just sign the contract and you don’t have to move your stuff (wishful thinking).
Also, most likely your company won’t fight as hard as you would for any negotiations. Say, when the time to move out comes, they will gladly give all the deposit and more to the management company without batting an eye.
Still, I would gladly do it, it’s a great benefit that more companies should offer.
“As in, I’ll then be in a lower tax bracket”
FYI firstly, income tax brackets are progressive. What I mean there is (for example) just because your total taxable income may fall within the 20% bracket, it does not mean all your taxable income is getting taxed at 20%.
¥0 to ¥1.95 million is taxed at 5%
¥1.95 million to ¥3.3 million is taxed at 10%
¥3.3 million to ¥6.95 million is taxed at 20%
Thus, in this example, only the portion of your taxable income which exceeds ¥3.3 million (until ¥6.95 million) would be taxed at 20%
Secondly, taxable income = total income – tax deductibles.
What I mean there is just because say you earn ¥6 million from salary. Does not mean your taxable income is ¥6 million. After tax deductibles are applied it would be a lot less.
Standard tax deductibles:
1) basic deduction (¥480,000)
2) Employment income deduction (variable amount based on “employment income” but is a huge deductible)
3) Social security deduction (your pension, health insurance and employment insurance are a tax deductible)
4) you then have many other tax deductibles to utilize to bring your taxable income down even further.
As for my advice. If your employer is not paying for the apartment as an expense/allowance to you (I.e you don’t pay for it) then get your own apartment.
Company contract is much better. Less tax, but also often don’t need guarantor, and company should pay the deposit (and get it back when you move out).
The major problem here is that if you leave the company you will also need to leave the apartment most likely, I wouldnt recommend it, better ask the company to raise your salary for the amount needed to cover the apartment, that way its a much cleaner situation for yourself.
Is the company offering you a legal rent arrangement? If so, this is a nice benefit if your company will do it. Especially if they cover the deposit/agent fees. I’ve worked at a few companies that offer this.
Basically the company will reduce your gross monthly income by 90-95% of the rent and deduct the other 5-10% after tax. This will reduce your overall taxable basis.
Here are examples of possible savings assuming you are making JPY500K monthly and the rent is JPY150K.
Basic takehome after rent if you pay:
Gross 500K, less SI/taxes -116K, less rent -150K, net take home is about 234K
Basic take home if employer rents:
Gross 500K, less 95% of rent-142.5K, less SI taxes -76.7K, net is about 274K
So about JPY40,000 savings per month using my assumptions. Depends on your total income and rent amounts.
depends on your rent, it might be negligible.
If apartment is under your company’s name, when you resigned, it might be paperwork nightmare to transfer the apartment to your name.
I only had this happen with one friend, but it is also something to be aware that “could” happen.
My friend would have friends, both male and female, over to his place and had more than one girlfriend over a 4-6 month period.
He was called in by his work because the apartment was in their name, the apartment manager told them he was parting all the time and had various women sleep over, and his work said it made the company look bad. They told him he had to stop having guests of any type over going forward.
It made for a difficult living situation as he knew the apartment manager was watching and reporting on him. He also suspected that they were going through his trash for evidence of “bad” behavior, but never actually caught them doing this.
Depends on what tax bracket you fall into past deductions
One thing that matters in getting your own apartment is that what place you look for and are accepted in place of another offer depends also on your income.
What you should also consider, is that it will make overtime be worth considerably less.