Social Lending Tax Return Guide: Calculation and Filing

If you earn income from social lending, there are cases where filing a tax return is required. Many employees are not used to filing tax returns, and the complexity of the process can become a barrier to investing. In this article, we explain how to file a tax return for social lending income and the key points for tax efficiency.

Is a tax return unnecessary if annual income is 200,000 yen or less?

For salaried workers, if total income other than salary is 200,000 yen or less per year, filing a tax return is generally unnecessary. However, there are two important points to keep in mind.

The 200,000 yen threshold is the amount before withholding tax

The annual 200,000 yen threshold refers to the amount before withholding tax is deducted. If you think in terms of the amount after withholding tax, you need to make sure it does not reach 159,160 yen or more.

A resident tax declaration is still required

Even if filing a tax return is unnecessary, a resident tax declaration is still required. Distributions from social lending are taxed as part of resident tax. If you file a tax return, a separate resident tax declaration becomes unnecessary.

When is it better to file a tax return?

Even if the amount is 200,000 yen or less per year, filing a tax return can still be beneficial.

If total income including salary is less than 1.95 million yen

Income from social lending is subject to 20% withholding tax by the operator, but the actual income tax rate is 5%. If you file a tax return, part of the withheld tax may be refunded.

No refund if it is 1.95 million yen or more

If total income is 1.95 million yen or more, the tax rate becomes 20% or higher, so there is no difference from the withholding amount and no refund advantage.

What is the specific process for filing a tax return?

Let’s review the steps and required documents.

Required documents

• Payment statement or annual transaction report from the operator
• Withholding slip from your company
• My Number card or notification card + identification document
• Receipts for expenses (such as books or seminar fees)
• Bank account number in the case of a refund claim

Filing process

Income earned from January 1 to December 31 must be reported to the tax office between February 16 and March 15 of the following year. If you use e-Tax, the process can be completed entirely online.

What should you watch out for when filing a tax return?

Losses from social lending cannot be offset against other types of income. In addition, because it is subject to comprehensive taxation, loss carryforwards are also not allowed. Even if you incur a loss, you should understand that it cannot be deducted from distributions in the following year.

Frequently Asked Questions (FAQ)

Q. What is the tax rate for social lending?

Withholding tax is 20.42% income tax (including the special reconstruction income tax), but it is recalculated under comprehensive taxation when you file a tax return.

Q. What can be recorded as an expense?

Expenses such as books related to investing, seminar participation fees, and communication costs may be recognized as deductible expenses.

Q. What happens if I do not file a tax return?

If you are required to file and do not submit a return, you may be charged a non-filing additional tax and late payment tax.