A substantial part of individual income is collected through withholding by third parties. Employers are required to withhold Article 21/26 income tax on a monthly basis from the salaries and other compensation payable to their employees. If an employee is a resident taxpayer, the amount of tax withheld should be based on the normal tax rates (as set out above). If he/she is a non-resident taxpayer, the withholding tax is 20% of the gross amount (and may be set at a lower rate under a tax treaty).

Various other payments to individuals also call for withholding tax obligations from the payers. These include, among others:

• Pension payments made by government-approved pension funds;
• Severance payments;
• Old-age security saving payments from Jamsostek;
• Fees for services;
• Prizes/awards.

Typically the amount of tax withheld from this income (Article 21 income tax) is based on normal tax rates. A significant change occurred to fees for non-employee individuals and certain professionals, such as lawyers, notaries, accountants, architects, doctors, actuaries and appraisers, who are required to calculate the tax withheld based on 50% of the gross income at the prevailing rates.

Interest earned on severance payments transferred to a manpower severance pay management board is subject to a final tax if the board is a bank, or to a 15% withholding tax under Article 23 income tax if the board is not a bank.