Investing in Japan

Section 3. Taxes in Japan

3.1 Overview of Japanese corporate tax system for investment in Japan

3.1.1 Neutrality of tax system with respect to mode of business presence (branch or subsidiary)
Corporations engaged in economic activities in Japan are subject to taxes in Japan on the profits generated by those economic activities. Steps have been taken, however, to ensure that the tax system does not impose unfair burdens on multinational corporations engaged in economic activities in Japan on the basis of the mode of their business presence in Japan. Income of corporations established in Japan is, as a rule and with the exception of certain non-taxable and tax-exempt income, subject to taxation, regardless of where it was generated (i.e., the source country of income), but when that income includes profits earned in foreign countries that are taxed in the source countries of that income, foreign taxation deductions are available whereby taxes paid in a foreign country may within certain bounds be deducted from Japanese taxes owed for the purpose of eliminating double taxation between the source country of income and Japan. Regarding Japanese branches of foreign corporations, measures such as only certain income generated within Japan is subject to taxation in Japan, have been implemented to avoid international double taxation in Japan.

3.1.2 Withholding at source and self-assessment/payment
Multinational corporations engaged in activities in Japan that earn income subject to taxation in Japan calculate and pay the taxes owed through withholding procedures or self-assessed income tax procedures according to their form of corporation and type of income.