Taxes in Japan

Q. What is Japan's corporate income tax rate?
A. The effective corporate income tax rate varies depending on the scope of taxable income and the local government under whose jurisdiction your business entity is located. Please see the details of the corporate income taxes.

Q. What type of corporate income taxes are there in Japan?

A. The taxes levied in Japan on income generated by the activities of a corporation include corporate tax (national tax), local corporate tax (national tax), corporate inhabitant tax (local tax), enterprise tax (local tax), and special local corporate tax (a national tax, although filings and payments are made to local governments along with those for enterprise tax) (hereinafter collectively referred to as "corporate taxes"). Please see the details of corporate income taxes.

Q. Do corporations have to pay tax even when they do not generate income?

A. Corporations engaged in economic activities in Japan are subject to taxes in Japan on the profits generated by those economic activities. Even if there are no taxable income/profits, corporate inhabitant taxes are levied not only on income but also on a per capita basis using the corporation's capital and the number of its employees as the tax base. Corporations having paid-in capital of more than 100 million yen are subject to enterprise tax on a pro forma basis.

Q. What is withholding income tax?

A. Japan's tax filing system is based as a rule on self-assessed income tax payment where individuals (tax payers) calculate their annual income and tax amount, and file tax returns by themselves. However, a tax withholding system where companies (salary payers) collect income tax on the date of payment and pay the tax on behalf of individuals (income earners) is also introduced for specific incomes.

Withholding income tax is assessed against payments of certain taxable income, whether paid to an individual or a corporation. Income subject to withholding income tax is determined in accordance with the type of income and the classification of the recipient of that income.Please see the details of withholding at source and payment procedures.

Q. Who files individual income tax returns?

A. Individuals must submit an income tax return for the income earned each year, and must pay the tax owed between February 16 and March 15 of the following year. Persons whose total income does not exceed total deductions and persons who receive salary income subject to withholding tax at source (year-end adjustment) from only one payer not exceeding 20 million yen in that year and who have no other income exceeding 200,000 yen do not, as a rule, need to file a return.

All individuals, regardless of nationality, are classified as either residents or non-residents. Please see the details of personal tax system.

Q. Are activities conducted by a representative office subject to taxes?

A. Representative offices, etc., through which a foreign corporation engages in business in Japan are not supposed to derive any income subject to corporation tax from publicity/advertising, information provision, market surveys, basic study and other activities auxiliary to the performance of its business. It is not permitted to engage in sales activities.

When the activity exceeds the auxiliary activities described above, the representative office is taxable as Permanent Establishment (PE).

Q. What is Japan's consumption tax?

A.The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject to consumption tax. The consumption tax rate is 8% (inclusive of local consumption tax rate of 1.7%). Although the consumption tax rate is scheduled to increase to 10% (inclusive of local consumption tax rate of 2.2%) from October 1, 2019, a reduced consumption tax rate will also be introduced at the same time. The reduced tax rate of 8% (inclusive of local consumption tax rate of 1.76%) will be applied to food and beverages, except for alcoholic drinks and dining out, and newspapers published more than twice a week (based on a subscription contract).

Overview of consumption tax:

  1. Domestic transactions: the transfer or rental/lease of assets or the provision of services as a business in Japan by an enterprise for consideration.
  2. Import transactions: cargo retrieved from a bonded zone. Financial transactions, capital transactions, and certain transactions in the areas of medical care, welfare and education are deemed non-taxable. Export transactions and export-like transactions such as international communications and international transport are exempt from consumption tax.

Q. When do corporations file tax returns?

A. Basically, corporations must file a final tax return for corporate taxes on their income within two months from the day following the last day of each taxable year. Please see the details of tax filing.

Q. Can anyone engage in filing tax returns?

A. Tax payers file tax returns by themselves. However, outsourcing tax filing to experienced professional tax accountants or certified public accountants is, generally speaking, easier and more certain.

Q. How can I avoid double taxation?

A. Japan has a foreign tax credit system and dividend exclusion system in order to avoid international double taxation. Japan also has concluded tax treaties with many countries for the purposes of avoiding double taxation of income internationally and preventing tax evasion.

The provisions of tax treaties supersede those of domestic law. Therefore, in determining the tax liability in Japan of individuals and corporations domiciled in a country with which Japan has a tax treaty, the location of the source of income deemed taxable income under Japanese law (specifically the provisions concerning where the income is generated) may at times be amended to accord with these tax treaties. Taxes on cross-border income has have been exempted or reduced the tax rate by the tax treaties.

Through these measures, majority of international double taxation can be avoided.