How to Set Up Business in Japan

Laws & Regulations on Setting Up Business in Japan

Section 3. Taxes in Japan

3.10 Handling of corporate, local, and consumption taxes depending on capital amount

Main items that have different handling in the taxation systems depending on the amount of paid-in capital or the amount of capital, etc., are as summarized below.

3.10.1 Corporate tax, corporate inhabitant tax and enterprise tax

Main items that have different handling in the taxation systems of corporate tax, corporate inhabitant tax and enterprise tax depending on the amount of paid-in capital and the amount of capital, etc., are as shown in Table 3-11 below. In order to be eligible for each special measure, various requirements, including (successive) filing of a blue form tax return, have to be satisfied. Please check the details of the requirements with tax professionals individually.

Table 3-11 Handling of corporate tax and local tax depending on capital amount

Items Paid-in capital requirements Remarks (special measures)
Reduced corporate tax rate 100 million yen or less *1 Applicable to the reduced tax rate of 15% for the part of annual taxable income of 8 million yen or less (see 3.3.2)
Per capita levy on corporate inhabitant tax Depending on amount of capital, etc. *2 *3 Taxation depending on the amount of capital, etc., the number of employees working at a place of business, etc., or a combination of these (see Table 3-3 in 3.3.2)
Enterprise tax on a pro forma basis 100 million yen or less Exemption (see 3.3.3)
Special tax rate for certain family corporations 100 million yen or less *1 Tax exemption on retained earnings (see 3.3.7)
Carry-over of losses 100 million yen or less *1 Not applicable to the provision of the maximum amount of loss that may be deducted from income *4 (see 3.3.8)
Refund for carry-back of losses 100 million yen or less *1 Being able to receive a refund of the tax paid by offsetting the loss in the current business year against the income made in the previous business year (see 3.3.8)
*1 The following corporations are not eligible for the special measures described in the Remarks even if their paid-in capital is 100 million yen or less.
  • A corporation that is completely dominated by a large corporation (a corporation whose paid-in capital or investment exceeds 500 million yen, a mutual company defined in the Insurance Business Law or a certain other company)
  • A domestic corporation that is completely dominated by large corporations and one of all the large corporations have all the shares of or a stake in the domestic corporation
*2 The total amount of the increase or decrease of capital etc. resulting from free capital increases or dispositions of deficits that have been made since a certain past year, which is added to or subtracted from the capital etc. prescribed in the Corporate Tax Law or other certain amount of capital etc.
*3 The amount of capital etc. is the sum of the paid-in capital and the capital reserve or the amount of investment in the case of the amount of capital etc. as of the end of a business year is less than the amount of capital and the capital reserve or the amount of investment (applicable to the business years commencing on or after April 1, 2015).
*4 However, unlisted corporations and corporations in the middle of reconstruction are eligible for a deduction rate of 100% for a certain period of time regardless of the amount of paid-in capital.
*5 In addition to the above, there are special measures depending on the amount of capital in the treatment of deductions of the allowance for bad debts, special provisions for taxation on entertainment expenses, various special write-offs and tax deductions.

3.10.2 Consumption tax

The main items that have different handling in the taxation system of consumption tax depending on the amount of capital are as shown in Table 3-12 below. Please make sure to check whether or not the requirements for exemption from the consumption tax are satisfied with tax professionals individually.

Table 3-12 Handling of consumption tax depending on capital amount

Items Paid-in capital requirements Remarks (special measures)
Tax liability Less than 10 million yen Exemption when a company that has no base period, such as a newly established company, meets certain conditions (see 3.6.3)

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