How to Set Up Business in Japan Laws & Regulations on Setting Up Business in Japan

Section 3. Taxes in Japan

3.2 Domestic-sourced income

3.2.1 Domestic-sourced income in the business year commencing by March 31, 2016

Below is the typical example of the domestic-sourced income that forms the basis to determine the tax treatment on foreign corporations. Please note that the specific scope of taxation differs by the mode of activity of a foreign corporation in Japan, as will be described later.

  1. Business Income derived from business activities in Japan
  2. Consideration for providing certain services rendered in Japan such as engineers
  3. Rent of real estate and other properties in Japan
  4. Proceeds from the transfer of real estate in Japan
  5. Income derived from the management of assets in Japan
  6. Interest on deposits and savings deposited to offices in Japan
  7. Dividends received from domestic corporations
  8. Interest on loans for business operations in Japan
  9. License fees, royalties and usage fees for machinery and equipment received from business operation in Japan

3.2.2 Domestic-sourced income in the business year commencing on or after April 1, 2016

As described in 3.1.1, types of domestic-sourced income and taxable scope have also changed from the business year commencing on or after April 1, 2016. The major domestic-sourced income in the business year commencing on or after April 1, 2016 is as follows. In addition, the concept of domestic-sourced income has drastically changed, and it has been determined that the income, which is attributable to Japanese branches and falls under 3.2.1 1. , 6. , 7. , 8. and 9. above, is included in the following 1. , 2. and 6. :

  1. Income attributable to permanent establishment
  2. Income derived from the management/holding of assets in Japan
  3. Proceeds from the transfer of assets in Japan
  4. Consideration for providing certain services rendered in Japan such as engineers
  5. Rent of real estates and other properties in Japan
  6. Other domestic-sourced income