This article series will provide useful insights into the changing investment and innovation environment, and new business opportunities in Japan.
3.9 Other principal corporate taxation regarding international transactions
3.9.1 Foreign tax credits and system of exclusion of dividends from foreign subsidiaries
In order to avoid double taxation of income internationally, a domestic corporation is allowed to credit foreign taxes imposed on a certain income up to the creditable limit. This foreign tax credit system provides; (1) credits for foreign taxes paid directly by a domestic corporation on income earned by it outside Japan (“direct tax credits”); (2) credits for amounts of tax that have been specially reduced or exempted in a country under the provisions of a tax convention with that country (“tax-sparing credits”); and (3) credits for foreign taxes corresponding to the income of a specified foreign subsidiary or similar entity that has been combined with the income of a domestic corporation under so-called anti-tax haven taxation system.
A Foreign Dividend Exclusion system has been introduced to avoid international double taxation. This allows domestic corporations to exclude from their taxable income a certain amount of dividend income from qualifying foreign subsidiaries (i.e., corporations that meet shareholding requirements and other conditions).
3.9.2 Transfer pricing taxation
In order to prevent corporations from setting the prices for transactions with a parent company or other overseas affiliate (foreign-related parties) at a different amount from ordinary (i.e. arm’s -length) prices so as to transfer profits overseas, a transaction is treated as having occurred at the arm’s length price and the amount of tax calculated accordingly if the income derived from the transaction differs from the arm’s length price. As a reporting system that enables each country’s tax authorities to grasp the overall pictures of global companies’ business activities has been established, corporations belonging to certain multinational enterprise groups have to submit a prescribed report from the fiscal year of their ultimate parent company beginning on or after April 1, 2016.
3.9.3 Anti-tax haven taxation: CFC (Controlled Foreign Company) rule
In order to prevent domestic corporations from evading taxes by retaining income through a foreign subsidiary established in a so-called tax haven, a domestic corporation is taxed by including in its taxable income an amount corresponding to its interest in the retained earnings of that foreign subsidiary.
3.9.4 Thin-capitalization taxation
If a corporation's borrowing from an overseas controlling shareholder exceeds three times its equity (or an alternative reasonable ratio), interest on borrowing corresponding to the excess cannot be deducted from taxable income.
3.9.5 Japanese earnings stripping rules
Deductions for payments of interest, etc. by corporations to parent companies or other affiliates are disallowed to the extent that such interest exceeds 20% of the adjusted taxable income.
However, this will not apply if the amount of interest paid, etc. to affiliates is 20 million yen or less, or if the total amount of the subject net interest paid, etc. of all domestic corporations with capital relationships exceeding 50% is 20% or less of the total amount of adjusted income of these domestic corporations.
Note that where interest payments are subject to both these rules and the rules on thin-capitalization taxation described in 3.9.4 above, the rules under which the non-deductible amount would be greater shall apply.
3.9.6 Response to global minimum tax
Considering the progress of international discussions and trends toward implementation in other countries, among the rules for global minimum taxation, corporate income tax on the global minimum tax for each applicable fiscal year has been established as a legislation for the Income Inclusion Rule (for applicable fiscal years beginning on or after April 1, 2024). In line with this, a system (information declaration system) is established for corporations belonging to certain multinational enterprise groups to provide certain matters to tax authorities.
Laws and Regulations on Setting Up Business in Japan Pamphlet
The pamphlet "Laws & Regulations" is available in PDF, and outlines basic information about laws, regulations and procedures related to setting up a business in Japan. It is available in 8 languages (Japanese, English, German, French, Chinese (Simplified), Chinese (Traditional), Korean and Vietnamese).
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Section3:Documents businesses are required to submit to authorities
Section3 (Section1) |
Documents | Where documents are listed within the URL | The competent authorities and relevant web pages |
---|---|---|---|
3.3.1 (1.6) |
Notification of Corporation Establishment | See Guidelines 1. Notification of corporation establishment | National Tax Agency |
3.3.1 (1.6) |
Notification of Corporation/Branch Establishment (for submission to Tokyo Metropolitan when establishing an office in Tokyo) | See "1.Notification of Incorporation (example form)" under the "Duties" headline. | Tokyo Metropolitan Government Bureau of Taxation |
3.3.1 (1.6) |
Notification about Becoming Foreign Ordinary Corporation | See Guidelines 2. Notification about Becoming Foreign Ordinary Corporation | National Tax Agency |
3.3.10(3) (1.6) |
Application Form for Approval of Filing Blue Return | See Guidelines 6. Application form for Approval of Filing Blue Return | National Tax Agency |
3.4.2 (1.6) |
Notification of Establishment/Relocation/Closure of a Salary-Paying Office |
See Guidelines 10. Notification of Establishment/ Relocation/Closure of a Salary-paying office |
National Tax Agency |
3.3.10(1) (1.6) |
Application for Special Provision for Extension of the Due Date for Filing a Final Return | See Guidelines 5. Application for Special Provision for Extension of the Due Date for Filing a Final Return Form | National Tax Agency |
3.4.1 (1.6) |
Application for Approval Made in Relation to the Special Provision for Due Dates for Withholding Income Tax | See Guidelines 11. Application for Approval Made in Relation to the Special Provision for Due Dates for Withholding Income Tax | National Tax Agency |
3.3.10(1) (1.6) |
Notification/Application Form for the Extension of Submission Deadline to File Tax Statement (for submission to Tokyo Metropolitan) | See Tax (Metropolitan Tax) section "2.Notification/Application for Extension of Time to File Tax Statement (example form) " under the "Duties" headline |
Tokyo Metropolitan Government Bureau of Taxation |
Materials listed as ‘Reference’ contain samples of documents regarding registration, visa, taxation, personnel and labor matters that are necessary when a foreign company establishes a corporation or other entity in Japan. These documents are not published by competent authorities and therefore are not official. For those who are going through the official procedures, please obtain the latest official documents from the competent authorities and related bodies or consult a person who specializes in advising on such information and procedures.
The information contained in this documents should be used at the reader’s independent discretion. While JETRO makes every effort to ensure the accuracy of the information it provides, no responsibility is accepted by JETRO for any loss or damage incurred as a result of actions based on the information provided in these documents or provided by the external links listed on these pages.
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