Section 3. Taxes 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 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 or other foreign subsidiaries, 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 would apply, the rules under which the non-deductible amount would be greater shall apply.

Section3: Table of Contents


Section3:Documents businesses are required to submit to authorities

Section3
(Section1)
Documents Where documents are listed within the URL Reference The competent authorities
relating to the document
3.3.1
(1.6)
Notification of Incorporation of a CompanyExternal site: a new window will open See National Tax Agency
Guidelines 1. Notification of corporation establishment
National Tax AgencyExternal site: a new window will open
3.3.1
(1.6)
Notification of Incorporation / Establishment of corporation
(for submission to Tokyo Metropolitan when establishing an office in Tokyo)
ReferencePDF File(364KB) Tokyo Metropolitan Government
Bureau of taxationExternal site: a new window will open
3.3.1
(1.6)
Notification of Incorporation of a Company (for submission to municipalities) ReferencePDF File(401KB) Local municipality offices
3.3.1
(1.6)
Notification of a foreign companyExternal site: a new window will open See National Tax Agency
Guidelines 2. Notification about Becoming Foreign Ordinary Corporation
National Tax AgencyExternal site: a new window will open
3.3.10(3)
(1.6)
Application for Blue Form ReturnExternal site: a new window will open National Tax Agency
Guidelines 6. Application form for Approval of Filing Blue Return
National Tax AgencyExternal site: a new window will open
3.4.2
(1.6)
Notification of Establishment / Relocation / Discontinuance of Salary Paying Office etc.External site: a new window will open See National Tax Agency
10. Notification of Establishment/
Relocation/Closure of a Salary-paying office
National Tax AgencyExternal site: a new window will open
3.3.10(1)
(1.6)
Application for Special Provision for Extension of the Due Date for Filing a Final Tax ReturnExternal site: a new window will open See National Tax Agency
5. Application for Special Provision for Extension of the Due Date for Filing a Final Return Form
National Tax AgencyExternal site: a new window will open
3.3.1(1)
(1.6)
Application for Approval Made in Relation to the Special Provision for Due Dates for Withholding Income TaxExternal site: a new window will open See National Tax Agency
11. Application for Approval Made in Relation to the Special Provision for Due Dates for Withholding Income Tax
National Tax AgencyExternal site: a new window will open
3.3.10(1)
(1.6)
Notification of a Disposition of/Application for Approval of Extension of the Due Date for Filing a Final Tax Form
(for submission to Tokyo Metropolitan)
ReferencePDF File(925KB) Tokyo Metropolitan Government
Bureau of taxationExternal site: a new window will open
3.3.10(1)
(1.6)
Notification of a Disposition of/Application for Approval of Extension of the Due Date for Filing a Final Tax Return
(for submission to municipalities)
ReferencePDF File(775KB) Local municipality offices

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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