Taxes in Japan for Corporations

 

This page outlines the main taxes that corporation will come across in Japan. It is for illustration purpose only.

Corporate Tax

The corporate tax is made of 3 main taxes which are all mainly based on the annual taxable income of the company:

–          National Tax

–          Local Tax

–          Enterprise Tax (which is also a local tax)

The current effective corporate tax in around 35% with lower tax rates for small companies

Consumption Tax

The consumption tax is similar to European VAT. The current rate has been raised from 5% to 8% on April 1st 2014.

A tax of 8% is paid on most of the purchases made by the company and this consumption tax paid on purchases can be claimed to the tax office. It is often registered in accounting in an account called prepaid consumption tax.

On the other hand, the company collects 8% consumption tax on all domestic sales. The amount received is registered in accounting in an account called received consumption tax.

Once a year, the company has to pay the difference between consumption tax received and consumption tax paid. If the company has a lot of sales abroad on which consumption tax is not received, then it can be in a situation to claim a tax refund for all the prepaid consumption tax.

Consumption Tax exemption

During the first 2 fiscal years, companies with registered capital of less than 10 Million JPY are not required to become consumption tax payer. However they can apply to become consumption tax payer. This can be advantageous in a case of a “cost plus” company which invoices services to its parent company abroad. In that case, Japanese company can claim refund on expenses paid in Japan while it does not need to any Consumption Tax on services invoiced to group company abroad.

However if company sales and salary payments exceed 10 Million JPY in the first six months of one of the two years company has to be subject to consumption from the following fiscal year.

 Tax Benefits for small and medium size company

Companies established in Japan with share capital of JPY 100 million or less are regarded as a Small and Medium sized Entity (“SME”) and are eligible for certain tax benefits (reduced corporate tax rate, partial deductibility of entertainment expenses, etc) under Japanese corporate tax law. However since the 2010 tax reform, a group company that would otherwise qualify as a SME on a stand-alone basis will not be eligible for the aforementioned benefits if the parent company of the group has share capital of JPY 500 million or more.
Under the SME treatment, SME can deduct up to 90% of their entertainment expenses in the limit of 6 Million JPY.
(Note this limit  regularly changes)

Fixed Assets Tax

A fixed asset tax is levied in Japan at the rate of 1.4% on the net value of fixed assets help by a company.
Exemptions apply for small companies. Companies with fixed asset of less than 1.5 Million JPY are usually not taxable.
Please note thi limit may change. Please consult with your tax accountant

Employees Tax

Tax on employees collected by the company on salaries.

In Japan company calculate taxes on salaries and collect them form the employees by making deductions on salaries.

The 2 income taxes deducted on salaries every month are:

–          The withheld income tax collected

–          The resident tax

The withheld income tax is adjusted at each year end in December salary though a procedure call year end adjustment or “nenmatsu chosei” in Japanese. The rate is progressive between 0 and 40%.

The resident tax is paid based on resident tax payment slip sent by tax office to the company. The tax office base the calculation of resident tax to be paid on the previous year employee taxable income. The current rate is 10%.

Withholding Taxes on independent professionals

The company has the duty to withheld 10.21% on payment on professionals not registered  as a corporation. This applies mainly to consultants, lawyers and accountants. For payments over 1 Million JPY the withholding rate is 20.42%.

Japan Tax Compliance Deadline

See our dedicated page on Japan Tax Compliance Deadline

Recommended Resources on Tax in Japan:

Japan National Tax Agency website

Disclaimer: This information is for illustration purpose only. JMC cannot be held liable for any decision made based on this information. For any advice regarding taxes in Japan, Licensed tax accountant should be consulted.