Last modified: 19/12/2024 23:51

Corporate taxation

	Rate
Corporate income tax rate	30.81% /29.74%(effective)
Branch tax rate	30.81%/29.74% (effective)
Capital gains tax rate	30.81% for a corporation/29.74%(effective)

1. Local corporate taxes and enterprise tax are included. Per capita tax based on the capital amount is not included in the above.
2. Enterprise tax is deductible expense in Japan.
3. Capital gain is taxed as the same rate as corporate tax income tax.

Residence: A company is resident in Japan if it has its legal seat (registered office) or its effective management and control there.

Basis: Resident companies are taxed on their worldwide income. A branch of a foreign company is taxed for income attributable to Japan. Non-resident companies are taxed on permanent establishment (PE)/branch income and/or on immovable property located in Japan.

Taxable income: Corporate income tax is imposed on a company’s net profits per GAAP including business/trading and passive income and capital gains. Foreign source income is included in taxable income, but relief is granted for dividend income from qualifying participations. Business expenses are deductible. Gains and losses from the conversion of financial statements in a functional currency into JPY are disregarded for tax purposes. Bonus paid to directors on board is not tax deductible except for very specifc cases.

Significant local taxes on income: The 48 prefectures and 1,718 cities and counties levy their own local corprate tax, enterprise tax and per capita tax. Local corporate tax, Enterprise tax, Special enterprise tax, and per capital tax are assessed.

Alternative minimum tax: No.

Taxation of dividends: Dividends are taxable for the recipient company, although relief is granted for dividends received from a resident or non-resident company. Exemption rate varies from 20% to 100% depending on the participation rate of capital.

Capital gains: Capital gains are taxed as a part of a resident company’s taxable profit.

Losses: May be carried forward for ten years and may be set off against any income or capital gains. Losses may be carry back for qualified companies.

Foreign tax relief: Foreign-source income is included in taxable income, but relief is granted for dividend income. Foreign-source income is taxed either net of foreign taxes or gross basis by applying a foreign tax credit.

Participation exemption: Not applicable.

Holding-company regime: There is no holding company regime.

Tax-based incentives: *R&D deductions on R&D expenditure *20-100% relief for dividends *Tax Credits for Salary Growth

Group relief/fiscal unity: No consolidation filing for international corporate structure. Assets may be transferred intra-group at no gain/no loss provided they form a business unit if asset transfer occurrs among resident companies in Japan.

Small company/alternative tax regimes: *Tax rates discount *Tax credit and deduction allowed for capital investment *Entertainment expense deduction *Loss carry back

Corporate taxation: compliance

Tax year: Accounting period (cannot exceed 12 months except in the year of incorporation).

Consolidated returns: Basically not. Only domestic strucutre may apply the consolidated returns based on a certain condition for the national coporate tax only.

Filing and payment: Separate filies are required for national and local tax offices. Filing and payments are due within three months after the tax year.

Penalties: *10% or 15% applies for no filing by due date. *In addition, delinquency tax applies for late filing. This rate changes every year. 2.4% applies for the first two months and this rate becomes 8.7% after two months in 2024.

Rulings: Rulings may be obtained from the tax authorities on various Japanese tax matters.

Taxation of individuals

	Rate
	Federal Income Tax
National tax	5-45%
Local inhabitant tax	10%
Enterprise tax for individual practioner	3-5%

1. xxxxxxxx
2. xxxxxxxx

Residence: Individuals are essentially resident if they intend to stay in Japan permanently or temporarily with work permit (working visa or family related visa of permanent resident) Resident is classified into either perment resident or non-permanent resident for tax purposes. Non-permanent resident is an individual staying in Japan not more than five years for the last ten years. Non-resident is an individual other than resident described in the above and staying in Japan with residence less than one year.

Basis: Permanent Resident individuals are taxed on their worldwide income. Non-permanet resident individuals are taxed on the profits except profits from foreign sourced income and income from capital gain in the foreign stock market. Non-residents are taxed on Japan employment income, business profits and profits attributable to Japan immovable property.

Taxable income: All income derived from compensation for work performed and income from capital (real and movable property in Japan) are subject to national income and local inhabitant tax.

Capital gains: Capital gains and appreciation derived from the sale or realization of assets through the increased value of tangible and intangible assets are subject to tax. Gains realized on the sale of shares or real property are also subject to national income tax. Local inhabitant taxes are imposed seprately for capital gain payable by resident taxpayers.

Deductions and allowances: Employment income earners are allowed for deduction provided under the law rather than actual expenses such as including interest on loans, alimony. Transportation to the working location provided by employer is tax exempt. Donations to a qualified organization in Japan are deductible. Personal allowances are granted to taxpayers, their spouses and dependents.

Foreign tax relief: Foreign source income is taxed either net of foreign taxes or applying foreign tax credit. The tax payment proof is required in applying the foreign tax credit.

Taxation of individuals: compliance

Tax year: Calendar year

Filing and payment: Self-assessment. Joint filing with spouse is not adopted in Japan. National income tax and local inhabitant tax on employment income is withheld by the employer for all employees who are paid in Japan. Local inhabitant tax bill is sent by the local municipal office to the employer every May to start the collection from June through May of hte following year. The tax amount is calculated by the local municipal office based on the prior year income.

Penalties: 10% or 15 % penalty applies for non-filing by due date. Delinquency tax rate is the same as corporate taxes. 2.4% for the first two months and 8.7% applies thenafter in 2024.

Rulings: See above under ‘Corporate Taxation’.

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Dividends	20.42%	20.42%	0/5/10/20.42%	0/5/10/20.42%
Interest	0	0	0/10/20.42%	0/10/20.42%
Royalties	0	0	0/10/20.42%	0/10/20.42%
Salary and per diem	0	0	0/20.42%	0/20.42%
Capital gains on share	0	0	0/20.42%	0/20.42%
Sale on real estate	0	0	10.21%	10.21%

1. Basic withholding tax rate is 20.42%. The withholding tax is forgiven or discounted in tax treaties.
2. Fully refundable on withholding tax relating sales of real estate by filing the tax return in Japan where the capital loss or less gain incurrs.

Branch remittance tax: No such tax.

Anti-avoidance legislation

Transfer pricing: TP legislation or documentation requirements are set following OECD principles including CbC reporting requirements. If the revenue of group company is JPY 100 billion or more, the notification and master file submission are required by the fiscal year end of the company in Japan. Related party transactions have to be carried out at arm’s length terms.

Interest restriction: There are thin capitalization rule for the interest payable to the parent company. In addition, the transfer pricing study is required for interest incurred from related parties.

Controlled foreign companies: Japanese corporate and individual taxation require aggregation of profit incurred from the dormant company exists in the countries which effective tax rate is less than 20%. Passive income aggregation (ie.royalty, interest, capital gain) to the Japanese corporate and individual income is required if there is a profit from the company which exists in the countries which effective tax rate is less than 30%. The above rules apply to corporation and individuals which owns the stake of the foreign companies 10% or more directly and indirectly.

Hybrid mismatches: Dividends received from the country which allow dividend as expenses shall not apply the income relief under the Japanese corporate taxation.

Disclosure requirements: CbC reporting for qualifying enterprises if the parent company does not have the information exchange agreement with Japan. Corporate restructuring incurred during the fiscal year is required for the disclosure as a part of tax returns.

Exit taxes: Exit tax applies to individuals as capital gain on shares and investments.

General anti-avoidance rule: General anti-avoidance rule are set as rule and the Japanese tax authorities may correct the taxes under the following conditions: • The taxpayer’s legal structure is unusual, inappropriate or inadequate having regard to its economic purpose • Tax considerations are deemed to be the only motive for the transaction and • The transaction effectively would lead to significant tax savings if it were accepted by the tax authorities. Measures against treaty abuse may apply, including base erosion test.

Digital services tax and Other significant anti-avoidance legislation: No.

Value-added tax/Goods and services tax

Type of tax: Japanese Consumption Tax (JCT) applies to supplies of most goods and services and to imports. In addition, the cross boarder electric services provided as B2B is subject to the reverse charge mechanism. The cross boarder electric services as B2C is required for filing by the foreign service provider as non-resident company.

Standard rate: 10%

Reduced rates: 0%, 8%

Registration: Japanese business must register for JCT where taxable spplies have exceeded JPY10 million in the bench mark year. The bench mark year is usually two years before the current year. There are exceptional rules for newly established companies and M&A cases.

Filing and payment: Annual filing and payment are required within 2 months after the fiscal year end.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Health insurance	4.99	4.99
Nursely care insurance	0.8	0.8
Pension insurance	9.15	9.15
Child support	0.36	0
Asbesto support	0.002	0
Unemployment insurance	0.3	0.3
Workmen accident insurance	0.3	0

Self-employed

Progressive rate applies for self- employed. Pension insurance amount is fixed and Health insurance amount is almost double of employee share of the employer/employee plans.

Other taxes

Capital duty: No.

Immovable property taxes: Each city may assess the immovable property taxes. General rate is 1.4%-1.6% of property value calcualted by the each city.

Transfer tax: No.

Stamp duty: Stamp duty applies to the corporate registration and transactions listed in the stamp duty law.

Net wealth/worth tax: No.

Inheritance/gift taxes: There are gift tax and inheritant tax in Japan. JPY 1.1 million exemption per year is allowed for gifting during the calendar year but need to aggregate with the inheritant tax basis if the gift incurred within 3 years of inheritance. Tax exemption for inheritant tax is JPY30 million + JPY6 million per qualified heir. Tax rate is 5% to 55% depending on the taxable amount.

Tax treaties

Japan has concluded over 71 full double taxation treaties on income and capital gains and has a small number of tax information-exchange agreements. It has 1 estate-tax treaty with the United States of America. It is also a signatory to the OECD Multilateral Instrument but the conditions are different depending on each counter country