日本進出企業コンサルティング

Japan Tax Highlight

Tax rate for the SMEs: Ordinary corporations with stated-capital less than JPY 100M

Item Taxable base Tax rate Effective tax rate
Corporate tax*1 Taxable income 23.2% 33.58%
Local corporate tax Corporate tax 10.3%
Enterprise tax Income portion*2 Taxable income 7.0%
Special enterprise tax Enterprise tax (Income portion) 37.0%
Inhabitant tax Corporate tax portion*2 Corporate tax 7.0%
Capita levy*3 N/A Fixed amount

*1The reduced corporate tax rate of 15% is applicable to taxable income up to JPY 8,000,000 for small or medium-sized enterprises(SMEs).
*2 The standard rate for inhabitant tax and enterprise tax are in place in the above table. In addition, there is an excess tax rate may be applicable, and its test is based upon the amount of stated-capital or current taxable income.
*3 Capita levy is determined based on the amount of capital and number of employees (Capita levy: JPY 70,000-JPY 3,800,000).

Tax rate for the large-sized entity: Ordinary corporations with stated-capital exceeding JPY 100M

Item Taxable base Tax rate Effective tax rate
Corporate tax Taxable income 23.2% 30.62%
Local corporate tax Corporate tax 10.3%
Enterprise tax Income portion*1 Taxable income 1.18%
Value-added portion*2 Value-added factor 1.26%
Capital portion Capital and capital surplus 0.525%
Special enterprise tax Enterprise tax (Income portion) 260.0%
Inhabitant tax Corporate tax portion*1 Corporate tax 10.4%
Capita levy*3 N/A Fixed amount

*1 The excess tax rate for inhabitant tax and enterprise tax are in place in the above table.
The threshold of an excess tax rate is based upon the amount of stated-capital or current taxable income.
*2 The taxable base of the value-added portion of enterprise tax is calculated based on the taxable income, salary, net interest and net rent.
*3 Capita levy is determined based on the amount of stated-capital and number of employees (Capita levy: JPY 70,000-JPY 3,800,000).

Corporate taxation

Item Detail
Taxable income A resident company is taxed on worldwide income.
The taxable income is calculated based on profit/loss from the accounting purposes, in addition to posting the tax adjustments.
Net operating losses(NOLs) Only 50% of a company’s taxable income may be offset by NOLs.
A small or medium-sized enterprise (SME) with share capital of no more than JPY 100million is exempt from the NOL restriction, unless the SME is owned by a large corporation.
The NOL carryforward period is 10 years for NOLs incurred during fiscal years starting on or after 1 April 2018.
SMEs may carry back losses for one year.
Tax return filling A corporation must file a final tax return due within two months after the close of its fiscal year.
One-month extension of filling due date can be applicable in case a company files a tax application.
Companies may file either a “blue” or a “white” return.
The blue return carries a wide range of privileges, such as deductions, including tax loss carryforwards and accelerated depreciation.
To use this form, companies must apply before the beginning of the applicable tax year (or, for a newly formed company, before the end of the first year), and must meet certain requirements in relation to their accounting systems and recordkeeping.
Tax payment A corporation must pay its final taxes due within two months after the close of its fiscal year.
Taxes must be prepaid within two months from the end of the sixth month of the tax year, in an amount equal to either: (i) 50% of the tax payable on the previous year’s earnings; or (ii) the actual tax liability for the first six months.
Item Detail
Transfer pricing The prices of goods and services exchanged between internationally affiliated entities must be consistent with the arm’s length principle.
Japanese transfer pricing documentation rules follow the OECD’s three-tiered approach to documentation (i.e., country-by-country (CbC) reporting, master file, and local file).
Thin capitalization Japan’s thin capitalization rules primarily restrict the deductibility of interest payable (including certain guarantee fees) by a Japanese corporation or a foreign corporation liable to pay corporation tax in Japan to its foreign controlling shareholder (or certain third parties), if the interest is not subject to Japanese tax in the hands of the recipient.
There is a debt-to-equity safe harbor ratio of 3:1 (2:1 for certain repo transactions).
This effectively means that there will be a restriction only if the debt from the foreign controlling shareholder (or specified third party) exceeds three times the amount of net equity the shareholder/third party owns, and the total debt exceeds three times the equity.
In such a situation, interest expense calculated on the excess debt is nondeductible for Japanese corporate income tax purposes.
Earning stripping rules Where net interest payments (i.e., the amount after deducting interest income from interest expense) exceed 20% of adjusted taxable income in a fiscal year, the excess portion is nondeductible.
De minimis exceptions to the application of the earnings stripping rules exist for: (i) net interest payments to related parties not exceeding JPY 20 million; or (ii) expensed interest payments in total within a Japan domestic affiliate group.
Where both the earning stripping and the thin capitalization rules are applicable, the larger of the two potential disallowances will apply.

Tax rate

Item Transaction Tax rate
Standard rate Sales or lease of assets and services 10%
Reduced rate Sales of food and beverages (excluding alcoholic drinks and dining out), and etc. 8%

JCT system

Item Detail
Tax return filling A corporation must file a consumption tax return due within two months after the close of its fiscal year if the corporation is a consumption taxpayer. One-month extension of filling due date can be applicable in case a company files a tax application.
A filing extension will become available from the fiscal year ending on or after 31 March 2021.
Tax payment A corporation must pay its consumption taxes due within two months after the close of its fiscal year.
The frequency of tax payments depends on the total consumption tax collected.
Item Detail
Taxpayer Basic rule An existing corporation may be a consumption taxpayer if taxable sales for consumption tax purposes exceed JPY 10 million in the base period (two years before the current year).
Special rule A corporation may be a consumption taxpayer if the sales or salary in the first six months of the prior year exceed JPY 10 million, even if a corporation is not treated as a taxpayer according to the basic rule.
Incorporation A new corporation with stated-capital of over JPY 10 million on the beginning day of the year may be a taxpayer in the first two years.
Election A corporation can be a taxpayer if the election form is filed. The election is binding for a minimum of two taxable years.

Tax rate

The withholding tax rate for a payment to be made to a non-resident corporation is as follows: The rate may be reduced under a tax treaty.

Item WH Tax rate
Dividends 15.315%/20.42%
Interest 15.315%/20.42%
Royalties 20.42%
Fees for technical services 20.42%

Fixed asset tax

The municipal fixed assets levy is assessed at an annual rate of 1.4%.
The fixed asset tax is assessed by the book value of the fixed assets.
The fixed assets should be exempted, if book value of fixed asset in total is less than JPY 1.5million.

Business premise tax

A corporation who owns (including rental) the offices, and its space is more than 1,000㎡, and/or total headcount is more than 100 should be responsible for the business premise tax, and its tax rate is as follows:

Tax rate:

  • Space of offices(㎡) * JPY 600
  • Employee’s salary * 0.25%

Stamp duty

Stamp duty of JPY 200 to JPY 600,000 is imposed on the execution of taxable documents.

Registration and license tax

Registration and license tax is assessed at 0.7% on the registration of new or additional stated-capital at the timing of the incorporation and stated-capital increase.

Subaru Kondo
SAN kyodo Tax Co.
Partner
Certificated tax accountant

近藤　昴 (こんどう　すばる)
サン共同税理士法人 パートナー　税理士

Mail

subaru.kondo@san-kyodo.jp

Profile

Subaru Kondo is Partner in SAN kyodo Tax Co.. He has over 12 years experience in the tax and business advisory field.
He has joined GES (individual income tax team) in Deloitte Tohmatsu Tax Co. in 2008 and been involved in a variety of individual income tax services for expats and the business advisory to the oversea HR.
In 2011, he has moved to BTS (corporate and international tax service team) and experienced a variety of tax and business advisory projects and tax compliance services for the both inbound and outbound clients as Manager.
He has left Deloitte Tohmatsu Tax Co. in 2020 and joined SAN kyodo Tax Co. in 2021.

2008年より現デロイト トーマツ税理士法人GES部門に勤務し、国内外の駐在員の個人税務、海外人事とのコーディネーション業務などに従事。
2011年11月　ビジネスタックスサービス部門に異動し、約9年間勤務。マネジャーとして国内上場企業や外資系企業の税務コンサルティング業務及び税務コンプライアンス業務、税務顧問及び業務効率化提案などを行ってきた。
2020年12月末でデロイト トーマツ税理士法人を退職（マネージャー）
2021年1月　サン共同税理士法人のパートナーに就任