JAPAN CORPORATE TAX
Japanese corporate tax refers to the tax imposed on companies operating in Japan. Companies are taxed on their taxable income, which is calculated based on their business activities within Japan.
In addition to the standard corporate tax, companies operating in Japan may also be subject to other taxes such as local taxes, consumption taxes, and taxes on specific business activities, such as real estate transactions.
It is important for companies operating in Japan to have a clear understanding of their tax obligations and to comply with all relevant tax laws and regulations. Failure to do so can result in penalties, fines, and other consequences. Companies can seek assistance from professional consultants to ensure compliance and minimise their tax liability.
JAPAN CORPORATE TAX RATE 2023
The effective Japan corporate tax rates is 23.2% (30% -34% inclusive of local taxes). Generally, a domestic corporation in Japan will be taxed for all its local and internationally sourced income. The corporation will be also liable to pay tax on its foreign branch income.
A company deemed as a foreign corporation in Japan will only be taxed on its local (Japan) sourced income. If a foreign corporation is deemed to have a permanent establishment (PE) in Japan, the PE will be taxed on income attributable to the PE.
In 2020, the Japanese government introduced a tax reform and implemented certain changes to several corporation tax systems. The tax reform was mainly issued as a special measure for small to medium size enterprises (SMEs) and to accommodate the gap in the economies after the global pandemic of COVID-19.
NATIONAL LOCAL CORPORATE TAX
Japan corporate taxpayers in Japan are required to comply with the revised regulations for the national local corporate tax. Under the new rules, these taxpayers are obligated to file and pay the tax at a fixed rate of 10.3% on their corporate tax liabilities. Prior to this change, the national local corporate tax rate was 4.4%.
This increase in the tax rate aims to provide additional funding for local government services and infrastructure projects. It is important for businesses operating in Japan to understand these tax regulations and plan accordingly to ensure compliance with the new requirements.
STANDARD ENTERPRISE TAX (AND LOCAL CORPORATE SPECIAL TAX)
The Standard Enterprise Tax, also known as the “Local Corporate Special Tax,” is a tax imposed on businesses in Japan. This tax is based on a company’s profits and is levied by prefectural and municipal governments. The rate of the Standard Enterprise Tax varies depending on the location and size of the business, but is typically around 20% to 30% of the business’s taxable income.
The revenue generated from the Standard Enterprise Tax is used by local governments to finance various public services and infrastructure projects. It is important for businesses operating in Japan to understand the tax regulations and to plan accordingly to ensure they are in compliance with the requirements for the Standard Enterprise Tax.
Comparison of Corporate Tax, National Local Tax and Standard Enterprise Tax
|Japan Corporate Tax||Japan National Local Tax||Standard Enterprise Tax|
|Imposed on companies operating in Japan||Comprised of local taxes such as the Prefectural Tax, and the Municipal Tax.||A local tax on businesses in Japan|
|Fixed rate of 23.1% for most companies, with exceptions for small and medium-sized enterprises (SMEs) and specific industries||Calculated based on the company's taxable income or capital||Calculated based on the company's taxable income|
|Companies may also be subject to other taxes such as local taxes, consumption taxes, and taxes on specific business activities.||Compliance with all relevant tax laws and regulations is important to avoid penalties, fines, and other consequences.||Part of the Japan National Local Tax system and must be paid in addition to the standard corporate tax.|
Inhabitant’s Tax is a tax imposed on corporations in Japan that is based on the income allocated to each prefecture and city. The allocation of the tax is generally determined based on the number of employees, similar to the calculation of Enterprise Tax.
The standard rate for the prefectural portion of the tax is 3.2%, while the standard rate for the municipal portion is 9.7%. However, local governments have the discretion to increase the tax rate to 4.2% for the prefectural portion and 12.1% for the municipal portion. Effective October 1st, 2019, the tax rate has been increased to reflect the growing demands for government services and infrastructure projects.
It is important for corporations operating in Japan to stay informed about changes to the tax regulations and to plan accordingly to ensure compliance with the requirements for the Inhabitants Tax.
OTHER TAXES IN JAPAN
Value Added Tax Japan (VAT)
Value-Added Tax (VAT), also known as Consumption Tax (CT) in Japan, is a tax imposed on the value added at each stage of production and distribution of goods and services. The VAT system in Japan was introduced in January 1989 and is similar to the Value-Added Tax system used in the European Union.
Corporations are required to accurately calculate their VAT obligations and make timely payments to the tax authorities. Companies with annual sales exceeding 10 million yen must register and comply with the Consumption Tax Act.
The standard rate for VAT in Japan is currently 10%. However, there may be specific exemptions and reductions available for certain types of goods and services. It is important for corporations operating in Japan to have a thorough understanding of the VAT regulations and to ensure compliance with the requirements for timely payment of VAT obligations.
|10% on Standard Rated Supplies||GST is charged on most local sales and services as it will fall under this category.|
|8% on Food Related Supplies||This rate is applicable to sales of food/beverages (excluding alcoholic items) and selected newspaper subscriptions.|
|0% on Exempted Supplies||Zero-rated supplies includes items such as exported supplies and selected export-related activities such as international transportation.
Non-taxable (exempt) rates are also applicable to sale or lease of land and certain sales of securities or similar instruments.
Various monetary transactions are also excluded from VAT.
Withholding Tax Japan
According to the Japan National Tax Agency on the Withholding Tax Guide, the withholding tax system in Japan is as follows:
According to the Japan National Tax Agency, the Withholding Tax system in Japan applies to certain types of income, such as salary, interest, dividends, and fees paid to tax accountants. The system operates by having the payer withhold a portion of the income payment to cover the amount of income tax owed by the recipient.
The purpose of the Withholding Tax system is to simplify the process of collecting income tax by having the tax obligation met directly from the source of income. This ensures that the recipient of the income does not have to make separate tax payments, as the tax has already been deducted at the time of receipt.
You can refer to the withholding tax guide for additional information.
Business Premises Tax
The Business Premise Tax is a tax levied on the use of commercial and industrial properties in Japan. The tax is calculated based on the assessed value of the property, which is determined by the local government.
The purpose of the Business Premise Tax is to fund various public services and infrastructure projects in the local area. The tax is imposed on the owner of the property, but in some cases, the tax obligation may be passed on to the tenant or user of the property.
The tax rate for the Business Premise Tax varies depending on the local government, but it typically ranges from 1% to 2% of the assessed value of the property. It is important for businesses operating in Japan to be aware of the Business Premise Tax and to ensure that they are compliant with the requirements for payment and reporting.
JAPAN CORPORATION COMPLIANCE REQUIREMENTS
A Corporation is allowed to choose its fiscal year during incorporation and the accounting period cannot exceed twelve months.
A Corporation including a branch must file its tax returns and complete the payment of final taxes within two months from the end of the fiscal year.
Various penalties are imposed on corporations that are non-compliance with the above.
At Relin Consultants, we have extensive experience in helping our clients optimise their tax planning and structure in Japan. Our team of experts has successfully assisted multiple clients in this area, providing customised solutions to meet their specific needs.
If you’re looking to establish a company in Japan, our team can provide you with valuable insight and support to ensure that you meet all the necessary requirements. We can also help you navigate the complex tax system in Japan, so that you can minimise your tax liabilities and maximise your profitability.
Reach out to us to learn more about your options for Japan company formation and how we can help you achieve your goals. Contact us now to schedule a consultation and receive personalised support from our team of experts.
What is the corporate tax rate in Japan?
The standard corporate tax rate in Japan is 23.1% for fiscal year 2022. This rate applies to companies with an annual taxable income of less than JPY 40 million. For companies with an annual taxable income exceeding JPY 40 million, the tax rate increases to 30.64%.
It’s important to note that there may be other taxes, such as local taxes, that also apply to corporations operating in Japan, and the actual tax liability will depend on a variety of factors, including the size of the company and the nature of its business activities.
It is recommended that companies seek the advice of a tax professional to ensure that they are aware of all the taxes that may apply to them and to help them optimize their tax planning and compliance.
Does Japan have high corporate tax?
Compared to other countries, Japan has a relatively high standard corporate tax rate. According to the Organization for Economic Co-operation and Development (OECD), Japan’s standard corporate tax rate of 23.1% for fiscal year 2022 is higher than the average corporate tax rate of 21.4% among the member countries of the OECD.
However, it’s important to note that Japan has a well-developed infrastructure and a highly skilled workforce, which can offset the higher tax burden for some companies. Additionally, the Japanese government has implemented various tax incentives and special tax zones to encourage investment and business development in the country.
The actual impact of the corporate tax rate on a particular company will depend on a variety of factors, including the size and nature of its business operations, the location of its activities, and its specific tax planning strategies. It is recommended that companies seek the advice of a tax professional to evaluate the impact of the corporate tax rate on their specific situation.
What is C tax in Japan?
“C tax” may refer to the Corporate Tax in Japan, which is a tax levied on the taxable income of companies operating in Japan. The standard corporate tax rate in Japan for fiscal year 2022 is 23.1% for companies with an annual taxable income of less than JPY 40 million, and 30.64% for companies with an annual taxable income exceeding JPY 40 million.
It’s important to note that the actual tax liability of a company will depend on a variety of factors, including the size and nature of its business operations, the location of its activities, and its specific tax planning strategies. Companies are advised to seek the advice of a tax professional to ensure that they are aware of all the taxes that may apply to them and to help them optimise their tax planning and compliance.
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