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In this page: Corporate Taxes | Accounting Rules | Consumption Taxes | Individual Taxes | Double Taxation Treaties | Sources of Fiscal Information

 

Corporate Taxes

Tax Base For Resident and Foreign Companies
A company that has its head office in Japan is considered as a domestic corporation, regardless of the place of central management or the nationality of its shareholders.
 

Tax Rate

Corporate tax (for companies with share capital exceeding JPY 100 million) 23.2%
Local taxes 2.390% (corporate taxpayers are required to file and pay the national local corporate tax at a fixed rate of 10.3% of their corporate tax liabilities - 23.2% x 10.3%)
Standard enterprise tax (including local corporate special tax) 3.5% for the yearly tax base up to JPY 4 million
5.3% for the tax base up to JPY 8 million
7% for the tax base over JPY 8 million
Inhabitant’s tax (imposed on a corporation’s income allocated to each prefecture and city) determined by the local government by the factors of paid-in capital and the number of employees
Effective tax rate (after deducting the enterprise tax, including local corporate special tax or special corporate business tax) 30.62% (based on the maximum rates applicable in Tokyo to a company whose paid-in capital is over JPY 100 million)
 
Tax Rate For Foreign Companies
Resident companies are taxed on their worldwide income whereas non-resident companies are taxed only on Japanese-source income at standard corporate rates. A foreign corporation with a permanent establishment in Japan is liable for corporate income taxes only on the income attributable to such permanent establishment.
Capital Gains Taxation
Capital gains are taxed as ordinary income at the standard corporate tax rate, with capital losses generally available as a full tax deduction. Capital duty is included in the local inhabitant tax and local enterprise tax.

The recognition of capital gains or losses from the transfer of certain assets between group companies are to be deferred until the asset is transferred to another group company or a non-group company.
Main Allowable Deductions and Tax Credits
In order to file for tax privileges - including deductions for business expenditure, tax loss carryforwards and accelerated depreciation - companies must apply for a "blue form" tax return at the beginning of a fiscal year.
Reserves for doubtful receivables and return of goods not sold are deductible for corporate tax purposes. Deductions are also available for charitable contributions (up to certain limits). Corporations can deduct 50% of the entertainment expenses for food and drink; while expenses for entertainment are only deductible for SMEs (paid-in capital of up to JPY 100 million), up to the smaller of JPY 8 million or the actual disbursement for the entertainment expense. Start-up expenses are allowed to be amortised on a voluntary basis. Interest expenses are generally deductible in the calculation of taxable income.
The remuneration paid to directors is deductible only in specific cases. Enterprise tax and business premises tax are deductible in the calculation of the taxable income.
SMEs may carry back losses for one year. Following the COVID-19 crisis, the NTA announced that corporations with stated capital up to JPY 1 billion may also carry back losses generated between 1 February 2020 and 31 January 2022 from COVID-19 and claim refunds.
95% of dividends received by a company from a foreign company in which it has held at least one-fourth of the outstanding shares for an uninterrupted period of at least six months can be excluded from the company’s taxable income.

For further information on tax incentives, consult the website of JETRO (Japanese External Trade Organization).
Other Corporate Taxes
Other taxes include: stamp duty (JPY 200 to 600,000), municipal fixed assets tax (levied at 1.4%), a real estate acquisitions tax levied at 3%-4% (reduced temporarily to 1.5%-2%) and inheritance tax (progressive rates from 10% to 55%).

Registration and license tax is levied where certain property is registered, at a rate from 0.1% to 2% of the taxable basis or at a fixed amount. A share registration tax is assessed at 0.7% on the registration of new or additional share capital.

A business premises tax is levied in some cities, including Tokyo, Osaka, Nagoya, Fukuoka, etc. Companies with more than 100 employees in a designated city and/or with business premises in excess of 1,000 square metres are subject to the tax based on the usage of the business (JPY 600 per square metre) and gross payroll (0.25% of gross payroll).

Social security contributions paid by the employer amount to maximum 16.23%.

Family corporations are liable for an additional tax on their undistributed current earnings in excess of specified limits, with rates as follow: first JPY 30 million 10%; next JPY 70 million 15%; over JPY 100 million 20%.

Other Domestic Resources
National Tax Agency
Doing Business: Japan, to obtain a summary of taxes and mandatory contributions.
 

Country Comparison For Corporate Taxation

  Japan OECD United States Germany
Number of Payments of Taxes per Year 19.0 10.1 10.6 9.0
Time Taken For Administrative Formalities (Hours) 128.5 163.6 175.0 218.0
Total Share of Taxes (% of Profit) 46.7 41.6 36.6 48.8

Source: Doing Business - Latest available data.

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Accounting Rules

 

Accounting System

Accounting Standards
Domestic and foreign companies may choose one of the four accepted financial reporting frameworks : IFRS Standards, Japanese GAAP, Japan’s Modified International Standards (JMIS) (locally modified version of IFRS Standards) and US GAAP. SMEs usually use Japanese GAAP as the accounting framework.
Accounting Regulation Bodies
BAC, Business Accounting Council
ASBJ, Accounting Standard Boards of Japan
JICPA, Japanese Institute of Certified Accountants
Accounting Law
The legal system is made of three laws that are firmly interrelated in their accounting objectives and often referred to as the Triangular Legal System:
-Commercial Code;
-Securities and Exchange Law;
-Corporate Income Tax Law.
Difference Between National and International Standards (IAS/IFRS)
Accounting Standards Board of Japan (ASBJ) (a private entity whose standards are subject to endorsement by the Financial Services Agency) has been cooperating with the International Accounting Standards Board to fully adopt IFRS Standards. For the time being, companies are permitted to choose one of the four financial reporting frameworks. The adoption of the IFRS for SMEs Standard is not under consideration.
 

Accounting Practices

Tax Year
A Japanese corporation selects its fiscal year when it begins operations in Japan—the tax year may be the calendar year or another period not exceeding 12 months. A branch generally must adopt the same tax year used by its head office.
Accounting Reports
The Commercial Code lists the requirements for a Limited Liability Company (Kabushiki Kaisha) to prepare an annual report and appendix. The annual report must be submitted to the general assembly of shareholders and must include the balance sheet and the income statement.
Publication Requirements
Only companies listed on the stock exchange must publish their accounts. According to the Law of Transferable Securities and the Law of Exchange, registrants must file annual and biannual statement reports to the Ministry of Finance and file a copy in the foreign exchange markets where transferable securities are registered.
 

Accountancy Profession

Accountants
Certified public accountants and tax accountants are specialists providing accounting and tax support to companies operating in Japan. Certified public accountants enjoy a monopoly on the performance of audits under the Certified Public Accountant Law, while tax accountants have a monopoly on tax agent services, preparation of tax documentation and tax consultations.
The accountancy profession in Japan is practised with the title of “Certified Public Accountant” (CPA) under the Certified Public Accountants Law of 1948.
The Certified Public Accountants Law provides key matters relating to the accountancy profession such as examinations, qualifications, registrations, duties, responsibilities and penalties.
Professional Accountancy Bodies
JICPA, The Japanese Institute of Certified Public Accountants
Tokyo Certified Public Tax Accountants’ Association, In Japanese
Member of the International Federation of Accountants (IFAC)
The Japanese Institute of Certified Public Accountants (JICPA) is member of the International Federation of Accountants (IFAC).
Member of Other Federation of Accountants
JICPA is member of the Confederation of Asian and Pacific Accountants (CAPA)
Audit Bodies
Companies are required to seek a statutory auditor to conduct an annual audit of the financial health of their organisation.
Companies with more than JPY 500 million of share capital or JPY 20 billion or more of liabilities are required to appoint an external auditor (a public certified accountant) or an auditing firm, and must be subject to an audit based on the Company Law, as must a company listed on the Japanese stock markets.

You can contact the Board of Audit of Japan, the Japan Corporate Auditors Association (JCAA) and the Certified Public Accountants and Auditing Oversight Board.

 
 

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Consumption Taxes

Nature of the Tax
Shouhizei (Consumption Tax)
Standard Rate
10% (7.8% national tax and 2.2% local tax)
Reduced Tax Rate
A reduced rate of 8% applies to supplies of food and drinks (excluding alcoholic beverages and dining out) and subscriptions to newspapers (limited to newspapers that are issued at least twice a week and feature information on general topics such as politics, economics, society and culture).
Exclusion From Taxation
Exempt supplies include bank interest; insurance; educational services; sales and leases of land; social welfare services.
Supplies exempt-with-credit include exports of goods and services; international transportation of passengers and cargo; sales in export shops; supplies to foreign embassies and legations situated in Japan. These supplies are not taxed but do give rise to a right of input tax deduction.
Method of Calculation, Declaration and Settlement
Consumption tax applies when the transfer of ownership of goods and the provision of services take place or when foreign cargo is removed from bonded areas. The base period for each consumption tax reporting year is the enterprise's business year two years before the current business year. Consumption tax is calculated on the amount of taxable supplies or the amount of salary payments. "Small business" enterprises with taxable supplies under JPY 10 million in a given base period are exempt unless they are in the first two years of operation. Returns are filed monthly, quarterly, biannually or annually. Consumption tax rate-qualified invoices will be required from 1 October 2019 to 30 September 2023; afterwards, an EU VAT-type invoice will be required.
Other Consumption Taxes
Excise taxes are levied on gasoline, aviation fuel, liquor, and tobacco.
Customs duties are levied on imported goods.
Stamp duties of JPY 200 to JPY 600,000 are imposed on the execution of taxable documents.
Registration and license tax is levied where certain property is registered, at a rate from 0.1% to 2% of the taxable basis or at a fixed amount. A share registration tax is assessed at 0.7% on the registration of new or additional share capital.

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Individual Taxes

Tax Base For Residents and Non-Residents
An individual is considered resident for tax purposes if he/she is resident in Japan or if he/she has maintained a temporary place of abode (“kyosho”) in Japan for a period of one year or more. A resident taxpayer who is not a Japanese national and who has an aggregate stay in Japan of 60 months within the preceding 120 months is considered a non-permanent resident taxpayer. If a resident taxpayer is a Japanese national or a foreign national with an aggregate stay in Japan of more than five years within the preceding ten years, he/she is considered a permanent resident for tax purposes.
For more information, consult the JETRO website.
 

Tax Rate

Taxable Income Rate
Less than JPY 1.95 million 5%
 From JPY 1.95 to 3.3 million 10% + JPY 97,500
From JPY 3.3 to 6.95 million 20% + JPY 232,500
From JPY 6.95 to 9 million 23% + JPY 962,500
From JPY 9 to 18 million 33% + JPY 1,434,000
From JPY 18 to 40 million 40% + JPY 4,404,000
More than JPY 40 million 45% + JPY 13,204,000
Special Tax for Reconstruction Assistance will be applied from 2013 to 2037 (to help with Tohoku earthquake disaster recovery) 2.1% of income tax
Local Inhabitant’s Tax 10%, levied on a taxpayer’s prior year income.
The standard annual amount is JPY 5,000.
Non-residents' Employment Income Flat 20.42% national income tax on gross compensation (including the 2.1% surtax; no deductions available)
plus
10% local inhabitant’s tax (if registered as a resident as of 1 January of the current year).
 
Allowable Deductions and Tax Credits
Deductions include: personal allowances with additional allowances for dependents, casualty losses, medical expenses and contributions to government authorities.
Charitable contributions designated by the Ministry of Finance in Japan are tax-deductible (subject to limitations). Life insurance (or private pension) premiums paid to a Japanese agency in local currency are deductible to a limited extent in computing national and local taxes. Earthquake insurance premiums are also deductible for the purpose of both national and local taxes to a limited extent.
Employees can claim an earned income deduction according to their level of income (capped at JPY 1.95 million; minimum JPY 550,000 or gross employment income, whichever is lower).
Personal exemptions are allowed for the individual (up to JPY 480,000 for national tax and JPY 430,000 for local inhabitant tax, for an income below JPY 24 million), a non-dependent spouse (but only by individuals with an income below JPY 10 million), and children aged 16 or older (provided that their income does not exceed JPY 480,000/year). 
A self-employed taxpayer is allowed to claim business expenses against income, if he can prove that the expenses were necessary.
Special Expatriate Tax Regime
Resident individuals are taxed on their worldwide income. Non-permanent residents are taxed on their Japanese-source income and on foreign-source income paid in or remitted into Japan. Non-residents are taxed on their Japanese-source income.
A rate of 20.42% applies to non-residents' employment income, which includes the 2.1% surtax. A non-resident taxpayer may be subject to the local inhabitant’s tax (10%) if they are registered as a resident as of 1 January of the relevant year.

Foreign tax credits are provided for resident taxpayers on foreign-source income, though generally limited to the lesser of foreign income tax paid or the Japanese tax payable on the income base.

Capital Tax Rate
Social security contributions paid by the employee generally amount to 14.37% of his/her salary (maximum 15.27%).
Japan does not apply a wealth tax. Other taxes on individuals include inheritance and gift taxes (progressive rates from 10% to 55%), fixed assets tax (levied by the local tax authorities on real property at a rate of 1.7%, including city planning tax), real estate acquisition tax (reduced temporarily to 1.5%-2%, from 3%-4%), real estate registration tax (rates ranging from 0.4% to 2% of the assessed value of the real property), gains from shares.
The transfer of certain assets is subject to stamp duty.

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Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
Ministry of Finance: Japan's Tax Convention Network, 76 conventions applicable to 139 jurisdictions; as of 1 June 2020
Withholding Taxes
Dividends: 15.315% (if paid by a listed company to a non-resident)/20.42% (paid to a resident or non-resident)
Interest: 0% (paid to a resident company)/15.315% (on deposits and bonds)/20.42% (paid to an individual or to a non-resident company)
Royalties: 0% (paid to a resident company)/10.21% (paid to a resident individual for amounts up to JPY 1 million; 20% for the part in excess)/20.42% (paid to a non-resident individual or corporation).
All of the above rates include a 2.1% surtax.
Rates may be lowered under a tax treaty.
Bilateral Agreement
The United States and Japan are bound by a double taxation treaty.

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Latest Update: June 2022