Invest in Japan

Main points

Japan offers many subsidies and fiscal incentives to attract foreign investment. Businesses creating regional headquarters or R&D Centres and projects, which can create employment opportunities in the perifery of Japan, will find some of these government measures to be particularly favorable. Fiscal measures are usually determined on an annual basis and many run for a predetermined period, which is often extended. 

Foreign companies operating in Japan are liable for corporate income taxes only for that income which is coming from sources within Japan. In contrast, Japanese corporations are liable for corporate tax both on their Japanese source income and their foreign source income. 

The Special Corporate Enterprise Tax (Tokubetsuhōjinjigyōzei) was introduced from October 1st, 2019. To replace the temporary Special Local Corporate Tax. This new tax is permanent and will allocated to local governments in order to decrease the gap in tax revenues between urban and rural areas

Enterprise or Business tax (Jigyōzei) is a tax levied by the prefecture where your business operates. The tax is levied on taxable corporate income base and levied on value-added and capital appropriate based upon the pro-forma business size such as the number of employees and amount of capital if larger that 100 million JPY. If a company is involved in electricity/gas supply or insurance business the tax is impose on the adjusted gross revenue.

National Corporation Tax is a national tax levied against profit after subtracting expenses (they will not be levied when loss is incurred) and through self-assessment. Due to the economic situation of Japan, the government has modified the fiscal legislation several times the past few years. Lowering the corporate taxation rate was important aspect of the growth strategy of the present government, while at the same time broadening the tax base.  However, in recent years no major efforts to decrease corporate taxation have been seen.

Corporate Inhabitant taxes (hōjinjūminzei) are local prefectural and municipal taxes, paid in the prefecture and municipalities they have their offices. These taxes are computed as a percentage of the national Corporation tax before tax credits and a per capita levy, which is determined on the basis of the amount of capital and the number of employees. (Tokyo Metropolitan on basis of capital only)

E-business can easily follow the definitions of a permanent establishment in order to determine the taxable situation of a company doing business in Japan. If a SME is conducting business in Japan online without having any physical presence in Japan, it will generally speaking not be taxable in Japan.

For the cross-border supply of a number of services a different regime as far as consumption tax is concerned is in place since 2015.