Tax

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.

Local corporation tax (chihōhōjinzei) is a national direct tax. For the past years the rate was 4.4% of the Corporation tax, but was increased in October 1, 2019 to 10.3% as part of corrective measures against maldistribution of wealth.

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.

Main points

• Tax treaties will modify the scope of exposure to Japanese taxes for a foreign company
• Many tax exemptions may apply to a foreign company
• In order to benefit from tax exemptions, the company has to notify the relevant Japanese tax office

Most of the European Union member states have signed a bilateral tax convention with Japan in order to avoid double taxation,  to prevent tax evasion

Under Japanese Tax Law, Japanese companies are taxed on their worldwide income, while foreign companies are taxed only on the income earned from their activities in Japan. A Japanese company is defined as a company whose head office or main office is located in Japan (usually when the company is firstly created and registered in Japan), the nationality of its shareholders or place of central management is not relevant. Companies other than this are regarded as foreign companies.

Accounting and tax support is provided by certified public accountants and tax accountants. The role of certified public accountants is to perform audits under the Certified Public Accountant Law, while tax accountants engage in typical tax agent services such as the preparation of tax documentation and giving tax consultations under the Certified Tax Accountant Law. Additionally, both professions provide additional services such as business consulting.