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Japan's Corporate Tax - Brief Summary
Japanese Corporate Tax System for investment in Japan - Branch Office and Subsidiary Company - At a Glance
The neutrality of the tax system concerning the mode of business presence (branch or subsidiary): Corporations engaged in Japan's economic activities are subject to taxes in Japan on the profits generated by those economic activities.
The income of corporations established in Japan is, as a rule, except for certain non-taxable and tax-exempt income, subject to taxation, regardless of where it was generated (i.e., the source country of income). When income includes profits earned overseas & taxed at source, foreign tax credits are available against Japanese taxes owed to avoid double taxation between the said overseas country & Japan.
Branch Office of foreign corporations
Re Branch office of foreign corporations, measures such as only certain income is subject to taxation in Japan, have been implemented to avoid international double tax in Japan.
The scope of taxable income of the Branch Office has significantly changed from the business year commencing on or after April 1, 2016. Under this new regulation effective Apr’16, Branch Office & Head Office, etc., shall be respectively deemed an independent corporation and subject to taxation.
Profits/losses from the internal transactions between the branch and head office are to be recognized based on the presumption that transactions are conducted with arm's length prices. Japan branch office (permanent establishment) is taxable in the third country. Foreign tax credits are available whereby taxes are paid in the third country.
Representative Office: Income of “Representative office” in Japan: Representative offices, etc., through which a foreign corporation engages in business in Japan are not supposed to derive any income subject to corporation tax from publicity/advertising, information provision, market surveys, necessary study, and other activities auxiliary the performance of its business.
Branch office and or Subsidiary Company registration in Japan and post-registration statutory mandatory notifications to National & Local Tax office:
Establishment of corporations or Branch office in Japan and Tax-office notification: When a “Japanese corporation” or a “Branch office” is newly established & registered in Japan per Japanese law, tax notification about start-up must be submitted to tax authorities within a prescribed period after establishment.
Corporate Income Tax: The taxes levied in Japan on income generated by the activities of a corporation include Corporate tax (national tax), Local corporate tax (national tax), Corporate inhabitant tax (local tax), Enterprise tax (local tax), and Special local corporate tax (a national tax), are collectively referred to as "Corporate taxes."
Calculation of income subject to Corporate tax: The amount of income used as the tax base for corporate taxes on income for each taxable year is determined by making the necessary tax adjustments to corporate profits calculated using accounting standards generally accepted as fair and appropriate. Costs and expenses incurred in earning profits are deductible, except in certain exceptional instances.
Treatment of losses: Net losses under income in each business year are carried forward for the next nine (9) years (or ten years in the case of losses arising during the business years beginning on or after April 1, 2018). Losses may only be carried forward in this way if a blue form tax return is filed for the business year in which the loss arose, and a final tax return is then filed every subsequent year.
Filing of Corporate tax return and Payment of Corporate taxes: Corporations must file a final tax return for corporate tax, local corporate tax, corporate inhabitant tax, enterprise tax, and special local corporate tax on their income within two (2) months from the day following the last day of each fiscal/taxable year. However, an extension of the deadline for filing a final tax return may be requested, with prior approval from the director of the taxation office, when a corporation is cannot file a final tax return because of unavoidable acceptable reasons.
Tax treaties: Japan has concluded tax treaties with many countries to avoid double taxation of income internationally and prevent tax evasion. The provisions of tax treaties supersede those of domestic law. Japan's Tax Convention Network website link from Ministry of Finance:
Consumption tax: The consumption tax rate is 8% (inclusive of the local consumption tax rate of 1.7%). However, the consumption tax rate is scheduled to increase to 10% (inclusive of the local consumption tax rate of 2.2%) from April 1, 2017. On June 1, 2016, Prime Minister Shinzo Abe announced that the rise in the consumption tax to 10% and the reduced tax rate would be postponed until October 2019.
Japanese corporate tax system & tax rates for more details, please download the PDF file.