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Business Taxation for Expats in Japan

Submitted: March 2014

The authority responsible for taxation in Japan is the National Tax Agency (NTA). There is a section in English here. There is also the Japan External Trade Organization (JETRO), which is a useful source of information. JETRO maintains 73 offices worldwide, and services the needs of companies interested in doing business in Japan.

Registration

Prior to registration it is necessary to choose the company structure that suits your business best. The most common structure is the corporation, but there are also simpler and less expensive structures available. There is a guide to the most common structures used here.

Your articles of incorporation must include a document with a detailed description of all of the different types of business that your company intends to be involved in. It is important to include all potential business types. The reason for this is that once this document is accepted, the company cannot involve itself in a business which has not been described in this document, unless the articles of incorporation are changed, which means further expense. You must also choose and register a name for the business which is must unique.

You will also have to obtain special seals which act as ‘signatures’. There are usually three different seals for the company. Each seal is for different purposes such as signing company documents, dealing with banks and issuing receipts. Personal seals may also be required for the directors and other senior personnel. It will also be necessary to set up a company bank account in which any paid up capital must be deposited.

The actual registration itself is a complex procedure, much of which must be conducted in Japanese. It is common for new companies to employ agents to do this on their behalf. There is step-by-step guide to registration here.

Corporate Income Tax

The Japanese tax year runs from 1 April to 31 March. A company’s tax year can use any month end, but the majority tend use 31 March as this makes things simpler. Japanese resident corporations are liable for corporate income tax on their worldwide income and capital gains. Non-resident corporations are generally liable for corporate income tax only on their Japanese source income. Both are also liable for capital gains tax on income from the sale of taxable Japanese property.
The general rate of corporate income tax is 28.05%. There is a lower rate of 16.5% which is applied to annual income of up ¥8m for corporations with capital of less than ¥100m.

Corporate investment income in the form of dividends and interest is subject to withholding tax.

Capital gains are taxed as normal income at normal corporate tax rates. However there may be additional tax payable on capital gains made from the sale of land.

Corporations must file their Japanese corporate income tax returns within two months of the end of their tax year. Payment of the tax due must be made at the same time. There are certain tax and accounting advantages available to companies using the ‘blue return’ system. Use of this system is can be applied for in return for an undertaking to use certain modern accounting methods. There is more information on the blue return system and other corporate tax matters here. An extension to the filing date can be granted under certain circumstances. Penalties apply for late filing.

Advance payments of (provisional) corporate tax must be made in the eighth month of the relevant tax year. The amount payable is based either 50% of the previous year’s tax, or the amount of tax calculated as payable for the first six months of the current year.

 

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