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Doing Business in Japan

Japanese Tax

Japaness Tax

1 Corporate Income Tax for Foreign Companies
1 Classification of Corporation
Foreign companies doing business in Japan are classified as follows under Japanese Corporate Tax Law:

1 Domestic corporations
2 Foreign corporations that have branches in Japan
3 Foreign corporation without a permanent establishment in Japan but have some income in Japan

1 Domestic corporation
Subsidiaries, joint ventures, etc. established under the Japanese Business Law are considered as a Domestic corporation, and are subject to corporate income tax on their entire income.

2 Foreign corporation which has Branches in Japan
The scope of taxable income for corporate income tax is limited to income from sources within Japan.
Foreign income attributable to the branch operation is generally not subject to corporate income taxes, however, entire Japan source income regardless of whether the income is attributable to the branch operation is subject to Japanese corporate income tax.

3 Foreign corporation without a permanent establishment
Foreign corporations are liable for taxes on income derived from sources within Japan only.

2 Corporate income tax
Corporations, both domestic and foreign, are subject to corporate income tax (national tax), inhabitant tax ( prefectural and municipal tax), and enterprise tax (prefectural tax) on their income.
Taxable income represents the net of gross revenue less costs, expenses and losses calculated in accordance with fair accounting standards of Japan and in particular as adjusted in accordance with the requirements of the tax laws of Japan.

3 Tax rate
The effective tax rates are approximately 41% (Effective since April 1,2002, Applicable as of June, 2003) which includes corporate income tax, inhabitant tax and enterprise tax.

2 Individual Income Tax for Foreign Companies
1 Classification of Individual taxpayer
Individual taxpayers doing business in Japan are classified as follows under Japanese Income Tax Law.

1 Resident
1.1 Permanent resident
1.2 Non-permanent resident
2 Non-resident

1.1 Permanent resident
An individual who intends to reside in Japan permanently, or has been domiciled or resident in Japan for a period of more than five years.
The scope of taxable income includes all income including sources abroad.

1.2 Non-permanent resident
Ordinary foreign expatriates fall in this category.
A non-permanent resident is an individual who has been resident or domicile in Japan for a continuous period of five years or less without intention to reside or have domicile in Japan permanently.
The scope of taxable income in respect of non-permanent resident taxpayers is limited to income from sources within Japan.
The scope of taxable income will expand sources abroad if it is paid in Japan or remitted to Japan.

2 Non-resident
A non-resident is an individual other than a resident. Therefore, an individual who has no domicile or has not been resident for a continuous period of one year or more in Japan falls under this category.
The scope of taxable income is limited to the income from sources in Japan and all income from sources abroad which ,even if paid in Japan or remitted to Japan, is not taxable.

2 Individual income tax
Individuals are subject to Individual income tax (national tax), inhabitant tax ( prefectural and municipal tax).
Individual income tax is composed of withholding income tax and assessment income tax.

3 Tax rate
The Individual income tax rates are as follows. However, your taxable income is calculated by deducting the certain exemptions and deductions which varies due to the condition of employee family member and the special tax conditions. To calculate your tax roughly, use the following table.
(Applicable as of June 2003)

For example, if your taxable income is Yen 6,500 Thousand, your Income tax is calculated as follows:
6,500 Tousand x 20% - 330 Thousand = 970 Thousand

Ordinal deductions are
1 Basic exemption 380 Thousand
2 Spouse, children 380 Thousand each
3 Social Insurence premiums

The inhabitant tax ( prefectural and municipal tax) is charged on the previous year's taxable income.The inhabitant tax rate is as follows:

3 Consumption tax (VAT)
The transactions such as sales and leasing of goods, the provision of services carried out within Japan and imported goods delivered from bonded areas are subject to 5% consumption tax.

4 Other tax
1 Property tax
Fixed assets tax is paid to a municipality by the registered owner of land, buildings, ships or any other depreciable assets as at January 1 of each year.

2 Inheritance tax
If a person inherits property while resident in Japan, inheritance tax is fully levied on the property inherited, whether or not the deceased resided in Japan at the time of death, and whether or not the properties were situated in Japan at the time of death.

3 Gift tax
Gift tax is levied on an individual donee with regard to property donated by another individual ( donation to an individual by a corporation is treated as occasional income and subject to income tax and inhabitant taxes).