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                                       Japan – Tax System

Corporate Taxes :-

Tax Base For Resident and Foreign Companies

Resident companies are taxed on their worldwide income, but non-resident companies are taxed only on Japanese-source income. A company that has its principal or main office in Japan is considered to be resident.

Tax Rate

Corporate tax (for companies with income lower than JPY 100 million)

19% for first JPY 8 million (reduced to 15% for tax years beginning between 1 Apr 2012 and 31 Mar 2015)

Corporate tax (for companies with income greater than JPY 100 million)

25.5%

Local taxes

Inhabitant tax and enterprise tax at varying rates

Effective standard rate

29.97%

 

·         Inhabitant Tax :- Inhabitants Taxes are local prefectural and municipal taxes. These taxes are computed as a percentage of the corporation tax before tax credits. From 1 October, 2014, a part of inhabitant tax has been moved to national tax regime as ‘local corporate tax’. Each prefecture and municipality may elect an Inhabitants Tax rate within the range shown below:

Rates

 

Prefecture

3.2 % to 4.2 %

Municipality

9.7 % to 12.1 %

Tokyo Metropolitan (continued)

12.9 % to 16.3 %

In addition to the above, local governments charge a per capita levy on inhabitants with standard rates that vary from Y70,000 to Y3,800,000 depending upon the amount of the paid-in capital and the number of employees.

·         Enterprise Tax :-  Prefectures can elect to levy an Enterprise Tax. The tax base is business income and liquidation income as computed for corporation tax purposes, with certain adjustments such as the exclusion of income from a business carried on in a foreign country. Enterprise Tax is deductible in computing taxable income for corporation and Enterprise Tax purposes.

Size-based taxation has been newly introduced and this taxation is applied only to large corporations with paid-in capital of more than Y100 million and for the business years beginning on or after 1 April 2004. For such large corporations, Enterprise Tax consists of the traditional Enterprise Tax levied based on the taxable income and the newly introduced Enterprise Tax levied based on the capital etc. (i.e. paid-in capital and capital surplus) and value added (i.e. wages, interest and rental expenses). Tax rates vary depending on whether or not the corporation is a large corporation with paid-in capital of more than Y100 million and depending on the prefecture:

Taxable periods beginning after 1 October 2014

1

Company whose paid-in capital is Y100 million or less

Std (%)

Max

(%)

Local Corporate Special Tax

 

Taxable Income:

 

 

 

 

First Y4,000,000 per annum

3.4

3.65

Taxable Income x standard/max tax rate) * 81 5

 

Next Y4,000,000 to Y8,000,000 per annum

5.1

5.465

(Taxable Income x standard/max tax rate) x 81%

 

Above Y8,000,000 per annum

6.7

7.18

(Taxable Income x standard/max tax rate) x 43.2%

 

 

 

 

 

2

Company whose paid-in capital is more than Y100 million

 

 

 

 

A)  Income base (taxable income):

 

 

 

 

First Y4,000,000 per annum

2.2

2.39

Taxable Income x standard/max tax rate) x 148%

 

Next Y4,000,000 to Y8,000,000 per annum

3.2

3.475

(Taxable Income x standard/max tax rate) x 148%

 

Above Y8,000,000 per annum

4.3

4.66

(Taxable Income x standard/max tax rate) x 67.4%

 

B)  Added value base:

 

 

 

 

The sum of wages, net interest expense & net rental expnse

0.48

0.504

0.504

 

C)  Capital Base

 

 

 

 

The sum of paid-in capital and capital surplus

0.2

0.21

0.21

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