There were many questions about the taxation system in Japan, so I will summarize them.
(The information is based on the tax rules as of July 31, 2021)
Japanese corporations (including branches and PEs) are required to file the tax returns.
The below is the list of major tax returns in Japan.
Corporate Income Tax Returns (National and Local)
Consumption Tax Returns
Business Premises Tax Returns
Depreciable Assets Returns
Statutory Withholding Tax Returns
1. Corporate Income Tax Returns
Outline
A Japanese corporation are required to declare its world-wide taxable income through Corporate Income Tax ("CIT") Returns to Japanese National Tax Authorities (NTA) and municipalities.
CIT Returns calculates national taxes and local taxes including...
- National Corporate Tax
- Local Corporate Tax
- Inhabitant Tax (Corporate Tax Levy and Per Capita Tax)
- Enterprise Tax (or Size-based Enterprise Tax)
Companies with above JPY 100 million capital will be subject to Sized-based Enterprise Tax instead of a regular Enterprise Tax.
Size-based Enterprise Tax includes the following.
- Income Levy
- Value-added Levy
- Capital Levy
We do not have minimum alternative taxes like other countries.
However, Per Capita Tax and Capital Levy will be taxed regardless to the income position.
Therefore, even if a company suffers from losses, the company is required to pay them.
The amount of Per Capita Tax is determined by a given table that increases by the amount of Capital + Capital Surplus and number of employees.
Capital Levy will be taxed on the amount of Capital + Capital Surplus.
Effective Tax Rate
Effective Tax Rate for CIT is around 30 - 35%.
For SMEs (companies with less than JPY 100 million capital), it is around 25%.
Filing and Tax Payment Due Date
Filing and tax payment due dates are 2 months after the fiscal year end in principle.
For example, if a company's closing month is December, then the due date is February 28th of the following year.
By submitting a form, you can extend the filing due date for 1 month, but the tax payment will remain the same. Therefore, a company usually pay estimated tax on the tax payment due date and pays/claims refunds in its final CIT Returns the difference from the estimation.
2. Consumption Tax Returns
Outline
Consumption Tax ("C-tax") is commonly called Value-added Tax ("VAT") or Goods and Services Tax ("GST") in other countries.
The C-tax Return is prepared based on the company's books and not invoices.
In many countries, VAT returns are based on so-called Invoice System, but our C-tax Return is currently based on the Book Method.
Japan will be adopting Invoice System from October 1, 2023.
Under the Book Method, we use the numbers booked on the ledgers, but still the companies are required to keep the invoices and receipts as evidence.
As a concept, C-tax payable/refundable is calculated by deducting input tax from output tax.
C-tax Payers
C-tax Return is required to be filed for the companies that are registered as a C-tax payer.
A company needs to be a C-tax payer if it has more than JPY 10 million taxable sales in the reference fiscal year (=two years before the current fiscal year i.e. FY2019 if you are trying to find out whether you are a C-tax payer in FY2021).
Exceptions:
1. For a company that does not still have a reference fiscal year (i.e. startups), if the company has more than JPY10 million paid-in capital in the beginning of the year, you would automatically become a C-tax payer
2. If you earn more than JPY 10 million in the first 6-month and paid salaries/remunerations more than JPY 10 million in the first 6-month, you would become a C-tax payer
You can also voluntarily choose to become a C-tax payer. Sometimes you can enjoy the advantage from being a C-tax payer by declaring C-tax refunds. It is like a case when you have very small taxable sales but purchased fixed assets and paid a considerable amount of C-tax to vendors.
Tax Rate
Standard C-tax rate is 10%, and preferential C-tax rate at 8% is applied mainly for food.
Export Sales is taxed at 0%, and Import Tax is 10%.
Filing and Tax Payment Due Date
Filing and tax payment due dates are 2 months after the fiscal year end.
3. Business Premises Tax Returns
Outline
Business Premises Tax consists of Assets Levy and Employee Levy.
A company with a large office (800+ square meters) or many employees (80+) should file Business Premises Tax Returns.
The Business Premises Tax is exempted if your office area is less than 1,000 square meters or 100 employees, but still required to file the returns ("Exemption Returns").
The above threshold is judged in the aggregation of the office area or the headcount of employees in the same district.
Tax Rate
Asset Levy
Office Area * 400 yen
Employee Levy
Total Salary * 0.25%
Filing and Tax Payment Due Date
Filing and tax payment due dates are 2 months after the fiscal year end.
4. Depreciable Assets Returns
Outline
Depreciable Assets Return is one of the Fixed Assets Tax.
Depreciable Assets Return is not a tax return. It is a form to declare the depreciable assets held by the company as of January 1.
The depreciable assets tax will be computed by the tax offices, and you will receive tax slips afterwards.
You are exempted from submitting Depreciable Assets Returns if the taxable base is less than 1,500,000 yen (around USD 15,000).
Tax Rate
Taxable Base * 1.4%
Filing Due Date
Every company should file Depreciable Assets Return by January 31.
However, there is no penalty for late filing.
5. Statutory Withholding Tax Returns
Outline
Companies should pay withholding tax on salaries, bonuses, remunerations and professional fees on every 10th of the following month using tax slips.
Statutory Withholding Tax Returns is to provide a summary of the annual withholding taxes paid to the tax offices.
Filing Due Date
Every company should file Statutory Withholding Tax Returns by January 31.
6. What happens if the Statutory Due Date is a Weekend or a Holiday?
When a statutory due date for filing or tax payment falls on a weekend or a holiday, the following business day will be the due date.
Should you need any further clarifications, please contact us.