Japan tax info.

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Japanese Corporate Tax System overview

Corporations engaged in economic activities in Japan are subject to taxes in Japan on the profits generated by those economic activities. Steps have been taken, however, to ensure that the tax system does not impose unfair burdens on multinational corporations engaged in economic activities in Japan on the basis of the mode of their business presence in Japan. Income of corporations established in Japan is, as a rule and with the exception of certain non-taxable and tax-exempt income, subject to taxation, regardless of where it was generated (i.e., the source country of income), but when that income includes profits earned in foreign countries that are taxed in the source countries of that income, foreign taxation deductions are available whereby taxes paid in a foreign country may within certain bounds be deducted from Japanese taxes owed for the purpose of eliminating double taxation between the source country of income and Japan. Regarding Japanese branches of foreign corporations, measures such as only certain income generated within Japan is subject to taxation in Japan, have been implemented to avoid international double taxation in Japan. The taxes levied in Japan on income generated by the activities of a corporation include but not limited to corporate tax (national tax), corporate inhabitant tax (local tax) and enterprise tax (local tax). Except in instances requiring exceptional treatment, the scope of income subject to corporate inhabitant tax and enterprise tax is determined and the taxable income calculated in accordance with the provisions for corporate tax. Corporate inhabitant taxes are levied not only on income but also on a per capita basis using the corporation's capital and the number of its employees as the tax base. Corporations having paid-in capital of more than 100 million yen are subject to enterprise tax on a pro forma basis.

 

Remittances made by a branch of a foreign corporation to its head office cannot as a general rule be treated as expenses by the payer branch. On the other hand, remittances made by subsidiary companies to their parent company arise from business-to-business transactions, and so are generally regarded as payments of costs/expenses, distributions of profits, loans (or repayments of loans), and so forth depending on the nature of the transaction concerned. Certain of these costs/expenses are deducted when calculating the income of the payer subsidiary companies. Some of the payments regarded as income of the parent company (e.g., payments of interest, dividends or usage fees) require withholding of income tax at the source at the time of payment.

 

Net losses under income in each business year are carried forward for the next nine years. 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. Note that if a corporation has capital in excess of 100 million yen or is a wholly owned subsidiary of a large corporation with capital of at least 500 million yen (including foreign corporations), the amount of loss that may be deducted from income cannot exceed 80% of income. Certain corporations, such as prescribed small and medium-sized enterprises that file a blue return, are also allowed to carry back a loss to the business year commencing not more than one year prior to the date of commencement of the business year in which the loss arose, and receive a full or partial refund of the amount of corporate tax in the business year in which the loss was carried back.

 

Corporations must file a final tax return for such as corporate tax, corporate inhabitant tax and enterprise tax on their income within two months from the day following the last day of each taxable year. However, an extension of the deadline for filing a final tax return may be requested, with approval from the director of the taxation office, when a corporation is unable to file a final tax return because the accounting auditor has not completed the audit or because accounts remain unsettled for other unavoidable reasons. The income and tax amounts to be entered in the final tax return must be calculated in accordance with the statement of accounts approved by the general meeting of stockholders. The calculated tax must also be paid within this period. The payment deadline will not be extended even if the deadline for filing of a final tax return is extended as described above. Therefore, interest tax and overdue tax for the extended period are imposed (as deductible expenses) if the tax payment is made during the extended period. Any interim payment made in advance on the amount of tax owed shall be deducted from the total amount to be paid. Corporations whose taxable years exceed six months must file an interim return, within two months from the day marking the end of the first six months of the taxable year, an interim tax return for the period starting on the first day of that taxable year and ending on the day six months thence, and must pay the interim amount of tax owed (excluding instances where the amount of tax calculated using the prescribed formula does not exceed a certain amount).

 

Tax return forms for corporations come in two formats: white forms and blue forms. A corporation may file a blue form tax return with approval from the appropriate national tax office. Corporations filing blue form tax returns enjoy a variety of tax benefits. To receive approval from the tax office to file a blue form tax return, a corporation must submit an application for approval prepared in the prescribed format no later than the day prior to the starting day of the taxable year. Newly established subsidiary companies and foreign corporations establishing new branch offices in Japan must submit the application for approval no later than the day prior to either the day marking three months since and including the date of the establishment of the corporation or the last day of the corporation's initial taxable year after establishment, whichever comes first, if intending to file a blue form tax return from the taxable year in which the date of establishment occurs.

Japanese Consumption Tax System overview

The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject to consumption tax. The consumption tax rate is 8% (national consumption tax rate of 6.3% and local consumption tax rate of 1.7%).

1 Domestic transactions: the transfer or rental/lease of assets or the provision of services as a business in Japan by an enterprise for consideration

2 Import transactions: cargo retrieved from a bonded zone

 

Enterprises engaged in domestic transactions (excluding enterprises that are exempt from consumption tax) and parties engaged in import transactions must file and pay consumption tax on their taxable bases by the methods and procedures respectively provided for them. (If the amount of consumption tax on the taxable base of an enterprise (unless a tax-exempt enterprise) is less than the amount of consumption tax on purchases calculated as being deductible by the prescribed method, the shortfall is refunded by filing.) To ensure that double taxation does not occur at the production and distribution stages, a scheme has been adopted allowing the deduction of consumption tax on purchasing from consumption tax on sales. Enterprises whose taxable sales are 10 million yen or less for the base period (excepting enterprises that have opted to be taxable) and that meet certain conditions are exempt from consumption tax filing/liability for the current year. However, enterprises can elect to be taxable enterprises if the prescribed notification is submitted to the director of the tax office. A company that has no base period, such as a newly established company, whose capital at the start of the taxable year is 10 million yen or more and in certain other cases cannot be a tax-exempt enterprise in that taxable year.