Taxes on Corporate Income

The taxes that are levied on corporate income in Japan are corporation tax on the national level and corporate inhabitant tax and enterprise tax on the local level.

Corporation Tax

Corporation tax is levied on corporations’ income. Corporations are classified into domestic and foreign corporations. Domestic corporations have their head office and others in Japan, while foreign corporations are corporations other than domestic corporations. When a foreign corporation establishes a subsidiary or an affiliate company in Japan, this subsidiary or affiliate company is regarded as a domestic corporation. However, branch offices, manufacturing plants, and other permanent establishments set up in Japan by foreign corporations are regarded as foreign corporations.

Domestic corporations must pay corporation tax on income that comes from Japan and from foreign sources. However, foreign corporations are subject to corporation tax only on specified income from Japan.

A business year is the period over which the profits and losses of a corporation are calculated. The business year is stipulated by the company’s articles of incorporation.

Domestic corporations are subject to corporation tax on the income for each business year and on liquidation income, while foreign corporations are subject to corporation tax only on income from sources in Japan during each business year.

The tax rate is 25.5%. For a company with capital of ¥100 million or less, a lower rate of 15% is applied to an annual income of ¥8 million or less. However, in the business years starting during the period from April 1, 2012 to March 31, 2015, an additional 10% tax will be imposed as Special Reconstruction Corporation Tax. Corporations are required to file final returns within two months from the last day of their business year.

For a domestic corporation, the place for tax payment is the location of the head office. For foreign corporations, it is the location of the main office or other main permanent establishment in Japan.

Business deals with a partner abroad where the amount of consideration to be received is less than the arms’ length price or the amount of consideration to be paid exceeds the arms’ length price are regarded as having been made at the arms’ length price.

The consolidated taxation system was introduced in Japan in April 2002. Under this system, a parent company and its subsidiaries are deemed to be a consolidated group that is subject to corporation tax. This system applies to groups of Japanese companies in which a Japanese parent company owns 100% of the other Japanese companies (subsidiaries). The parent company shall file the consolidated tax return based on the aggregated taxable income.

If a corporation is reorganized by means of a merger, company split, capital contribution-in-kind, post formation, share exchange, or share transfer and its reorganization meets certain requirements, special tax treatment is applied and the recognition of the gains and losses on the transfer of the assets will be deferred.

The Group taxation regime was introduced in October 2010. Under this regime, a group of companies that own 100% of the shares of other companies is deemed as one entity for tax purpose, and taxes imposed on transfers of real estate or shares within the group will be deferred until the assets are sold outside of the group.

Thin capital taxation system. Under this system, interest is partly excluded from a corporation’s deductible expenses when the corporation has borrowed money exceeding three times the amount of its capital from its foreign leading shareholders.

Date: 2015-12-11; view: 773