Corporate tax in Japan is a global business. It runs on a system that allows for a domestic establishment in Japan to be taxed on its global income. And this income includes income from all of its foreign branches.
Meanwhile, a foreign-owned establishment will be taxed only on its Japan-source returns. But then, a foreign establishment with a permanent establishment (PE) in Japan, is answerable for corporate income taxes, but only on the income derived from the PE.
The Japanese tax system
The corporate tax rate in Japan is currently set at 30.62%. This rate is an operative tax rate for corporations that are located in Tokyo, and have a stated capital of more than JPY100 million for the economic years beginning on or after the 1 April 2018.
Size-based business taxes is another taxing system that characterizes the Japan tax system. This tax can also be levied on a company with stated capital of more than JPY100 million, in accumulation to the income-based business tax. In Japan, the Corporate Revenue tax rate refers to the maximum corporate tax rate for companies with taxable income above 8 million JPY a year based in Tokyo.
Over the periods between 1993 and 2019, the corporate tax rate in Japan has averaged 41.59%. The peak record of the tax rate was in 1994 when it hit 52.40 percent, while it was at its lowest between 2016 and 2018 with a rate of 30.86 percent.
The timeline of corporate tax rates in Japan
The scale that is used as the determining factor, is the taxable income that is above 8 million JPY, for companies based in Tokyo. Returns from the Commercial Tax rate are a major source of revenue for the Japanese government. Below are the tax rates in Japan over the years.
2003- 42.00% 2004- 40.69%
2005- 40.69% 2006- 40.69%
2007- 40.69% 2008- 40.69%
2009- 40.69% 2010- 38.01%
2011- 38.01% 2012- 35.64%
2013- 33.86% 2014- 33.86%
2015- 32.67% 2016- 30.86 %
2017- 30.86% 2018- 30.86%
Calculating corporate taxes in Japan
- National Local Corporate Tax: In Japan, taxpayers pay a different form of corporate taxes. To start with, corporate taxpayers are mandated to pay the national local corporate tax in Japan. The tax rate goes at a fixed rate of 10.3 percent of their corporate tax liabilities.
- Standard enterprise tax (and local business special tax): This is another corporate tax that has to be calculated and paid within the provisions of the corporate tax system in Japan. This tax varies across regions, so it is imposed according to the apportionment in each region. The rate of this tax is determined by the size of working personnel and the business area within the region. The indigenous corporate special tax, which is a rate multiplied by the income portion of enterprise tax, will be obliterated from tax years commencing on or after 1 October 2019 and exchanged by the special corporate business tax (including a size-based tax regime) by the 2019 Tax Reform.
- Size-based enterprise tax (and local business special tax): For companies that have a paid-in asset value of over JPY 100, they are made to pay this size-based enterprise tax instead of the standard enterprise tax that was earlier discussed. It is not to be paid by every business enterprise; as the name suggests. The tax is also called Gaikei Hyojun Kazei.
Payment methods for corporate taxes in Japan
In Japan, corporate taxpayers are expected to document their proceeds, and pay at the national local corporate tax office, or pay online. Those are usually the two available methods of payment.