Contents
Preface
1. Tax Administration System(1) Structure of National Tax(2) Structure of Local Tax(3) Principle of No Taxation Without Law(4) Self-Assessed Taxation System(5) Tax Inspection and Relief System

1
2 4

2.

System of Certified Public Tax Accountants in Japan(1) Services Provided by Certified Public Tax Accountants(2) Certified Public Tax Accountants as Taxation/ Accounting Experts(3) Certified Public Tax Accountants Association

5 6

3.

Major Taxes in Japan

4.

Taxes on Income(1) Taxes on Personal Income(2) Taxes on Corporate Income(3) Withholding Income Tax

5.

Taxes on Gifts and Inheritances(1) Gift Tax(2) Inheritance Tax

6
7

12

13

6. Taxes on Property(1) Automobile Weight Tax/ Automobile Tax/ Light Motor Vehicle Tax(2) Property Tax, City Planning Tax(3) Business Facilities Tax

14

7. Taxes on Consumption(1) Consumption Tax(2) Tobacco Tax/ Prefectural Tobacco Tax/ Municipal Tobacco Tax(3) Liquor Tax(4) Golf Course Usage Tax

15

8.

Taxes on Transactions(1) Stamp Tax(2) Registration and License Tax(3) Real Estate Acquisition Tax(4) Automobile Acquisition Tax

15 16

1. Tax Administration System
Tax administration in Japan is classified into national tax and local tax, depending on
the taxing body. National and local governments each carry out administrative work forvarious tax items as outlined below.
(1) Structure of National Tax
Under the National Tax Agency, an external bureau of the Ministry of Finance, there are
eleven (Sapporo/ Sendai/ Kanto-koshinetsu/ Tokyo/ Kanazawa/ Nagoya/ Osaka/ Hiroshima/
Takamatsu/ Fukuoka/ Kumamoto) Regional Taxation Bureaus nationwide in addition to the
Okinawa Regional Taxation Office, under which 524 tax offices operate to conduct tax
administrative work. Taxpayers are required to file returns and pay national taxes such as
personal income tax, corporate tax and consumption tax to the local tax office that has
jurisdiction over their local area.
(2) Structure of Local Tax
Local Taxes are administered by the Local Tax Bureau, an internal branch of the
Ministry of Internal Affairs and Communications, which is responsible for planning local
taxes such as prefectural tax and municipal tax and for determining/attributing whichgovernmental body has the right to levy taxes. However, the actual taxation work is
conducted by each local government that has the right of taxation. The prefectural tax
offices and tax departments in the municipalities (cities, wards, towns and villages) are in
charge of levying and collecting prefectural tax and municipal tax, respectively.
(3) Principle of No Taxation Without Law
Article 30 in the Japanese Constitution rules that The people shall be liable to taxation
as provided by law. Article 84 states that No new taxes shall be imposed or existing ones
modified except by law or under such conditions as the law may prescribe, thereby declaring
the state s principle of no taxation without law. This clarifies the thinking that since
taxation is a means to transfer a portion of the people s wealth to the state s coffer to procure
funds for public services, levying and collecting taxes must be conducted based on the law.
(4) Self-Assessed Taxation System
Methods for Establishing Tax Liability
In establishing tax liability, there is, in addition to the self-assessment method and theofficial assessment method, another method in which tax liability is determined.
Under the self-assessment method, the amount of tax to be paid is generally determinedbased on the taxpayer s declaration, and is applied to most major taxes: national taxes suchas personal income tax, corporate tax, consumption tax, inheritance tax, gift tax, and local
taxes such as corporate inhabitant tax and enterprise tax.

Under the official assessment method, the amount of tax to be paid is determined basedon assessment by tax administration officials, and is applied to taxes such as value added
tax in national taxes, and property tax and automobile tax in local taxes.
In addition, when one is deemed tax liable, additional procedures are not necessary to
determine the payment amount for withholding taxes and stamp taxes, etc.
Thus, taxation in Japan is mainly based on the self-assessment system.
The self-assessment method is a system where the taxpayer autonomously calculates
and pays the tax required, which can be seen as an embodiment of the ideology of theJapanese Constitution which bases its fundamentals on the sovereignty of the people.
Filing Tax Returns and Request for Correction
The following are the classifications for filing tax returnsa)Filing Returns within the Fixed Time Limit
Taxpayers paying taxes under the self-assessment system must file tax returns by

the statutory due date. Returns filed according to this provision are called tax
returns filed within the fixed time limit.
b)Filing Returns After the Fixed Time Limit
Those who have failed to file returns within the fixed time limit may file returns

after the due date if the decision by the District Director of the Tax Office has not
yet been made.
c)

Filing Amended Returns
Those who have filed tax returns and have received decisions on tax corrections

may file amended returns if the amount on the original tax return was understated,
as long as it is before correction by the District Director of the Tax Office has been
officialized.
d)Request for Correction
Those who have filed tax returns where the tax amount was excessive, may makea request for a correction of the tax amount to the District Director of the Tax Officewithin five years of the statutory due date of tax returns. (The deadlines for requests
for correction for tax returns reaching statutory due dates before December 2nd,
2011 were one year after the statutory due dates for returns.)
The Blue Return System
By filing for returns with the Blue form, taxpayers complete with a required set ofbooks and records will be entitled to various privileges in filing for personal income
tax and/or corporate tax, upon approval by the District Director of the Tax Office.
This system is offered to encourage the penetration of the self-assessment systemand to promote the practice of bookkeeping.

e-fileFor filing returns, paying taxes, making applications and notifications for national
taxes, taxpayers can choose electronic filing using the internet or e-filing also known
as e-Tax.
(5) Tax Inspection and the Relief System
Tax Inspection and Corrections/ Decisions
While in principle the taxpayer s tax assessment is determined by the returns filedby the taxpayer under the self-assessment system, if it is suspect that the return is not
appropriate, the District Director of the Tax Office is to conduct an inspection anddetermine the tax amount based on the findings.
Accordingly, if the District Director of the Tax Office deems it necessary, thetaxpayer s account books and relevant records are to be inspected, in accordance withthe provisions of the law.
For those who have not filed tax returns, and upon inspection have been determined
to have tax amounts requiring payment, will receive a notice for payment by the District
Director of the Tax Office.
In addition, for those who have filed tax returns, and upon inspection have been
determined to have understated tax amounts, will receive corrected payment noticefrom the District Director of the Tax Office.
In the event that an additional tax payment is imposed due to corrections or
decisions made by the District Director of the Tax Office, a specified additional tax will
be imposed as a penalty.
System for Filing Complaints and Judicial Action
If a taxpayer is dissatisfied with the correction or decision made by the District
Director of the Tax Office, a formal complaint may be filed against the District Director.
Moreover, if the taxpayer is dissatisfied with the decision against the formal
complaint, the taxpayer may file a request for reconsideration with the National Tax
Tribunal.
Furthermore, if the taxpayer is dissatisfied with the decision by the National Tax
Tribunal regarding the request for reconsideration, the taxpayer can bring the case tocourt.

2. System of Certified Public Tax Accountants in Japan
Corporations, business owners, and certain groups of income earners are obliged to file
returns on their own. However, since the Japanese taxation system is complicated, mostgenerally retain the services of certified public tax accountants or tax corporations for tax
returns and other tax-related work.
(1) Services Provided by Certified Public Tax Accountants
As tax experts, certified public tax accountants, while impartial and independent fromtaxation authorities, follow in accordance to the principles of the self-assessment system.
They are obliged to respond to the taxpayers expectations, and provide tax-related services
with the mission to promote appropriate tax assessment and payment as defined by taxrelated laws and regulations.
Tax Accountant Servicesa)

Act as agent on behalf of the taxpayer (in filing returns, in making assertions orstatements to the tax authorities on their inspections and penalties)b)

Preparation of tax-related documents (such as tax returns, application forms, andapplication forms for formal protests)c)

Tax consultation

Supplementary Services
Provide services conducted in connection with tax accountant services, such as
preparation of financial documents, account bookkeeping, and other finance-related
clerical work
Litigation Assistance Services
Assist in aiding the recovery of profits and protecting taxpayers legitimate rights in tax
litigation; appear in court with the lawyer in counsel, and provide a statement (court
statement)
Accounting Advisor Services for Corporation
According to the provisions of the Companies Act, serve as accounting advisor andprovide services such as creation of financial statements together with the directors of
the company(2) Experts of Tax and Accounting (Certified Public Tax Accountants)
Certified public tax accountants are private tax experts who are granted a license inaccordance to the Certified Public Tax Accountant Law. The license is given to those who pass
the national examination and those who are recognized as having equivalent capabilities. At

present, there are approximately 75,000 registered certified public tax accountants
nationwide, providing various services such as preparation of tax returns, on-site assistanceat tax inspections, tax consultations and bookkeeping, upon requests from taxpayers.
In Japan, it is forbidden by law for one without a license to provide tax accountant services.
(3) Certified Public Tax Accountants Association
Certified public tax accountants are required to be registered members of a regional
association of certified public tax accountants. The Japan Federation of Certified Public Tax
Accountants Associations is comprised of fifteen regional associations located throughout
Japan. In Tokyo, there is the Tokyo Certified Public Tax Accountants Association, underwhich have been established several branches. Each branch covers an area which corresponds
to the area s local tax office.
The Certified Public Tax Accountants Associations provide guidance, communication, andsupervision to the branches and their members. The Associations also provide study
programs and lectures on taxes for their members.

3. Major Taxes in Japan
National Taxes

Taxes on Income
Taxes on Gifts andInheritances

Income Tax
Corporate Tax

Local Taxes
Prefectural Taxes
Prefectural
Inhabitant Tax
Enterprise Tax

Municipal Taxes
Municipal
Inhabitant Tax

Gift Tax
Inheritance
Tax
Property Tax
Special Landownership Tax

Taxes on Property

Taxes onConsumption

Taxes onTransactions

Automobile
Weight Tax

Automobile Tax

ConsumptionTax
Tobacco Tax
Liquor Tax

Local Consumption
Tax
Prefectural Tobacco
Tax
Golf Course Usage
Tax

Stamp Tax

Real Estate
Acquisition Tax

Registrationand License
Tax

Automobile
Acquisition Tax

City Planning Tax
Light Motor Vehicle
Tax
Business Facilities
Tax

Municipal TobaccoTax

4. Taxes on Income(1) Taxes on Personal Income
In Japan, there are three types of taxes levied on personal income: income tax,
inhabitant tax, and enterprise tax, for individuals conducting their own businesses.
Income Tax
a. Income refers to the total amount of revenue earned in a year minus expenses
required in obtaining that revenue. Income is classified into ten types: interest,
dividend, real estate, business, salary, retirement, forest and land, transfer,
temporary, and miscellaneous.
Individuals who have taxable income are required to compute their income
earned between January and December every year as well as their tax liability(amount), and pay taxes under the self-assessed taxation system. However, those
who pay salaries to employees are not required to file tax returns because as
employers they must withhold tax from employees wages and make year-end
adjustments.
Those required to file final returns are as follows:
those whose annual income (including bonuses) from one source exceeds 20 million
yen;those whose income from secondary sources, other than salary and retirement
income exceeds 200,000yen;
those who earn salaries from two or more sources.
The period for filing final returns for income earned during a year is from February
16th to March 15th of the following year.
(In a case where one is leaving the country mid-year without appointing a tax agent,
the deadline is the day of departure from Japan.)b. Classification of Taxpayers
Taxes are levied on individuals according to their residential status. Residential
status is classified as follows.

Non-permanent Residents
Residents without Japanese(Note)

citizenship but who have resided atThose having an address inan address or residence in Japan forJapan, or those currently

five years or less within the past ten

residing in Japan for a period

years

Residents

Individualsof over one year
Non-residents
Individuals otherthan residents

Permanent Residents
Residents other than Non-permanent
Residents(Note) Unless it is clearly recognized in advance that the length of stay is less than one
year, those arriving to live in Japan as salary earners are presumed residents
immediately upon entry into the country.

c. Extent of Taxable Income
Scope of taxable income
Classification

Domestic income source
Paid inPaidJapan
abroadResident

Nonpermanent
resident

Permanent
resident
Non-resident

Fully
taxableFully
taxable

Fully
Fully
taxabletaxableTaxable in principle

Foreign income source
Paid in
Paid abroad
Japan
Taxable for portionof income sourced
from abroad andsent to Japan
Fully(hence income
taxablesourced abroad
and kept abroad is
not taxed)
Fully
Fully taxable
taxableNot taxable

d. Rate of Income Tax
Classification of taxable income
Over (thousand Yen)

Rate of taxation

Under (thousand Yen)
1,950

5

1,950

3,300

10

3,300

6,950

20

6,950

9,000

23

9,000

18,00033

18,00040,00040

40,00045

However, income earned between January 1st, 2013 and December 31st, 2037 will belevied a special income tax for reconstruction which will amount to an additional 2.1%
of existing income tax amount.
Inhabitant Tax
Prefectural inhabitant tax and municipal inhabitant tax are collectively referred toas inhabitant tax. Those with a domicile are levied inhabitant taxes on a per-capita
base and an income-base, and those without a domicile but own an office or house arelevied taxes on a per-capita base, based on their situation as of January 1st . Inhabitant
tax is calculated based on income earned in the previous year; the tax rate for theincome-based portion is 10% across the board, and tax for the per-capita portion is aflat rate of 4000 yen per annum. However, from 2014 to 2037, there will be a per-capita
surtax of 1000 yen for the special tax for reconstruction.

(2) Taxes on Corporate Income
Taxes levied on corporations in Japan include corporate tax, which is a national tax,
and corporate inhabitant tax and corporate enterprise tax which are local taxes.
Corporate Tax
a. Corporate tax is levied on corporate income. Corporations are divided into
domestic corporations and foreign corporations, where domestic corporations
refer to corporations with head offices in Japan, and foreign corporations arecorporations that are not domestic corporations. Subsidiaries and affiliates
established in Japan by foreign firms are considered domestic corporations, while
branch offices, factories and other permanent establishments of foreign firms are
considered foreign corporations.
b. Classification of Taxpayers
Domestic corporations must pay taxes regardless of whether the source of income
is in Japan or from abroad, whereas foreign corporations have the obligation to
pay taxes when a specific source of income exists in Japan.
c. Extent of Taxable Income
Domestic corporations are levied corporate tax on income for each fiscal year andon liquidation income. Foreign corporations are levied corporate tax on the partof the income each fiscal year which is related to income sourced in Japan.
d. Fiscal YearA fiscal year is s a period of time in which calculation for income statements are
made, and is specified in the corporate charters of corporations.
e. Rate of Taxation
A tax rate of 23.9 percent is applied; for corporations with capital equal to or lessthan 100 million yen, a tax rate of 15 percent is applied to annual income equal
to or less than eight million yen.
f.

Final Tax Return
Final tax returns must be filed within two months of the end date of each fiscal
year.

g. Place of Payment
For domestic corporations, place of payment is the location of the head office ofthe corporation. For foreign corporations, place of payment is the location of theoffice conducting the business, business facilities or other equivalent facilities (socalled permanent establishments).

h. Transfer Pricing Taxation
In corporate transactions with foreign affiliates, when the price of the payment
to be received is less than the Arm s Length Price, or when the price of payment
to be paid exceeds the Arm s Length Price, the transaction with the foreign
affiliate is assumed to have taken place at Arm s Length Price.
i.

Consolidated Taxation
Consolidated taxation was introduced in Japan in April 2002, where the parent
company and subsidiaries of a corporate group are seen as one firm in levying
corporate taxes. Corporations subject to this system are domestic parent
companies and their wholly-owned subsidiaries and second-tier subsidiaries, andtaxable income is aggregated via self-assessment.

j.

Corporate Reorganization Taxation
When a corporation reorganizes through a merger, company-split, investment inkind, subsequent incorporation, share exchange, or share transfer, if certain
conditions are met, transferred assets are assumed to have transferred at tax
basis book value, providing a preferential measure to defer losses or gains fromthe transfer.

k. Group Taxation
The group taxation regime, introduced from October 2010, considers corporategroups with wholly-owned capital ties as one firm in levying corporate taxes. Thus,
taxation on transfer of real estate and securities within the group is deferred until
the transfer occurs outside of the group.
l.

Thin Capitalization Rule
When the average outstanding balance of liabilities with interest to the overseas
parent company is over three times the equity interest in the Japanese subsidiary,
the amount of liability interest to be paid to the overseas parent company in thefiscal year which corresponds with this excess is excluded from expenses forcorporate taxation purposes.

Corporate Inhabitant Tax
Corporate inhabitant tax is a prefectural tax or municipal tax levied on corporations
holding offices or business facilities in Japan, and is paid based on corporate tax,
per capita, and certain interest received.
Corporate Enterprise Tax
Corporate enterprise tax is a prefectural tax levied on businesses by corporations,and can be corporate income based, value added tax based on pro forma standards,
or capital based.

(3) Withholding Income Tax
When corporations make payments of a certain amount to individuals or corporations,they must withhold income tax and special tax for reconstruction from the payment
amount and pay taxes to the appropriate Tax Office. The extent of income tax withheld
and taxation rates differ between residents (including domestic corporations) and nonresidents (including foreign corporations). For residents, income where income tax iswithheld includes income from interest, dividends, salary, retirement allowance, andremuneration.
Overview of Taxation System of Corporate Tax and Special Tax for Reconstruction for Nonresidents
Non-resident
Classification

Corporations
not holding
permanent
facilities inJapan

Tax withheld

Corporations holding permanent facilities inJapan
Those holding
branch offices orThose having agentsother regularof certain
establishments for
conducting business classification or those
conducting(No.1 PE)
construction work,etc., for over a year
(No. 2 PE, No. 3 PE)

ExemptNone

Comprehensive
taxation

None

Exempt20.42%

Type of income
Income from business
Income from assets

Comprehensive
taxation

Other income sourced in Japan
Distribution of profits frompartnership agreement businesses
Compensation from transfer ofland, etc.
Compensation from business
rendering human services
Rent and other revenue fromleasing real estate

Comprehensive taxation after withholding
tax at source

10.21%
20.42%
20.42%

Interest
Dividends

None

15.315%Comprehensive taxation after
withholding tax at sourceTax separately withheld
at source

20.42%

Interest on loans

20.42%

Other usage fees

20.42%

Salaries and other compensation
for human services rendered

Rewards for business advertisingPensions and others based on life
insurance contracts
Compensation benefits frominstallment savings
Distribution of profits fromanonymous partnershipagreements

20.42%
AttributedtoJapanesedomestic
businessNot
attributedtoJapanesedomestic
business

20.42%

20.42%
15.315%20.42%

As of the end of April 2015, Japan has tax treaties with 64 countries and regions; underthese tax treaties, there may be reductions in tax rates or tax exemptions. In order to benefit
from such measures, those who receive tax payment are required to submit notification
concerning the tax treaties to the Tax Office of their area through those who are paying thetax.

5. Taxes on Gifts and Inheritances(1) Gift Tax
Those who acquired property by gift must file a return for and pay gift tax at the Tax
Office of their area. The return for gift tax must be filed between February 1st and March
15th of the following year after receipt of the gift.
The system of taxation for settlement at time of inheritance, where the taxpayer pays
a certain percentage of gift tax upon receipt of the gift, and then calculates inheritancetax on the sum of the gift property and inheritance property at the time of death of thegiver, can also be employed.
Taxable Value and Rate of Taxation

Gifts other than those stated to theright

Gifts from lineal ascendant(parents/grandparents) of age twenty
and above

Taxable value

Taxable value

Taxable value

Tax rate

Taxable value

Tax rate(thousand Yen)(%)

(thousand Yen)(%)

2,000 and below

10

2,000 and below

10

3,000 and below

15

4,000 and below

20

4,000 and below

15

6,000 and below

30

6,000 and below

20

10,000 and below

40

10,000 and below

30

15,000 and below

45

15,000 and below

40

30,000 and below

50

30,000 and below

45

Above 30,000

55

45,000 and below

50

Above 45,000

55

Taxable value is the value after deductions such as basic deductions (1.1 million yen) anddeduction for spouses (20 million yen).

(2) Inheritance TaxThose who acquired property by inheritance or bequest must file a return for
inheritance tax and pay inheritance tax at the tax office of their area. The deceased isreferred to as the ancestor, and the person inheriting the property is referred to as theheir. Depending on whether the inheritor s address is in Japan or abroad, the extent ofproperty to be taxed varies.
In principle, the deadline for filing and paying for inheritance tax is within ten months
from the date the inheritance occurred.
Taxable Value and Rate of Taxation
Taxable value

Tax rate(thousand Yen)(%)

10,000 and below

10

30,000 and below

15

50,000 and below

20

100,000 and below

30

200,000 and below

40

300,000 and below

45

600,000 and below

50

Above 600,000

55

6. Taxes on Property(1) Automobile Weight Tax/ Automobile Tax/ Light Motor Vehicle Tax
Automobile Weight Tax
This is a national tax levied according to the weight of the automobile at the time ofvehicle inspection.
Automobile Tax
This is a prefectural tax paid by the owner of the automobile at the main location where
the automobile is regularly stored
Light Motor Vehicle Tax
This is a tax paid by owners of motorized bicycles, light motor vehicles, small-sized
special motor vehicles and two-wheeled small-sized motor vehicles, at the municipality
where their vehicles are regularly stored(2) Property Tax/ City Planning Tax
Property Tax
This is a municipal tax paid by individuals and corporations possessing land, buildings,
and machinery/equipment used for business.
The rate of taxation is determined by each municipality by law, where the standard rate
is 1.4%.
City Planning Tax
This is a municipal tax paid by individuals and corporations possessing land andbuildings, aimed at funding city planning projects and land re-zoning projects.
The rate of taxation is 0.3% of the value of the land and buildings.

(3) Business Facilities Tax
Corporations and individuals conducting businesses in large cities such as government
ordinance designated cities are required to pay this tax based on the floor space of theirbusiness facility and the sum of salaries paid to their employees.

7. Taxes on Consumption(1) Consumption Tax
Consumption tax is levied on exchanges such as sale of goods, leases, and provision ofservices in Japan, and the party conducting the exchange as a business has the obligation
to pay the tax. However, since consumption tax is placed on the prices of goods and services,and not on the business itself, the consumer ultimately bears the cost. Imported goods are
subject to consumption tax, though export goods are exempt from this taxation.
Individuals and corporations obligated to pay this tax must file a return and pay thedifference between the consumption tax received and the consumption tax paid in
exchanges conducted during the taxation period.
The rate of taxation for consumption tax is a uniform eight percent (including local tax
of 1.7%).

(2) Tobacco Tax/ Prefectural Tobacco Tax/ Municipal Tobacco Tax
These taxes are levied on tobacco consumption.

(3) Liquor Tax
This is a national tax levied on liquor containing one percent or more alcohol.

(4) Golf Course Usage Tax
This is a prefectural tax paid when using golf courses.

8. Taxes on Transactions(1) Stamp Tax
This is a national tax paid by corporations and individuals when drawing up deeds for
economic transactions such as various contracts, securities, and payment receipts.

(2) Registration and License Tax
Real Estate Registration
This is a national tax paid by corporations and individuals registering possession ofland and buildings.
Commercial Registration
This tax is paid when carrying out commercial registrations such as registration ofcompany establishment, registration of capital increase, registration of a branch,registration of changes of directors and other officers, registration of changes in tradename. It is also required to pay registration and license tax when registering patentrights, copyrights, and licenses.

(3) Real Estate Acquisition Tax
This is a prefectural tax paid by corporations and individuals acquiring land andbuildings.

(4) Automobile Acquisition Tax
This is a prefectural tax paid by corporations and individuals acquiring automobiles.