Guide to Japanese Taxes
CONTENTS
1. Introduction ------------------------------------------------------------------------------------------(1) Principle of “Taxation under the Law“
(2) Self-Assessment System

12. Major Taxes in Japan---------------------------------------------------------------------------------

2

3. Taxes on Income and Profits ----------------------------------------------------------------------(1) Taxes on Individual Income(2) Taxes on Corporate Income(3) Withholding Income Tax

3

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

8-----------------------------------------------------------------------------

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6. Taxes on Properties and Transactions ----------------------------------------------------------(1) Fixed Assets Tax and City Planning Tax(2) Automobile Tax and Light Motor Vehicle Tax(3) Enterprise Establishment Tax(4) Registration and License Taxes(5) Real Property Acquisition Tax(6) Stamp Tax

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7. Organization of Tax Administration --------------------------------------------------------(1) Structure of National Taxes(2) Structure of Local Taxes(3) Tax Examination and Remedy System

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5. Taxes on Consumption

Japan Federation of Certified Public Tax Accountants’ Associations* This material was compiled by the International Relations Department of the Japan Federation of Certified Public
Tax Accountants’ Associations based on the brochure, “Guide to Japanese Taxes and the System of Certified
Public Tax Accountants” issued by the Tokyo Certified Public Tax Accountants’ Association.
* The information included in this material is based on the tax system effective as of 1 April 2018.

1.

Introduction(1)

Principle of “Taxation under the Law”
The Constitution of Japan declares the principle of “taxation under the law,” in Article 30,“the people shall be liable to taxation as provided by the law,” and in Article 84, “no new taxes
shall be imposed or existing ones modified except by law or under such conditions as the law
may prescribe.”
These provisions clarify that taxation is a means to transfer part of the people’s wealth tothe state’s coffers to procure funds for public services. Therefore, tax assessment andcollection should be conducted according to the provisions of the law.

(2) Self-Assessment System① Methods to determine tax liabilities
There are three methods to determine tax liabilities: the “self-assessment” method, the“official assessment” method, and the method of determining liabilities at the time ofassessment.
Under the self-assessment method, the tax amounts that are due are determined on thebasis of returns filed by taxpayers. This method is applied to most major tax items, such asindividual income tax, corporate tax, consumption tax, inheritance tax and gift tax, which arenational taxes, and corporate inhabitant tax and enterprise tax, which are local taxes.
Under the official assessment method, the tax amounts that are due are determined by the
tax authorities. This method is applied to property tax, automobile tax, additions to national tax,etc.
In addition to the methods mentioned above, there is a method in which the tax amounts
that are due for withholding income tax, stamp tax, etc., are determined without any special
procedures at the same time that tax liabilities are established.
As described above, taxation in Japan is based on the self-assessment system.
It could be said that the self-assessment system, under which taxpayers calculate their own
tax amounts, file tax returns, and pay taxes, realizes embodies the ideal of the Japaneseconstitution, which sets forth the principle of sovereignty of the people for tax purposes.
② Filing tax returns and requesting reassessment（claim for correction）
There are three types that tax returns can be filed:a. Filing returns within the due dateTaxpayers paying taxes under the self-assessment system must file their tax returns by
the statutory deadline. Those returns are called tax returns filed within the due date.
b. Filing returns after the due dateTaxpayers who have failed to file returns within the due date may file returns even after
the deadline, if the district director of the tax office has not yet made a decision.
c. Filing amended returns
Taxpayers who have already filed returns or who have received decisions onreassessment may file amended returns, until a reassessment is made by the district
director of the tax office, if their original returns are under-assessed.
Taxpayers who have filed returns with over-assessment may request, no later than five years
from the statutory due date of tax filing, that the district director of the tax office within theirjurisdiction reassess their tax amount. (In terms of tax returns having the statutory due date1

before 2 December 2011, the period for requesting is one year from the statutory due date oftax filing.)③ Blue-form return system
An individual or corporate taxpayer who has the approval of the district director of the tax
office may file a blue form return with various privileges.
The purpose of this system is to popularize the self-assessment system and to promote
proper bookkeeping of accounts and records.
④Electronic filingTaxpayers can file returns, pay taxes, and submit applications or notifications using
electronic filing, also known as e-Tax and eLTAX.

2.

Major Taxes in Japan
National Taxes
Individual income

Taxes on income

Local Taxes
Prefectural Taxes
Prefectural inhabitants’ tax

Municipal Taxes
Municipal inhabitants’ tax

tax
Corporate

Enterprise tax

income tax
Taxes on gifts andGift tax

inheritances

Inheritance tax
Fixed asset tax

Taxes on properties

Motor vehicle
tonnage tax

Special landholding tax
Automobile tax

City planning tax
Light motor vehicle tax
Enterprise establishment tax

Taxes on consumption

Taxes on transactions

Consumption tax

Local consumption tax

Tabaco tax

Prefectural Tabaco tax

Liquor tax

Golf course utilization tax

Stamp tax

Real property acquisition tax

Registration andlicense tax

3.

Municipal Tabaco tax

Automobile acquisition tax

Taxes on Income and Profits(1) Taxes on Individual Income
The taxes that are levied on an individual’s income are income tax and inhabitant tax, andenterprise tax levied on business’ income made by individuals.
2① Individual Income Tax
a. Income refers to the total amount of earnings minus the necessary deductible expenses
to get those earnings during a year. Income is categorized into 10 types: income frominterest, income from dividends, income from real estate, business income, employment
income, retirement income, income from forestry, capital gains, occasional income, andmiscellaneous income.
Under the self-assessment system, taxpayers who have taxable income must calculate
the whole income earned for the year from January 1 to December 31 and their tax
liability (amount), and pay the amount of tax that is due. However, salary earners are notrequired to file tax returns, because their employers withhold income tax from employee
salaries and wages and then make year-end adjustments to the amounts paid.
Those who must file final returns are:• those whose annual income from one source exceeds ¥20 million,• those whose income from sources other than salary and retirement income exceeds¥200,000,• those who earn salaries from two or more sources.
The period for filing final returns for income earned during a year is from February 16 to
March 15 of the following year.
b.

Classifications of taxpayers
Taxes are levied on an individual in accordance with the residential status of theindividual. Residential statuses are classified into the following categories.
Non-permanent residents**
Residents*
Permanent residents***
Individuals
Non-residents****

Notes: *Residents are those who have a domicile in Japan and have resided continuously inJapan for one year or more.
Those who enter Japan as salary earners with the intention to reside in Japan are
presumed to be residents immediately after their entry into Japan, unless it is clearlyrecognized that their stay in Japan will not be more than one year.
** Non-permanent residents are non-Japanese nationals who have not had a domicile
or residence in Japan continuously for more than five years in the past ten years.
*** All residents other than non-permanent residents**** All individuals other than residents3c.

Scope of taxable income
Scope of Taxable Income
Classification

Income from Sources inJapan
Paid inJapan

Paid Abroad

Paid inJapan

Paid Abroad

Non-permanent All income
Resident
taxableAll income
taxableAll
incometaxableThe part deemed to beremitted to Japan istaxable.
(The part retained
abroad is not taxable.)

Permanent
resident

All income
taxableAll
incometaxableAll income taxable

Resident

Non-residentd.

Income from Sources Abroad

All income
taxableIncome taxable in principle

Not taxable

Income tax rates
Brackets of taxable income (Unit: ¥1,000)
Over
Not over
―
1,950
3,300
6,950
9,000
18,00040,000

1,950
3,300
6,950
9,000
18,00040,000Tax rate (％)
5
10
20
23
33
40
45

On income which occurs from January 1, 2013 to December 31, 2037, an additional 2.1% of
Income tax as Special Reconstruction Income Tax will be imposed.
② Inhabitants’ Tax
Prefectural inhabitants’ tax and municipal inhabitants’ tax are generally called inhabitants’ tax.
The inhabitants’ taxes are levied on a per-income base and a per-capita basis on those whohave a domicile as of January 1. For those who have an office or a house, even if they do nothave a domicile, the inhabitants’ taxes are levied on a per-capita basis.
The amount of inhabitants’ tax is calculated on the basis of the income earned in the previous
year. The tax rate is 10% of income. Per capita tax levied in a year is ¥4,000. During theyears from 2014 to 2037 additional per capita tax, 1,000 yen will be imposed as a Special
Reconstruction Tax.

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(2) Taxes on Corporate Income
The taxes that are levied on corporate income in Japan are corporate tax on the national level
and corporate inhabitant tax and enterprise tax on the local level.
① Corporate Tax
a. Corporate tax is levied on corporations’ income. Corporations are classified into domestic
and foreign corporations. Domestic corporations have their head office and others inJapan, while foreign corporations are corporations other than domestic corporations.
When a foreign corporation establishes a subsidiary or an affiliate company in Japan, thissubsidiary or affiliate company is regarded as a domestic corporation. However, branch
offices, manufacturing plants, and other permanent establishments (PEs) set up in Japanby foreign corporations are regarded as foreign corporations.
b.

Classifications of taxpayers
Domestic corporations must pay corporate tax on income that comes from Japan andfrom foreign sources. However, foreign corporations are subject to corporate tax only on
specified income from Japan.

c.

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

d.

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

e.

Tax rates
The tax rate is 23.2%. For a company with capital of ¥100 million or less, a lower rate of
19% is applied to an annual income of ¥8 million or less.

f.

Final tax return
Corporations are required to file final returns within two months from the last day of theirbusiness year.

g.

Place for tax payment
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 permanentestablishment in Japan.

h.

Transfer pricing taxation
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 thearms’ length price are regarded as having been made at the arms’ length price.

i.

Consolidated taxation system
The consolidated taxation system was introduced in Japan in April 2002. Under this5

system, a parent company and its subsidiaries are deemed to be a consolidated groupthat is subject to corporate tax. This system applies to groups of Japanese companies inwhich a Japanese parent company owns 100% of the other Japanese companies(subsidiaries). The parent company shall file the consolidated tax return based on theaggregated taxable income.
j.

Taxation for corporate reorganizations
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 therecognition of the gains and losses on the transfer of the assets will be deferred.

k.

Group taxation regime
The Group taxation regime was introduced in October 2010. Under this regime, a groupof 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 groupwill be deferred until the assets are sold outside of the group.

l.

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.

② Corporate inhabitants’ tax
This tax is levied by the prefectures and municipalities (city, town, or village) where a
corporation has business establishments in Japan. This tax is levied on per-corporate tax
base and per-capita base.

③ Enterprise tax
This tax is levied by the prefecture where a business operates. This tax is levied on incomebase. And this tax is levied on value-added and capital appropriation based on the pro forma
business size such as the number of employees and the amount of capital.

(3) Withholding Income Tax
When a corporation pays a certain amount of salaries, wages, remunerations, etc., toindividuals or corporations, it must withhold income tax and Special Reconstruction Income Tax
from the amount paid, and pay the withheld tax to the tax office of its jurisdiction. The scope ofincome subject to withholding tax and the tax rates vary depending on whether the payee is a
resident (including domestic corporations) or a non-resident (including foreign corporations).
The income of a resident that is subject to withholding tax includes interest, dividends, salary,
retirement allowances, and remunerations.
Taxation system including withholding income tax for foreign corporations can be classified asfollows.

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Outline of Income Taxes for Foreign Corporations
Classification

Foreign Corporations having a

ForeignWithholding

PE in Japan

Corporations

Income Tax

IncomeimputedtoPE

Domestic

not having a

Source Income

PE in Japan

not imputed toType of Income

PE
Income to be

None

Operation and holding of domestic property

imputedNone(excluding from (7) to (14) below)

PE

Transfer of domestic property (limited

to these)

Domestic Source Income(Income from business)toTransfer of domestic real estate(Corporation

Transfer of rights residing on domestic real estatetax)

None (*1)

Transfer or logging of domestic timbers
TransferofforestalledstocksNoneofdomestic

Corporation Tax

corporations
Transfer of stocks similar to business transfer
Transfer of stocks of RE related corporations
Transfer of stocks of corporations which own and/or
operate domestic golf courses

4) Compensation for business rendering human services

20.42%

5) Rental and other revenues from leasing domestic real estate

20.42%

6) Other income from source in Japan

None

7) Bond interests, etc.

15.315%8) Dividends

20.42%

9) Loan Interests

20.42%

10) Fee for use, etc.

Withholding tax only

20.42%

11) Prize money for business advertising

20.42%

12) Pension and others based on contracts of life insurance

20.42%

13) Compensation benefits from installment savings

15.315%14) Distribution of profits based on anonymous association

20.42%

contracts, etc.
Other income than domestic withholding income

Not Subject to tax

None

Notes (*1) As for transfer of land 10.21% of withholding tax is levied.
2 Classification from 7) to 14) is based on the Income Tax Act. This classification of domestic source
income is not set under the Corporation Tax Act.

As of 1 June 2016, Japan has tax treaties with 96 countries/regions, and under those tax
treaties, there are potential reductions in tax rates and tax exemptions. To receive these tax relief
measures, those who receive payment are required to submit notification concerning the tax
treaties to the relevant tax office through those who make the payment.

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4.

Taxes on Gifts and Inheritances(1) Gift Tax
Those who acquired property as a gift must file a return to pay gift tax in the period fromFebruary 1 to March 15 of the year following the acquisition of the property. The taxable value
is the amount after deducting the basic allowance (¥1,100,000) and the special spouseallowance (¥20,000,000).
The donee who receives a gift from the parents or grandparents has an option to apply theinheritance tax adjustment system in which the donee pays smaller amount of tax on gifts andsettles the final amount as inheritance tax later.
Taxable Amount and tax rate
Transfer other than those stated to the rightTaxable amount (Yen)
2 million or under
3 million or under
4 million or under
6 million or under
10 million or under
15 million or under
30 million or underTax rate (%)
10
15
20
30
40
45
50

Over 30 million

55

Transfer from lineal ascendant (parent,
grand-parent) to a person of 20 years or overTaxable amount (Yen)Tax rate (%)
2 million or under
10
4 million or under15

6 million or under
10 million or under
15 million or under
30 million or under
45 million or underOver 45 million

20
30
40
45
50
55

(2) Inheritance TaxThose who acquired properties by inheritance or bequest, and the total value of the properties
exceeds the basic deductible allowance, must file a return to pay inheritance tax within, in principle,
ten months after the date of the acquisition. The person who died is called the ancestor, and theperson who inherited property is called the inheritor.
The scope of property subject to inheritance tax varies depending on whether the inheritor’s
address (domicile) is within or outside of Japan.
Taxable amount and tax rate
Taxable amount (Yen)Tax rate (%)
10 million or under
10
30 million or under
15
50 million or under
20
100 million or under30
200 million or under
40
300 million or under45
600 million or under
50
Over 600 million
55* The amount of basic deductible allowance is 30 million yen plus 6 million yen times the numberof legal heirs.

85.

Taxes on Consumption(1) Consumption tax
Consumption tax is imposed on the sale or lease of goods and services in Japan. Businessenterprises engaged in such business activities are obliged to file a consumption tax return andpay the stated amount. However, because consumption tax is added on to the prices of goods andservices, the tax is essentially borne by final consumers. Imported goods are taxable, but exported
products are exempted from the tax.
Individuals and corporations who collect consumption tax in their business transactions must file
returns and pay the difference between the tax amount received and the tax amount paid during
the taxable period.
The tax rate is a flat rate of 8% (including a 1.7% of local consumption tax).
(2) Tobacco tax, Prefectural Tobacco Tax, Municipal Tobacco Tax
These taxes are levied on consumption of Tobacco.
(3) Liquor tax
This tax is levied on liquors including 1% or over of alcohol.
(4) Golf Course tax
This tax is levied on use of golf course by prefectures.

6.

Taxes on Properties and Transactions(1) Fixed Asset Tax and City Planning Tax① Fixed asset tax
Individuals and corporations who own real property, such as land and houses, and any
depreciable assets for business, such as machines and equipment, are required to pay this tax
to the municipality.
The standard tax rate is 1.4%, however, the municipal governments designate a tax rate by
regulations.
② City planning tax
Those who own real property, such as land and houses, are required to pay this tax to themunicipality. The goal of this tax is to finance city planning and land readjustment projects.
The tax rate is 0.3% of the value of land and houses.
(2) Automobile Weight Tax, Automobile Tax and Light Motor Vehicle Tax① Automobile weight tax
This tax is paid to the national government depending on the weight of a vehicle, etc. at a time ofcar inspection.
② Automobile tax
This tax is paid by car owners to the prefecture where their automobiles are regularly
garaged or stored.

9③ Light motor vehicle tax
This tax is paid by owners of motorized bicycles, light motor vehicles, small-sized special
motor vehicles, and two-wheeled small-sized motor vehicles to the municipality where theirvehicles are regularly garaged or stored.
(3)Enterprise Establishment Tax
This tax is paid by corporations and individuals who do business in big cities including theordinance-designated cities in accordance with the size of the floor space of their businessestablishment and with the total amount of salaries paid to their employees.

(4) Registration and License Taxes① Real property registration tax
This tax is paid by corporations and individuals who have registered the right of ownershipof land or buildings with the national government.
②

Commerce registration tax
This tax is paid at the time of the establishment of a company, a capital increase, aregistration of a branch, changes in board directors, a change in a corporate name, and othercommercial registrations. This tax must also be paid when patents, copyrights, andqualifications are registered.

(5)Real Property Acquisition Tax
This tax is paid to the prefecture by corporations and individuals who have acquired land or abuilding.

(6) Stamp Tax
This tax is paid to the national government by corporations and individuals who have preparedcertificates of economic transactions, such as various contracts, securities, receipts, etc..
(7) Automobile Acquisition Tax
This Tax is paid to prefectures by corporations and individuals when acquiring vehicles.

7.

Organization of Tax Administration

The tax administration in Japan, in general, is classified into the national and the local levels
depending on the taxation categories. Both the national government and the local governments
administer various taxes.
(1) Structure of National Tax Administration
The National Tax Agency, an external organ of the Ministry of Finance that is in charge of theassessment and collection of internal taxes, supervises 11 Regional Taxation Bureaus throughout
Japan (Sapporo, Sendai, Kanto-Shinetsu, Tokyo, Kanazawa, Nagoya, Osaka, Hiroshima,
Takamatsu, Fukuoka, Kumamoto) and the Okinawa Regional Taxation Office, under which 524
tax offices are set up to execute tax administration. Taxpayers are required to file returns and pay
national taxes such as income tax, corporate tax, and consumption tax to the tax office withjurisdiction over the location where the taxpayers reside.
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(2) Structure of Local Tax Administration
Local taxes are administered by the Local Tax Bureau of the Ministry of Internal Affairs andCommunications (MIC), which is responsible for planning local taxes on the prefectural andmunicipal levels and for determining competent tax authorities. Public services regarding tax
assessment and collection are provided by the local governments, which have the power oftaxation. The Bureau of Taxation, taxation sections, etc., under each prefecture and municipality(city, ward, town, or village) are in charge of the assessment and collection of prefectural taxes
and municipal taxes, respectively.
(3) Tax Examination and Remedy System① Tax examination and corrections/determinations
Under the self-assessment system, a taxpayer’s tax liability is determined, in principle, basedon the returns filed by the taxpayer. However, when it is found that the filed returns containerrors or irregularities, the tax amount will be determined and corrected on the basis of theexamination conducted by the District Director of the tax office.
When the District Director of the tax office finds it necessary to do so, the taxpayer’s accountbooks and relevant records will be inspected in accordance with the provisions of the law.
When it is found that a person who has not filed a tax return is liable to pay taxes, the District
Director of the tax office will determine the tax liabilities.
For those who have filed returns, the District Director of the tax office will correct the tax
amount when the results of examinations show that the tax amount is under-declared.
When tax is imposed additionally as a result of correction or determination, a certain
additional tax (surcharge) will be imposed as a penalty.
Tax Appeal system and litigation
If a taxpayer is dissatisfied with an action of determination or correction made by the District
Director of the tax office, etc., the taxpayer may file a request for re-examination to the District
Director of the tax office, etc.
A taxpayer who is still dissatisfied with the decision on the request for the re-examination isentitled to make an appeal to the Director-General of the National Tax Tribunal.
Even after the decision on the appeal made by the National Tax Tribunal, a taxpayer who
remains dissatisfied is entitled to file litigation to the judicial court.

②

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