Doing Business in Japan
2023（Ver1.3）

AIC Tax Co.

AIC Tax Co.
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Doing Business in Japan 2023

PrefaceThis pamphlet is brief explanation of tax and accounting system in Japan.

It hasbeen prepared in order to guide the person who is going to start his/her business inJapan. Every effort has been made to offer current, correct and clearly expressed
information.
This pamphlet reflects information current as of the end of April 2023.
However, the information in the text is intended to afford general guidelines only.
This publication is distributed with the understanding that AIC Tax Co. is not
responsible for the result of any action taken on the basis of information in thispublication, nor for any errors or omissions contained herein.
Readers are encouraged to consult with a professional advisor concerning specificmatters before making any decision.
If you have any questions regarding tax and accounting, please contact us. We would
be happy to help you.
Issued: June 2023
AIC Tax Co.
<Address>(Tokyo office)Tensho Minami-Aoyama Building 413,
2-4-15, Minami-Aoyama, Minato-ku, Tokyo 107-0062
TEL 050-7101-1932(Osaka office)
SakurabashiWest building 9F,
2-3-3 Sonezaki-Shinchi, Kita-ku, Osaka 530-0002
TEL 050-7101-1931
info@aictax.com
https://www.aictax.com/en/

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INDEX
1. Establishment-------------- 31) Organization form for foreign investors in Japan / 32) The report for corporate tax/ 7

2. Corporation tax-------------- 91) Closing accounts and filing tax returns / 92) The tax rate / 103) Depreciation / 13
4) Expenditures that cannot be allocated as expense / 165) Group taxation regime / 17
6) Preferential treatments under the corporation tax / 19
7) Documentation for TP taxation / 21
8) Tax treaty /21

3. Other taxes for corporation------------- 23

1) Consumption tax / 23
2) Fixed assets tax and City planning tax/ 30
3) Office tax/ 31
4) Real estate acquisition tax/ 31

4. Salary and Taxes for Employees--------------

31--------------

44

1) Employment income / 31
2) Company provided housing / 32
3) Salary to directors who live overseas / 33
4) Deductions / 33
5) Payroll computation and withholding income tax / 35
6) Individual income tax rate / 37
7) Filing and payment procedures / 38
8) Resident status and scope of taxable income / 39
9) Social insurance / 40

5. Appendix
Useful addresses and telephone numbers / 44

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1. Establishment
1) Organization form for foreign investors in Japan1-1) Companies
A subsidiary or joint venture can take either one of the following two corporate forms
recognized under the Japanese law: a Joint Stock Company (Kabushiki-Kaisha) or a
Membership Company (Mochibun-Kaisha) that includes General Partnership
Company (Gomei-Kaisha), Limited Partnership Company (Goshi-Kaisha), Limited
Liability Company (LLC,Godo-Kaisha).
The major difference between these corporate forms is based on how and to what extent
a shareholder or partner is liable for the company’s debts and obligations, or whether
investment and management is from the same source or not.
Joint Stock Company
The Joint Stock Company (Kabushiki Kaisha, or KK) is the most widely used form inJapan. It is also used by foreign investors for a wholly owned subsidiary or joint venturewith Japanese partners. It consists of a large number of shareholders whose liabilities
are limited to the capital invested. The incorporation procedure and management,
accounting, and auditing requirements of a joint stock company are provided in detailunder the Companies Act. In general, a joint stock company has greater advantages inbusiness than other forms. For example, a joint stock company enjoys financial andbusiness credibility and a better public image.
Establishment of a joint stock company used to have a minimum capital requirementof ¥10 million, but the regulation changed which made it possible to establish acompany with any amount of capital.
A company can be incorporated in Japan by non-resident of Japan alone.
Membership Company
The Membership Company (Mochibun-Kaisha) includes following three forms,
General Partnership Company (Gomei-Kaisha), Limited Partnership Company (GoshiKaisha), Limited Liability Company (Godo-Kaisha: GK).
While the management of joint stock companies is definitely detached from theinvestors, membership companies have the characteristics that the investors are also
directors who carry out operation, that is to say, investment and management is fromthe same source.
The merit of these types of companies is that they are established by investors at thesame time directors who enjoy mutual trust, thus they are good for small business.
General Partnership Company (Gomei-Kaisha) and Limited Partnership Company(Goshi-Kaisha) exist in the old Commercial Act. They enjoy the merits of internal self3

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governing and simple formalities when established. But because of the unlimited
liabilities of directors, few of them exist at present.
On the other hand, Limited Liability Company (Godo-Kaisha) is an organization form,
which makes up the disadvantage of Gomei-Kaisha and Goshi-Kaisha, keeping themerits of Membership Company and allowing the limited liabilities of directors.
Difference between Joint Stock Companies (KK) and Godo Kaisha GK
Form

KK

GK(Godo Kaisha)

Investors

Stock holders

Directors with limited liabilities

Indispensable board

Stockholders’ meeting,Board of directors,

Directors

Directors

Business operator

Managing director etc.

Executive employee

Minimum

1 JPY

1 JPY

Change in articles ofSpecial resolution in

Agreement from all directors

incorporation

stockholders’ meeting

capital requirement

1-2) Branch of foreign company
Registration
A foreign investor may set up a branch of a foreign company to engage in any
commercial activities in Japan by filing a notification with the government office under
the Foreign Exchange and Foreign Trade Law. To conduct business in Japan, a branchmust also be registered under the Commercial Registration Law. Although a branch
operation is acceptable in any business category, it is considered most suitable forpurchase, sales and service operations. A branch of a foreign company must be
established in compliance with the legal requirements of the Companies Act. Under theAct, a foreign company continually engaging in commercial transactions in Japan must
appoint a representative in Japan (branch manager), set up a place of business andregister with the local registry office of the Legal Affairs Bureau of the Ministry ofJustice. The registered representative is authorized under Japanese law to perform allacts on behalf of the branch. If the branch manager changes, that change must be
registered.
Conversion to a subsidiary
Converting a branch to subsidiary is legally possible, but requires careful consideration.
It is a rather time-consuming and costly process. The foreign corporation may set up a
subsidiary and then transfer the branch’s assets to the subsidiary. If a foreign investor
plans to conduct business in Japan over a long period, setting up a subsidiary at the4

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outset may be more desirable.
1-3) Representative office

A representative office is not a legal entity and is not required to obtain commercial
registration. Consequently, foreign investors can generally open a representative officewithout filing any report with government ministries. (The opening of an office of aforeign bank, foreign securities company or foreign insurance company, however,requires notification to the Ministry of Finance.) The only document required for its
establishment is a notification to the relevant tax office in the case of the establishmentof an office employing salaried workers. Also joining social insurance may be requiredin the case of employing salaried workers.
Because of its lack of legal status, a representative office is not allowed to engage inany commercial transactions nor set up a bank account. Its activities are limited solely
to purchasing or storing items and other liaison activity like gathering information,market research and publicity etc. for the head office of a foreign corporation; arepresentative office is not subject to Japanese corporate tax for its liaison activities onbehalf of a foreign corporation. If its performance was beyond those permitted,
however, a representative office could become a taxable entity.
A representative office can bring in funds as operating expenses without restriction.
The restrictions imposed on the activities of a representative office make that status
generally suitable only for temporary operations for a foreign investor who intends toestablish a branch or subsidiary in the near future. Therefore this approach is often usedby a foreign investor who requires a great big deal of market research before developing
a legally recognized branch operation.
The tax authorities may review the activities of the representative office to determine
whether they are merely auxiliary or preparatory. If they were recognized as businessactivities, the Japan source income would be subject to Japanese corporate income tax.
1-4) Company (subsidiary) vs. Branch
The main differences in the tax treatment between Japanese branches and Japanesesubsidiaries are as follows.
Accounting for payments made on behalf of parent or headquarter
Expense incurred by the head office for the benefit of a Japanese branch may beallocated to the Japanese branch and deducted by the Japanese branch on its Japanese
tax return.
In case of company (subsidiary), a subsidiary can account expenses paid to its parent
company as management fee or royalty based on a contract between the subsidiary and5

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the parent.
Dividends
Dividends paid by a Japanese subsidiary to a foreign shareholder are subject toJapanese withholding tax while remittance of branch profits after tax to its head office
in a foreign country is not subject to Japanese withholding tax.
Interest or royalty
Interest or royalty paid by a Japanese subsidiary to a foreign corporation is deductible
for the Japanese subsidiary unless it is excessive, although it is subject to Japanese
withholding tax.
On the other hand, interest or royalty paid by a Japanese branch to the foreign head
office is not tax deductible.
However, if it can be demonstrated that the head office has paid interest on a loan or
royalty for industrial property, etc. that is utilized in the Japan branch’s operation, suchinterest or royalty may be deducted by the Japanese branch although such interest or
royalty is subject to Japanese withholding tax.
Legal Status
Under the Japanese law, the branch does not have its own legal status, but is treated asa part of the legal status of the foreign corporation. In other words, branch is not a
Japanese company but it is a part of foreign company. Therefore, in general, theresponsibility for claims and debts arising from the activities of the branch will
ultimately belong directly to the foreign company. If you would like to avoid suchrisks of Head office, setting up subsidiary company in Japan is one of the solution.
BranchCompany (subsidiary)

Possible if not excessive

Possible if not excessive

Remittance of after-tax

Subject to JapaneseDividends

profit not subject toJapanese withholding tax

withholding tax

Interest or

Not tax deductible inTax deductible, subject toroyaltyprinciple

withholding tax

Attribution of
responsibility

Branch and overseas
company（Head office）

Company (subsidiary)

Accounting
for expenses

Regarding taxation on income earned by Japan branch of a foreign company,“Attributable income principle” based on OECD model tax treaty is applied.
The “Attributable income principle” dictates that income attributable to a branch shouldbe the amount that could be earned by the branch if it were a separate and independent
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entity, and only such income should be taxable in Japan. In ‘’ Attributable income
principle’’, transaction with third party , assets, risk should be attributed to the branch,based on function and fact made by the branch. And intercompany transactions between
the head office and the branch office is recognized as a transaction done by arms-length
price.
1-5) “105%” Service Company
However, the tax authorities might not challenge an arrangement where a legally
separate entity in Japan provides service to other legally separate foreign
corporation(s) for a reasonable service fee determined under a written agreement (e.g.,a service fee may range from 105% to 110% of the expenses incurred for the said
services).
When a Japanese subsidiary of a foreign parent company uses this scheme and charges
a service fee to the parent company, the transaction will be exempt from consumptiontax (zero-rated supply) and as a result the subsidiary may be able to reclaim
consumption tax paid on purchases (input tax).
However, this may not apply to a Japanese branch of a foreign company because suchtransaction may be considered as an internal transaction, not as an export of service.

2) The report for corporate tax
Please note that each report in the following table can be applied to either companies
or branches unless otherwise stated separately.
Reporting for tax purposes is required after company establishment or opening branch
for legal purposes. Following is a list of documents to be filed with the tax offices.

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National Tax Office (See *1)

Documents necessary

Filing due

Report on establishment of company

Copy of articles ofWithin 2 months after(Domestic corporation)

incorporation

establishment

2. Report on establishment of a

Copy of articles ofWithin 2 months after

foreign corporation

incorporation in Japanesecommencement(Foreign corporation)
3. Application for approval of filing aWithin 3 months after

blue tax returnNone

establishment or the first fiscal
year-end, whichever is earlier

4. Application for extension of

The end of the fiscal year

corporate tax return filing due date—None

if necessary (See*2)
5. Report on commencement ofNoneWithin 1 month after paying

payroll payment

salary6. Application for approval of paying

Any time if the number ofwithholding tax by every July 10 andNone

employees is less than 10

None

When first tax return is due

None

Same as 7 above

January 10
7. Report on method of depreciation
to be used
8. Report on method of evaluation of
inventory assets
Local Tax Office(See *3)

Documents necessary

9. Report on establishment of

Copy of Articles ofWithin 15 days after starting

company or branch

Incorporation (AOI) andbusiness (See *3)

Copy of registry
10. Application for extension ofSame as 4 above

enterprise and inhabitant tax returnNonefiling due date—if necessary*1 In addition report on consumption tax may be necessary.
*2 A company ,which applies to the application of extension of corporate tax return filing due, canalso apply for extension of filing due regarding consumption tax return.
*3 Required for both prefectural tax and municipal tax.
*4 It depends on autonomy; could be within one month after starting business.

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2. Corporation tax
1) Closing accounts and filing tax returns

1-1) Accounting Period
The accounting period for corporation tax purposes is the accounting period provided
on the Articles of Incorporation of the corporation. However, the period must notexceed 12 months. The Japan branch of a foreign corporation must use the sameaccounting period as the head office. Many Japanese corporations generally decide
their accounting period from April 1st to March 31st, but the company can choose any
accounting period.
1-2) Accounting income vs. Taxable income
Accounting for tax purposes follows, in principle, accounting principles generally
accepted in Japan. An appropriately determined accounting standard must be
consistently applied.
There is generally no significant difference between the pre-tax income foraccounting purposes and the taxable income for corporate income tax purposes.
However, in order to determine income for corporate tax purposes, certain
adjustments must be made to the pre-tax accounting income.
For example, if expenses such as for entertainment, depreciation, donation andexecutive remuneration exceed tax limits, they would be added to taxable income.
1-3) Filing and paying income tax
A corporation must file tax return and pay the tax within two months after the end ofits fiscal year. One month extension would be permitted for Japanese companies, if theapplication is submitted by the due. A few more month extension may be possible forforeign corporations.
Except for newly established corporations, if the fiscal year is longer than six months,
the corporation must file an interim return within two months of the end of the first six
months and make an advance payment at the time of filing the interim return of either
50% of its prior year’s tax liability or 100% of its estimated tax liability for the first six
months of the current year.
1-4) “Blue form Return” system
There is a “Blue form Return” system in order to encourage taxpayers to declaretaxable income based upon accurate accounting records.
This system provides special benefits such as taking special depreciation,
establishment of certain reserves, carry forward of tax losses*, carry back of tax
losses and claiming tax credits under the Special Taxation Measures Law. In addition,a tax examination is conducted based upon the taxpayer's books of account.
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All types of taxpayers (including foreign corporations) may apply for permission touse a blue form return. To be permitted, the taxpayer must satisfy certain
requirements such as keeping proper accounting books. But once it is approved and aslong as the accounting system is in order, the taxpayer can usually receive special
benefits above.
For a new corporation or a new Japan branch, an application must be submitted
within 3 months of the date of establishment or the last day of the first accounting
period, whichever comes first.
* The expiry period for loss carry forward is 10 years. Maximum amount of
deduction is 100% of income for small and medium sized enterprises. For large
companies, it is 50%.

2) The tax rate2-1) Corporation tax
The taxable income for corporation tax purposes is calculated based on the pre-tax
income of the income statement of the corporation with needful adjustments.
Corporation tax is calculated by applying the corporation tax rate to the annual
taxable income.
Certain tax credits, if applicable, are deducted from the computed corporation tax.
Corporation tax rates in the case of ordinary corporations
AnnualtaxableincomeCapital 100millions
or less

Annual taxable income
8 million or less

15.00% (*1)

Annual taxable income
more than 8 millions

23.20%

Capital more than
100 millions (*2)

23.20%(*1) The reduced tax rates for taxable income for fiscal years beginning before 31st March 2023
(the original tax rate is 19%). However, 23.2% will be applied if annual average income over 3
preceding years exceeds 1.5 billion yen.
(*2) A subsidiary whose parent company’s or ultimate parent company’s capital is 500 million yen
or more is included here even if the subsidiary’s own capital is 100 million or less.
(*3) In addition to the above (national) corporation tax, local corporation tax will be charged at
10.3% of the amount of the (national) corporation tax.

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2-2) Local inhabitants’ tax
Local inhabitants’ tax (i.e., prefectural tax and municipal tax) consists of the tax
based on the corporate income tax liability plus per capita tax.
The per capita tax is determined based on the paid-in capital (including capitalsurplus) and the number of employees.
The tax based on the corporation tax liability is calculated by applying prefectural tax
rates and municipal tax rates to the amount of the corporate income tax allocated eachto the prefecture and municipality based on the number of employees.
Per capita corporate inhabitant tax
The capitalamount

The number of
employees ofthe local office

Above 5000M
Above 1000M
5000M&below
Above100M
1000M&below
Above 10M
100M&below
10M&below

Prefectural tax＋Municipal tax
Standard tax
rate

Tokyo

Osaka

Above 503,800,000

3,800,000

4,600,000

50&below

1,210,000

1,210,000

2,010,000

Above 50

2,290,000

2,290,000

2,830,000

50&below

950,000

950,000

1,490,000

Above 50

530,000

530,000

660,000

50&below

290,000

290,000

420,000

Above 50

200,000

200,000

225,000

50&below

180,000

180,000

205,000

Above 50140,000

140,000

140,000

50&below

70,00070,00070,000Applicable tax rate is determined by the regulation of local public body.
(The applicable tax rate may be higher than the standard tax rate)

Tax based on corporation tax
Taxable base is the amount of national corporation tax.
Any corporation

Municipal tax*

Prefectural tax

6%1%(Note1)
Applicable tax rate is determined by the regulation of local public body.
(The applicable tax rate may be higher than the standard tax rate)(Note2)
Regarding a company with paid-in capital over JPY100,000,000, higher tax rate higher
than standard is applied.

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2-3) Enterprise tax and Special local corporation tax
Corporations are also subject to prefectural enterprise tax.
Net taxable income for enterprise tax purposes is not necessarily the same as that forcorporation tax purposes.
For example, for enterprise tax purposes, foreign source net business income earned
through a fixed facility of business abroad is excluded from taxable income.
Also, the reserve for losses from overseas investments and the special deduction forcertain overseas technical service transactions provided for in the Special Taxation
Measures Law are not available.
The enterprise tax rate depends on the amount of taxable income allocated to eachprefecture and is determined by each prefecture.

a)Company with capital of over 100M
Enterprise taxes (*1)
Added value Levy

Capital Levy

Income Levy

1.2%

0.5％

1.0

Special local corporation tax
260％ of base income tax levy(*3）b)Company with capital of 100M or lessEnterprise taxes (*1)

ReducedTax rate

Annual income
thresholdIncome levy

Up to 400M

3.5%

Over 4M up to 8M

5.3%

Over 8M

7.0%

Proportional tax(*2)

7.0%

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Special local corporation tax
37% of base income tax levy (*3）

*1. The rate in the above table is standard tax rate. Each prefecture determines the applicable tax
rate which is limited to the maximum rate of 1.2 times of the standard tax rate.
*2. Proportional tax rate shall be imposed on a company which has offices in more than 3
prefectures and a capital of 10M or more.
*3. base income levy amount means the income levy tax amount which calculated by standard tax
rate.

2-4) Effective rate of corporation tax (Small or medium size company)
The effective tax rate including corporation tax, local corporation tax, residential
corporation tax, enterprise tax and special local corporation tax is as follows;
FY beginning on or after
1st April 2022

29.74％

Capital more than 100 million yen*
Capital at or
below
100 million
yen

Annual income at or

25.89％

below 4 million yen
Annual income between above 4
million and at or below 8 million

27.57％
33.58％

More than 8 million* Note: A subsidiary whose parent company’s or ultimate parent company’s capital is 500 million
yen or more is included here even if the subsidiary’s own capital is 100 million or less.

3) Depreciation
3-1) Depreciable assets and depreciation
Tangible assets used for business (e.g. buildings, building improvements, structures,
tools, and motor vehicles) and intangible assets such as software generally lose theirvalue as time passes. These types of assets are called depreciable assets. On the other
hand, assets that do not lose value such as land or antiques are not subject todepreciation.
The acquisition cost for depreciable assets shall be allocated periodically over theusable period instead of being expensed at the time of acquisition. A number ofusable years are designated by law for each type of asset.
3-2) Depreciation methods
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There are two types of depreciation method, the “straight-line method” and the“declining-balance method”. A company has to report to the tax office which method
will be used for each asset. If it’s not reported, the declining-balance method shall beapplied. Building and intangible asset which is obtained after April 1st 1998,
equipment affixed to buildings(建物付属設備) and Structure(構築物) which is
obtained after April 1st 2016 must be depreciated by the straight-line method.
The table below explains the details.
Depreciation formulas
FormulaStraight-line
methodAcquisition value × depreciation rate
Un-depreciated cost at the beginningof the fiscal year × depreciation

Decliningbalancemethodrate(*2).
Once the depreciated cost falls below
the insured amount(*3), the formula“revised acquisition value(*4) ×revised depreciation rate(*5)”shall be
used instead.

(*1) Different depreciation rates are applied for assets acquired after April 1, 2012 and assets acquired
before that date.
(*2) Different depreciation rates are applied to asset acquired after 1st April 2012 and asset acquired
before 1st April 2012.
(*3) Acquisition cost × a specific rate according to the number of usable years.
(*4) Un-depreciated cost of the first year that the original depreciation cost falls below the insured
amount.
(*5) The rate depends the usable period of the asset such that the same depreciation cost would beapplied in the future.

If the tangible asset was acquired in the middle of the fiscal year, the number of monthsof actual use is subject to depreciation. For certain tangible assets, the special
depreciation shall be applied according to the Act on Special Measures Concerning
Taxation.
3-3) Usable period
Japan Tax Law defines a number of usable years depending on asset type, structure,and purposes of use. If usable years an asset is not used for more than one year or
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costs more than ¥100,000, it can be expensed in the year of acquisition.
Table of depreciation rates(apply for assets acquired after April 1, 2012)

NumberStraight-

Declining-balance method

UsableStraight

of

line

Rate

Years

-line

UsablemethodReviseInsuredd raterate

Declining-line method
RatemethodRevisedInsured

rate

rate

Years
2

0.500

1.000

-

-

18

0.056

0.111

0.112

0.03884

3

0.334

0.667

1.000

0.11089

19

0.053

0.105

0.112

0.03693

4

0.250

0.500

1.000

0.12499

20

0.050

0.100

0.112

0.03486

5

0.200

0.400

0.500

0.10800

21

0.048

0.095

0.100

0.03335

6

0.167

0.333

0.334

0.09911

22

0.046

0.091

0.100

0.03182

7

0.143

0.286

0.334

0.08680

23

0.044

0.087

0.091

0.03052

8

0.125

0.250

0.334

0.07907

24

0.042

0.083

0.084

0.02969

9

0.112

0.222

0.250

0.07126

25

0.040

0.080

0.084

0.02841

10

0.100

0.200

0.250

0.06552

26

0.039

0.077

0.084

0.02716

11

0.091

0.182

0.200

0.05992

27

0.038

0.074

0.077

0.02624

12

0.084

0.167

0.200

0.05566

28

0.036

0.071

0.072

0.002568

13

0.077

0.154

0.167

0.05180

29

0.035

0.069

0.072

0.02463

14

0.072

0.143

0.167

0.04854

30

0.034

0.067

0.072

0.02366

15

0.067

0.133

0.143

0.04565

40

0.025

0.050

0.053

0.01791

16

0.063

0.125

0.143

0.04294

50

0.020

0.040

0.042

0.01440

17

0.059

0.118

0.125

0.040383-4) Special tax treatment for small sum depreciable assets
Small business (Consolidated company, fiscal year in which the number of regular
employees exceeds more than 500. Also, fiscal year in which annual average income
over 3 preceding years exceeds 1.5 billion yen will be excluded.), that use the “Blueform Return” system and acquired depreciable assets (*) amounting less than 300,000
yen can depreciate 100% of acquisition cost in the fiscal year of acquisition. The
maximum total amount of small sum depreciable asset each year is 3 million yen.
In the case of assets over 100,000 yen and less than 200,000 yen, the depreciation
expenses can be allocated equally over 3 years with no scrap value.
(*)Assets for leases are likely to be excluded unless leasing is a major part of thebusiness. (When this will come into force is yet to be determined.)
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4) Expenditures that cannot be allocated as expense4-1) Entertainment expenses and donation expenses
Under the Corporation Tax Law, the tax-deductibility of entertainment expenses anddonation is limited.
1) The entertainment expenses of a company whose capital at the end of the businessyear does not exceed ¥100M will be deductible up to ¥8M. Over 8M will not be
deductible.
2) Except company with paid-in capital over JPY10,000,000,000, eating cost will be
deductible up to 50% of its total amount.
(Therefore, small and middle-size companies can select 1) or 2) whichever isfavorable.)
Economic profit given free of charge by a corporation to public welfare organizationor other facility, which do not directly benefit the business of the corporation, isregarded as donations for tax purpose.
The allowance of deductible donations is generally limited to the sum of 0.625% oftaxable income (before deduction of donations) plus 0.0625% of paid-in capital andcapital surplus of the corporation.
The paid-in capital of a Japan branch of a foreign corporation, which is applied in
calculation of the limit of tax deductible entertainment expense and donation, iscalculated as the paid-in capital of the foreign corporation multiplied by the ratio of
the total assets of the Japan branch over the total assets of the foreign corporation.
4-2) Directors’ remuneration
There are restrictions on the tax-deductibility of directors’ remuneration.
The board members of a corporation are considered directors under the Corporation Tax
Law and they are classified into two groups: directors without employee status anddirectors with employee status.
For tax restriction purposes, the remuneration for a director with employee statusconsists of both the compensation earned as a director and as an employee.
A person appointed as a branch representative in Japan of a foreign corporation isnormally regarded as an employee, rather than a director, unless he is a board memberof the foreign corporation.
A director's regular salary is tax-deductible unless it is in excess of the amount that the
tax authorities consider reasonable. If the amount of the director's remuneration isprovided for in the articles of incorporation or authorized by a resolution at a generalshareholder's meeting, any amount in excess of this authorization is not deductible.
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Directors’ bonuses can be deductible on condition that the corporation submits a reportaccordingly to tax authority in advance. However, the bonus to a director with
employee status may be deductible if the bonus is paid at the same time as other
employees. However, the deductible amount is limited to the amount of the bonus
paid to a comparable employee.
Generally, any economic benefits given to directors are regarded as either salary orbonuses. Economic benefits include transfers of assets to directors on advantageous
terms, free provision of company houses to directors, interest-free loans to directors,
assumption of liabilities on behalf of directors, etc. However, fixed amounts ofeconomic benefits paid on a monthly basis are fully deductible unless they areexcessive.
Further, based on corporation tax act, in a case where the amount of directors’
remuneration is changed by a resolution of the general shareholder’s meeting held
within 3 months from the beginning of the fiscal year, the total amount can be
deductible.
Therefore, when the monthly remuneration is changed after the period, the amountwhich exceeds the original amount cannot be deductible in the fiscal year.

5) Group taxation regime5-1) Outline of group taxation regime
In Japan, group taxation regime is applied to 100% owned corporate group. 100 %ownership means that a company owns 100% shares of the other company.
Mechanism of group taxation regime regards corporations in a 100% group
corporations as a single legal entity, having two significant contents; Specifictransactions between corporations in the group are taken an internal transaction. And
the amount of capital of a parent company is used to determine applicability of special
provisions for a small corporation.
5-2) Corporation subject to group taxation regime
Group taxation regime is applied to 100% owned group corporations, so-called
complete dominance relationship. Complete dominance relationship means direct orindirect 100% ownership of share. If shares owned by stock options and shares ownedby the employee stock ownership plan are less than 5 % of the outstanding shares, thoseshares are exclude in determine of percentage of the ownership.
Complete dominance relationship also includes mutual relationship between
subsidiaries of the parents companies, if one parent company has 100% owned
relationship with other parent company.
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5-3) Provisions of Group tax regime
The following provisions apply to corporations subject to Group tax regime.
When an asset is transferred between group corporations, the transfer profit or loss isdeferred until the asset is transferred out of the corporate group.
Donation between group corporations is excluded of tax deductible expenses and Gift
receipt profit is excluded of taxable income. This rule, however, is not applied to a
corporate group which is 100% owned by an individual owner.
Total amount of the dividend from 100% owned subsidiary stocks is not included intaxable income.
In Japan, a small corporation, whose capital is 100 million YEN or less can benefit
from several special provisions as below in its tax calculation.
- Reduced rate of corporation tax- Non-application of the special tax rate of a particular family company- Exceptions to the deductibility of entertainment expenses- Legal provision rate of allowance for doubtful account- Refund due to loss carryback
If 100% shares of the small corporation are owned by a company, whose capital is 500
million YEN or more, the special provisions can be inapplicable for the small company.
5-4) Submission of group structure diagram
It is a requirement of a domestic company to submit its group structure diagram withthe tax return where the company has 100% controlling interest in other company or
the company is under control of the other, i.e. subsidiary or parent company etc. The
diagram should illustrate systematically the investment relationship within the group.
It should be prepared as at the end of the fiscal year and should also include the details
such as the name and address of the company, the registered tax office, the name of therepresentative, the type of business, the amount of capital and the accounting year end.
A separate sheet can be prepared for these details in case of large group companies andattach to the main diagram.
Below is an example of the group structure diagram;

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6) Preferential treatments under the corporation tax
In the case a company which invests in facilities or establishes expansion of theemployment can meet certain requirements, preferential treatment shall be applied under
the corporation tax law. The introduction of preferential treatment is as follows.
6-1) Capital investment tax incentives for SMEs (see*1 below)
Blue return filing SMEs (see*2 below) operating certain businesses are qualified if thefollowing condition is met.
(Condition)
When a company acquires the qualified investments that are capital expenditures formachines etc…, and uses for business in Japan by March 31st, 2025.
(Treatment)
The new proposal provides for 30% of special depreciation or 7% of tax credit for theacquisition cost of machinery (see *3 and *4 below).
6-2) Capital investment for Management Capability Enhancement for SMEs
Blue return filing SMEs (see*2 below) operating certain businesses are qualified if thefollowing condition is met.
(Condition)
When a company acquires an equipment which contributes to the improvement of the
productivity and uses it for designated businesses in Japan by March 31st, 2025.
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(Treatment)
The new proposal provides for 100% of immediate depreciation or 7% (see *5 below)of tax credit.
(Supplementary note)
Eligible assets should be new assets such as machinery, equipment, tools, furniture,
fixtures and software that are acquired in accordance with management capability
improvement plan approved by the SMEs Management Capability Enhancement Act,
possessing production capacity, assets that are not for leasing out, and above certain
price.
6-3) Salary growth (for SMEs)
Blue return filing SMEs (see*2 below) are qualified if the following condition is met.
(Condition)
For fiscal years beginning from during April 1st,2022 to March 31st, 2024, the salarypaid to domestic employees must increase by at least 1.5% compared to the salary paidin the previous fiscal year.
(Treatment)
Tax credit is 15% of the amount of the increase in salary paid in the fiscal year fromprevious year (additional tax credit is available if certain conditions are met) (see *4
below).
6-4) Salary growth (for both Large companies and SMEs)
Blue return filing companies are qualified if all the conditions below are met.
(Condition)
For fiscal years beginning from during April 1st,2022 to March 31st, 2024, the salarypaid to employees in a continued employment (Employment Insurance General Insured
Persons only) must increase by at least 3% compared to the salary paid in the previous
fiscal year.
(Treatment)
In principle, a tax credit of 15% (In certain cases, an additional tax credit is available.)of the increase in salaries and wages paid to domestic employees.
(Supplementary note)(*1)The scheme cannot be used in a fiscal year where average income over the preceding 3 fiscal years
exceeds 1.5 billion yen.
(*2) SMEs for the incentives purposes are defined as corporations, whose paid-in capital is JPY 100
million or less (not owned 50% or more by a corporation whose paid-in capital is more than JPY
100 million, or two-thirds or more by corporations whose paid-in capital is more than JPY 100
million, etc.)

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Doing Business in Japan 2023(*3) Companies with paid-in capital of JPY 30 million or less are qualified for tax credit(*4) The limit is up until 20% of the corporation tax for the current fiscal year(*5) For the company whose capital is JPY 30 million or less, it is 10%.

7) Documentation for TP taxation
Related with transfer pricing taxation, “Country-by-Country Report” (CbC Report),“Master File” and “Local File” should be prepared by principally large corporation.
7-1) CbC Report and Master FileCbC Report and Master File should be prepared and filed by large corporation who has
more than 100 billion JPY of its consolidated revenue and its group companies that areincluded in its consolidated financial statements.
7-2) Local File
A company who meets following condition must prepare Local File (which explains how
to determine Transfer Price as Arm’s Length Price (ALP))<condition>
A company having transactions with a related party that exceeded a total transaction
amount in the preceding tax year of 5 billion JPY or with intangible property transactions
with a related party that exceed a total transaction amount in the preceding tax year of 300
million JPY.
Local file must be prepared by corporate tax filing due date and must be kept for 7 years.

8) Tax treaty
Tax treaty is “Convention between 2 countries for the avoidance of double taxation and theprevention of fiscal evasion with respect to taxes on income”.
Tax treaty is mainly designed for prevent double taxation regarding Internationaltransactions between 2 business enterprises/individual, dividend, interest, royalty fee etc…
And it is also designed for prevent international tax evasion.
The government of Japan , as of April 1st, 2022, has been made tax treaties with 149
countries (region) with 82 treaties.

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Source data: Ministry of Finance Japan
https://www.mof.go.jp/english/tax_policy/tax_conventions/international_182.htm«84 conventions, etc. applicable to 153 jurisdictions; as of June 1, 2023»（see notes 1 and 2）(Note 1) Since the Convention on Mutual Administrative Assistance in Tax Matters is amultilateral convention, and the tax conventions with the former Soviet Union and with theformer Czechoslovakia were succeeded by more than one jurisdiction, the numbers ofjurisdictions do not correspond to those of tax conventions, etc.
(Note 2) The breakdown of the numbers of conventions, etc. and jurisdictions is as follows:・Tax convention (a convention principally for the elimination of double taxation and theprevention of tax evasion and avoidance); 61 conventions applicable to 71 jurisdictions.
・ Tax information exchange agreement (a convention principally for the exchange of
information regarding tax matters); 11 conventions applicable to 11 jurisdictions (Thesejurisdictions are marked with (*) above).
・Convention on Mutual Administrative Assistance in Tax Matters; Entered into force by 95
jurisdictions (not including Japan) (These jurisdictions are underlined above) and applicable
to 112 jurisdictions due to the extension of the application of the Convention (Jurisdictions towhich the Convention is extended are underlined above with dotted lines). 46 jurisdictions outof 112 do not have a bilateral convention with Japan.
・Private-sector tax arrangement with Taiwan; 1 jurisdiction(Note 3) As for Taiwan, a framework equivalent to a tax convention is established in
combination of (1) a private-sector tax arrangement between the Interchange Association

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(Japan) and the Association of East Asian Relations (Taiwan) and (2) Japanese domestic
legislation to implement the provisions of the private-sector tax arrangement in Japan.(Thetwo associations are now named Japan-Taiwan Exchange Association (Japan) and TaiwanJapan Relations Association (Taiwan), respectively.)

3. Other taxes for corporation
1) Consumption tax
1-1) How it works
Consumption tax is a value-added tax which is collected at several stages. It is leviedon the consumption of goods and services and charged by sellers at the time of the saleof goods or the provision of services.
Periodically, sellers must total the tax collected on sales, deduct from this the tax paidon purchases and pay the balance to the tax authorities.
The result is that the consumer ultimately bears the tax, but the tax has been collected
in a series of installments from each business enterprise involved in the chain of
production and distribution depending on their value added. It is also designed toeliminate multiple taxation at each stage of manufacture distribution by allowing forthe credit of consumption tax on purchases against that on sale.
（Note）Consumption tax on taxable purchases relating to certain residential rentalbuildings acquired on or after 1 October 2020 will be excluded from the tax credit.
1-2) Subject of consumption tax
Taxable transactions
Taxable transactions are domestic transactions and import transactions. Overseas
transactions are basically out of scope.
Domestic transactions mean transfers of assets leases of assets and the provision ofservices which are conducted for consideration and as a business by the enterprises.
Foreign cargo taken over from bonded areas is considered to be import transactions.
(Provision of electronic services from overseas)
Provision of electronic services, such as e-books or digital music etc…, from overseas
companies are classified as taxable transactions. If it is provided from overseas
company to domestic consumers (B to C transaction), then overseas company is liable
to pay consumption tax. If it is provided from overseas company to domestic company,
then domestic company is liable to pay consumption tax (reverse charge).
Tax exempt transactions
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consumption tax (i.e., zero-rated). However domestic transportation charge, warehouse
charge, domestic hotel charges, etc… will not be exempted even you pay to overseas.
Non-taxable transactions
Transactions which are deemed not to be properly taxable by their nature arecategorized as non-taxable transactions.
There are 17 kinds of consumption tax exempt transactions, namely, sale and leasingof land, sale of securities, sale of means of payment such as money and virtual
currencies, interest from deposit and loan, sale of postal stamps and gift vouchers, fees
for registration and licensing paid to the government and local public bodies, foreignexchange charges, medical services under social security system, nursing care andsocial welfare services, educational services and certain textbooks, housing rent etc.
(Note) However, from 1 April 2020, even if the purpose of the loan is not clearly statedin the contract, the loan will be exempt from tax if it is clearly for residential use,
judging from the circumstances of the loan.
Out of scope transactions
Transactions corresponding to not mentioned above are not subject to consumption tax,
including tax, salary, donation, compensation for damages etc…
Classification
Transfer ofTransaction byEnterprises(businessownerindividual andcorporation)assets or the

17 items

Non taxable
transactions

Domestic

provision of

Other thanTaxable transactionstransactions

servicesabove

Tax exempted

Non transfer of assets or provisionof services
Non-domestic transactions

out of scope
Out of scope
Non taxable

Import transactionstransactions
Taxable transactions

1-3) Tax payer
With regard to domestic transactions, business enterprises who sell taxable assets haveto file consumption tax return. With regard to import transactions, business enterprises
and persons (including the individual who is not an entrepreneur) who take over taxable
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freights from the bonded area, have to pay consumption tax return.
Business enterprises whose yearly taxable sales amount of the base period (Note 1) was
equal to 10 M yen or less 10 M yen, then they become tax-exempt enterprise.
Tax exempt enterprises are not liable to pay consumption tax. However tax exempt
enterprises can not recognize consumption tax paid from purchases or importtransactions. So, the enterprises can strategically select to become a taxable enterpriseby submitting a notification to Tax office, if it has a large capital investment plan andtax paid on purchase likely exceeds tax received on sales. By doing so, the enterprise
can claim the refund of tax paid on purchases.
(Note 1) The two fiscal years before that year
(Note 2) Even if base period’s taxable sales is 10M or less, if both the taxable income and totalsalary of the first 6 months of the previous period exceed 10M yen, then the enterprises will not be
exempt from consumption tax.

Start-up enterprises are exempt from consumption tax during their first and second
business years, because no taxable sales occur for the relevant base periods. The
enterprise, however, is not exempt from tax during its first and second business years,
if its paid-in capital is ¥10 million or more at the beginning of the business year. But
they may become tax payer from 3rd business year if the first year’s taxable sales exceed
10M yen.
1-4) Computation of consumption tax
The consumption tax rate is 10% (national tax 7.8%, local tax 2.2%).
A reduced tax rate 8% (6.24% for national tax and 1.76% for local tax) applies to foodand beverage products (excluding alcoholic beverages and food service) and to
newspapers published more than twice a week (based on subscription contracts).
Basic formula of tax calculation is as follows:［Tax due］= ［Consumption tax on sales］ – ［Consumption tax on purchase］
Taxable sales amount is total amount of taxable sales transactions in Japan and Export
tax exempt transaction. Taxable purchase amount is total amount of taxable purchasein Japan and taxable import goods removed from a bonded area. There are 2 tax systemfor computation of consumption tax on purchase to be credited from consumption tax
on sales (Purchase tax credit), Basic tax system and Simplified tax system.
1-5) Basic tax system
In basic method, taxable sales ratio is applied for computation of purchase tax credit.
Taxable sales ratio = TAXABLE SALES amount / SALES amount25

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TAXABLE SALES amount is the total amount of transfer of taxable assets in Japan
plus Export sales. SALES amount is the total amount of transfer of taxable assets inJapan plus Export sales plus Non-tax transaction.
If taxable sales ratio is 95% or more, and also annual taxable sales amount is less than
¥500M, full amount of consumption tax on purchase can be credited. If it is less than
95% or annual taxable sales amount is over ¥500M, purchase tax credit is calculated
by either Itemized method or Proportional method.
Taxable sales ratio is equal or more than 95%,
andPurchase
Annual taxable sales is less than 500M JPY
tax
Taxable sales ratio is less than 95%,
creditorAnnual taxable sales is over 500M JPY

100% credit

Itemized method (A)Proportional method (B)(A) Itemized method: Expenses are categorized in three groups: expenses corresponding
only to ［①Consumption tax corresponding to taxable sales ］, ［②Consumption
tax corresponding to non-taxable sales ］, and ［➂Consumption tax corresponding
to both taxable and non-taxable sales ］. Purchase tax credit is calculated as below:① + (➂ × [Taxable sales ratio])(B) Proportional method: Purchase tax credit is calculated as below:（① ＋ ② ＋ ➂ ) × [Taxable sales ratio]
Once a company selects to use Proportional method, it is required to apply this method
continuously for 2 years. It is necessary to consider which method would be moreadvantageous for at least two years. Company which calculates purchase tax credit byusing Itemized method, may select to apply the Proportional method in the next year.
Preservation of both books recording the facts of payment of expenses and invoices or
receipts as evidence is indispensable to have tax purchase credit in preparation of
consumption tax return.
Company is required to book consumption tax amount by each different tax rate (10%and 8%), along with original purchase invoices (separate invoice storage method).
From October 2023, Invoice method will begin in which every company is required tohave company number on each invoice. (Please refer 1-6) Qualified invoice-based
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1-6) Qualified invoice-based method (Invoice system)
1-6-a) Registration as the issuer of qualified invoice
With implementation of the qualified invoice-based method (Invoice system), only theoperator registered as the issuer of qualified invoice (Registered operator) can issue thequalified invoice
The operator to be registered need to submit the application of registration. If the operator
would like to be registered as of 1st October 2023, the operator has to submit the application
by 30th September 2023. After the submission the tax office will inform the operator its
registration number and the registration number will be released on National Tax Agency’s
publication site.
1-6-b) Qualified Invoice / Existing invoice (current system)
A qualified invoice is a document by which a seller informs a buyer the applied rate of
consumption tax and the amount of consumption tax and the buyer does its accounting
process based on it.
Items to be mentioned in an existing invoice (current system) until 30 September 2023
① Name of operator② Date/month//year of transaction③ Content of transaction (clarify reduced rate 8% item)④ Total amount of price including consumption tax, sorted by tax rate
(Basic rate 10% and reduced rate 8%)⑤ Name of recipient of Invoice
Additional items to be mentioned in the Qualified invoice from 1 October 2023
⑥ Registration Number of registered operator⑦ Applied tax rate (10% and 8%)⑧ Amount of consumption tax , separately calculated by tax rate 10% and8%
1-6-c) Issuance and retention of the qualified invoice
In the Invoice System, the seller and the buyer have to do below respectively.
The registered operator as a seller has to issue the buyer a qualified invoice upon request
and save the copy of the issued invoice for 7 years.
The buyer has to keep the qualified invoice issued by the registered operator to be appliedof deduction of consumption tax credit.
1-6-d) Non-taxpayer
A company or an individual business person exempted from an obligation of filing
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consumption tax return ( Non-taxpayer) can’t register as an registered operator and can’t
issue an qualified invoice. Therefore when the buyer receives the invoice issued by
Non-taxpayer, the buyer can’t deduct the consumption tax paid to the Non-taxpayer in thecalculation of consumption tax return. (There is a Transitional period for 6 years. Pleaserefer 1-6-e)) If Non-taxpayer wants to register as an registered operator , the Non-taxpayer
has to become Tax payer .
1-6-e) Transitional measures
With the implementation of the invoice system, assuming the increase of the tax burden for
Non-taxpayer by becoming the taxpayer, and the increase of administrative burden relatedwith the retention obligation of the invoices, the below transitional measures are applied.
Item

Overview

Applicable operator

Applicable period

Tax credit for the 80% or 50% tax Tax-payer (Buyer)purchase from non- credit
canbetaxpayerappliedtothePurchase between
2023/10/12026/9/30: 80%

purchase from thenon-taxpayer

Purchase between
2026/10/12029/9/30: 50%

Special measure forsmall-sized operator(20%-Special
measure)20% of the baseamountofthetaxable period canbe regarded as the

Non-taxpayer(Seller)which
becomes the taxpayer
byTaxable period towhich any date
between 2023/10/1
to2026/9/30

tax payable of the registration as the belongs.
taxable period
qualifiedinvoiceissuerExemptionofretention obligationofsmall-amountinvoice

Regardingthepurchase less than
JPY10,000, the tax
creditcanbeTax-payer (Buyer) Purchase between
withthebase 2023/10/1period’s
taxable 2029/9/30
sales not exceeding

applied only by JPY100M or the
keeping
the special
period’s
accounting
book taxable sales notwith certain related exceeding JPY50M
description
andthe retention of therelated invoice is
not necessary.
※The above transitional measures are reflects the law as of 1st June 2023.
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1-7) Simplified tax systemIf taxable sales of an enterprise in the base period is ¥50million or less and Notificationof selecting simplified system has been filed to tax office before the date of beginningof the taxable year, the enterprise calculate purchase tax credit by applying a certain
rate of sales turnover.
Type of Business

rate

Wholesales

90%

Retailers

80%

Manufactures, Constructors, Agricultures

70%

Restaurants(Eating and drinking industry), Business that are not included in others

60%

Financial Services, Insurance, Transportations and Service Industries(except restaurants)

50%

Real Estates40%

A corporation running only one type of business can calculate purchase tax credit bymultiplying taxable sales amount by corresponding sales turnover ratio. In the case a
corporation runs more than two types of business, taxable sales need to be classifies
by types of business. If no classification given, the corporation has to apply thelowest ratio of sales turnover to calculate its purchase tax credit. The corporation,
therefore, can take advantage in tax calculation by knowing exact types of business itruns and classifying its transactions accordingly.
If an operator, to which the simplified tax system can be applied, also meet therequirement of 20% -Special measure mentioned in 1-6-e), the operator can calculate
the tax payable by either of the simplified tax system or 20% -Special measure.
1-8) Tax period and tax return and payment
The tax period for a corporation is its financial year. However, they can also use
quarterly or monthly tax periods
A corporation whose previous year's tax due exceeded ¥480,000 must file and pay
provisional tax at 50% of the consumption tax reported on the final tax return of theprevious tax period within two months of after the first six months past in the tax year.
If the previous year’s tax due exceeded ¥4,000,000, quarterly filing and payment are
required. If the previous year's tax due exceeded ¥48,000,000, a corporation must fileand pay tax at 1/12 of previous year’s tax.
If the amount of tax paid on purchase exceeds the tax received on sales on the date oftax period closing, the excess is refunded after the final tax return is filed with the tax
office.
If a corporation makes provisional settlement of accounts of consumption tax, thecorporation is allowed to file interim return of consumption tax and make payment of29

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the tax by using the amounts of the provisional settlement of accounts, instead of using
the previous year’s result. In the case that the corporation have profit in the previous
financial year and has the burden of payable interim consumption tax calculated by the
result of the previous year. Even if the amount figured out by provisional settlementsof account is negative, the corporation can receive no refund of tax.
In the case the corporation made the interim payment of consumption tax, the sum of
the interim payment is credited from annual tax amount.
With regard to the import of taxable goods, an individual or a corporation who takeover the goods from bonded area submits import declaration to chief customs inspector
and pay the consumption tax on the goods. The amount of the consumption tax on the
goods is included in calculation of purchase tax credit mentioned in 8-5) above.

2) Fixed assets tax and City planning tax
Fixed assets tax and City planning tax are imposed when the company or individual
have real estates, or depreciable property.
Object of taxation
Taxpayer
Taxable minimumTax rate
Base of taxation(課税標準)
Due date of filingTax due date
Note

Land / Building

Depreciable asset (*1)

Individual or company who is

Individual business owner orregistered as its owner as of January

company who have depreciable asset

1st at the legal affairs bureau.

for business use as of January 1st.

Land ¥300,000, Building ¥200,000¥1.5M

1.4% + City planning tax (under

1.4%

0.3%)
Valuation amount by eachBook value by declining value

municipality

methodNot necessary for filing tax return

January 31st

Annual amount is to be paid in 4 installments in Apr., July, Dec., Feb..
There are some tax reduction
measures for residence

Fixed assets 3 years equal
depreciation is applied are nottaxable.

*1. If the small or medium sized company newly invests to a certain kind of machineries,
equipment or building’s accompanying facilities based on the plan which is approved by
the city in advance regarding plans of Advanced Equipment, then the taxable base amountof depreciable assets tax levied by the city will be reduced to 1/2-1/3 of the original taxable
base amount for 3-5 years. In this case, the machines or the equipment, or the building’s
accompanying facilities must be newly purchased by March 31st, 2025.

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3) Office tax

Some municipalities with population of 0.3M or more impose office tax on a company
or individual business owner whose office is over 1000 ㎡, or have over 100 employees.
Tax amountDue date of filingTax due date

Per floor space tax : ¥600/㎡
Per number of employee tax :Total annual salary×0.25%
Company: Within two months of the end of the fiscal year.
Individual business owner : March 15
Same as tax filing.

4) Real estate acquisition tax
Anyone who purchase Real-estate (land, building) is liable to pay this tax. (It does notmatter whether purchase transaction is registered or not.)Taxable amount:Tax rate:
Tax exemption amount:

The amount which evaluated by the city in order to levy
property tax
4%
Land
100,000 yen
Building

Non taxable transactions:

230,000 yen per one,
120,000 for additional one
Inhelitance, Marger of Split of company

4. Salary and Taxes for Employees
1) Employment income
Individuals with employment income are subject to income tax. Employment income
includes salaries, wages, director’s remuneration, bonuses and other compensation ofa similar nature. Benefit in kind provided by the employer, including the private use ofan employment-provided automobile, permanent company housing, tuition for
dependent children, life insurance premiums, private medical insurance premiums andprivate pension contributions, are included in employment income. However, certain
employer-paid benefits, including commuting allowance to a certain limit, moving
expenses, loans interest above market rate and, for resident foreigners and nonresidents,
home-leave expenses(until a predetermined number of times), are excluded fromtaxable income.
Regarding company housing, when an employer collects “Taxable value of company
provided housing (i.e. legal rents)” from directors and employees, they are treated as
not being provided any taxable benefits by the employer. Please see the following page
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for how this “Taxable value of company provided housing” is calculated.
Rapid calculation table for deduction for employment income (2020)
Gross Receipts

Amount of employment
Income deduction (¥)

ExceedingNot exceeding01,800,000

1,800,000

3,600,000

Gross salary x 30% + 80,000

3,600,000

6,600,000

Gross salary x 20% + 440,000

6,600,000

8,500,000

Gross salary × 10% + 1,100,000

Gross salary x 40% - 100,000
If above is less than 550,000, 550,000.

8,500,000

1,950,000 (upper limit)

2) Company provided housing
When a director or an employee is using company provided housing and if the company is
not deducting legal rent from the individual, it will be treated as a benefit in kind for thetax purpose. Therefore, normally the amount equivalent to the legal rent is deducted fromthe salary. The legal rent is calculated as below, based on floor space and taxable value of
fixed asset tax for land and building.

Legal rent

（0.2% of the value of building for fixed asset tax purpose） ＋（12 yen×total floor space of the building in ㎡/3.3 ㎡） ＋（0.22％ of the value of land for fixed asset tax purpose on which the building stands）

Taxable benefit

Employee

100% rent paid by the company

Employee is taxed on legal rent

Employee pays 50% or more of the

No taxable benefits

legal rent
Employee pays less than 50% of

Employee is taxed on the difference between thethe legal rent

legal rent and the rent paid by the employee

Total floor space over 240 ㎡
Luxurious

housing

Legal rent

Directorand luxurious (i.e. luxurious
internal /externalMarket value

decorations, expensive rentor property price)

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（0.2% of the value of building for fixed asset
Small size residence

tax purpose）

Total floor space is 132 ㎡
or under. (99 ㎡ or under
if the useful life of thebuilding is over 30 years)＋（12 yen×total floor space of the building in ㎡
/3.3 ㎡） ＋（0.22％ of the value of land for fixed asset tax
purpose on which the building stands）（1% of the value of building for fixed asset tax

None of the above

Property owned by the

purpose）＋

company（0.5％ of the value of land for fixed asset tax
purpose on which the building stands）

Property leased by the

The higher of (1) 50% of the actual rent and (2)the amount computed by the formulacompany

immediately above

Taxable benefits

100% rent paid by the company
Director pays 50% or more of the legal rent

Director is taxed on legal rent

Director is taxed on the difference between the

Director pays less than 50% of the legal

legal rent and the rent paid by the employee

rent3) Salary to directors who live overseas
Director’s remuneration paid by a Japanese corporation to a nonresident is consideredJapanese-source income and is subject to tax in Japan, even if the services are
performed outside Japan.

4) Deductions
4-1) Deductible expenses
If employees’ actual expense during a year exceeds 50% of standard employment
income deduction (see Deduction for Employment Income , Page 27), the excess may
be deducted in addition to the employment income deduction. Specially allowed
expenditures include commuting expenses, moving expenses for a company transfer,(travel expense, hotel accommodation and delivery expense of baggage), training
expenses for technological skills or certain qualification directly required in theperformance of duties, and expenses for books, clothes and entertainment.
Expenses for books, clothes and entertainment that are directly related to work is called“Necessary expense for work”, maximum of which is ¥650,000.
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Expenditures must be documented and certified by the employer. The deduction of
specific expenditures may be claimed only by filing a tax return.
4-2) Insurance premiums deduction
Social insurance premiums are fully deductible.
Life insurance, nursing/medical-care and individual pension premiums are deductible
up to a maximum ¥120,000. (For nursing medical care insurance, only those contracted
in or after 2012 are applicable.)

For casualty insurance premiums, the deductible amount is ¥50,000 forearthquake insurance premiums and ¥15,000 for former long-term casualty
insurance. The deductible amount of combined earthquake and former
long-term casualty insurance premiums may not exceed ¥50,000.

4-3) Personal exemptions
Personal exemptions are available for purposes of income tax and inhabitant tax. The
following table outlines personal exemptions. (Note 1)
Major personal exemptions 2020 or after
Type (outline)

Tax deduction for
national tax

Amount for inhabitant tax¥430,000¥480,000
In case the person’s income is
In case the person’s income over JPY24,000,000, income
is over JPY24,000,000,
is over JPY24,000,000,
0 – 320,000
0 – 290,000

Basic exemption

Exemption(Note 2)forspouse¥380,000, ¥260,000, or¥130,000
depends on income level of¥330,000, ¥220,000 or¥110,000
depends on income level oftax payer (If the age of
spouse equal or exceed 70
year’s old, Amount oftax payer (If the age of
spouse equal or exceed 70
year’s old, Amount of

exemption become ¥480,000, exemption become ¥380,000,¥320,000 or ¥160,000)¥260,000 or ¥130,000)¥10,000 - ¥380,000

Special exemption for spouse(Note 2)

¥10,000 - ¥330,000
depends on income level ofdepends on income level oftax payer’s and his/her
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Exemption for dependents
Younger than 16 years
old

0

0

16 - 19 years old¥380,000¥330,000

19 - 23 years old¥630,000¥450,000

23 - 70 years old (Note3)¥380,000¥330,000

70 years old or older¥480,000¥380,000(Note 1) If a resident who receives salary etc. applies for the above allowance for non-resident
dependents, they are required to submit or present “Documents concerning relatives” or“Documents concerning remittances” or both to the payer of the salary when paid or at annual yearend tax adjustment. Those who file personal tax returns need to submit or present the above
document(s) to the tax authority with the tax return if they have not already submitted or presented
them to the payer of the salary.
(Note 2) You can not get both exemptions (“Exemption for spouse” and “Special exemption for
spouse”) at the same year. If the tax payer’s annual income exceeds 10M yen, then the tax payer
can get neither of them.
(Note 3) From 2023 onward, exemption of dependents will not applied to dependent who lives
overseas and between equal or more than 30 years old and less than 70 years old, except certain
people such as overseas student and person with disability.

5) Payroll computation and withholding income tax
Salaries paid to residents are subject to income tax withholding at the source.
The amount to be withheld may be determined using the “Tax Withholding Table”
provided as an attachment to the Income Tax Law according to the nature of the salary,
the period of payment, and the number of dependents the income earner has. However,
nonresidents are generally subject to withholding of 20.42% of income tax irrespectiveof the amount of the salary and the number of dependents (refer to the following table).
In order to withhold income tax properly, salary recipients must submit to the tax
authorities, through their employer, "a statement concerning exemptions for dependents,
etc." giving the names of dependents and other necessary particulars.
For salaries paid monthly, the tax amount is obtained from the "Monthly Table"according to the amount of salary paid and the number of dependents.

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The table of withholding from employment income (for 2023 excerpt)Monthly salary amount after
deduction of social insurance

Number of dependents

premiums
Over(¥)

But not over(¥)

0

1

2

3

4

Amount of tax(¥)
:

:

:

:

:

:

:

335,000

338,000

11,360

8,210

6,600

4,980

3,360

338,000

341,000

11,610

8,370

6,720

5,110

3,480

341,000

344,000

11,850

8,620

6,840

5,230

3,600

344,000

347,000

12,100

8,860

6,960

5,350

3,730

:

:

:

:

:

:

:

Computation of tax withheld from a salary paid monthly (example)<Assumption>* Resident taxpayer, non-director, age: before 40 years old,
married with two children (both children are age 16 – 29 years old)
* Monthly salary amount before deduction of income tax and social insurance premiums is ¥400,000* Commutation allowance is ¥20,000* Social insurance premiums refer to the rate (see chart 9-2)
* Health insurance ¥21,094, social security pension ¥37,515, employment insurance ¥2,520<Computation for withholding income tax>
The amount of salary after deduction of social insurance premiums is¥400,000 –¥21,094 - ¥37,515 - ¥2,520 = ¥338,871
Referring to the table of withholding from employment income above, ¥338,871 and 3 dependents
cross. As a result, withholding tax is ¥5,110.

Payroll in details (example)
Payment*Deduction

Salary400,000

Transportation

20,000

Health insurance
Welfare pension
insurance

21,09437,515

Unemployment insurance

2,520

Withholding income tax

5,110
Net payment

Sum420,000

Sum
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*The inhabitant tax is also deductible. The annual amount of the inhabitant tax is computed bymultiplying the tax rate referred to 5) below. By a one-twelfth of the inhabitant tax is deducted from asalary every month from June in the next year to May in the year after next. The inhabitant tax deductedis paid to municipality by a company.

-ReferenceIn the example above, the each burden of social insurance for employer /employee is asfollows.
In: JPY
Health insurance
Welfare pension
insurance
Unemployment
insurance

Employer

Employee

20,951(51.45/1,000)

20,951(51.45/1,000)

37,515(91.50/1,000)

37,515(91.50/1,000)

2,730(9.50/1,000)

1,260(6.00/1,000)

1,260(3.0/1,000)

None

62,456(155.45/1,000)

59,726(148.95/1,000)

Workmen's
compensation
insurance
Total amount

6) Individual income tax rate
Individual income taxes consist of national income tax and local inhabitant tax.
Individuals are also subject to a local enterprise tax on income derived from businessat rates ranging from 3% to 5%.
Normally, a 20.42% withholding tax is levied on nonresidents, with no deductions
available; however, depending on the type of income, tax may be levied at progressive
rates through self-assessment (refer to 3-8). Dividends paid by Japanese companies,
interest income, annuities and prizes are also subject to a withholding tax if paid tononresidents.
National income tax rates are progressive. The rates range from 5% (on taxable incomeof up to ¥1.95 million) to 45% (on taxable income exceeding ¥18 million), as shown in
the following table. (*)

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Tax rate of income tax
Taxable income
Exceeding(¥)

Not exceeding(¥)

Tax on lower
amount(¥)

Rate onexcess(%)

1,950,000

051,950,000

3,300,000

97,500103,300,000

6,950,000

427,500

20

6,950,000

9,000,000

636,000

23

9,000,000

18,000,000

1,536,000

33

18,000,000

40,000,000

2,796,000

40

4,796,000

45

40,000,000(*) An extra amount of 2.1% of income tax levied will be imposed as Special Reconstruction
Income Tax until 2037.
Local inhabitant taxes, both prefectural and municipal, consist of per capita and income levies.
The amount of per capita tax is ¥4,000 per year per person (¥1,000 for prefectural and ¥3,000
for municipal). The percentage of per income levy is 10% (4% for prefectural and 6% formunicipal). Per-capita tax is around 5,000 yen annually (*1). Non-residents are not subject tolocal inhabitant tax.
(*1) A person who lives in Osaka city, per-capita tax is 5,300 yen (prefecture tax 1,800 yen + city
tax 3,500 yen). A person who lives in Tokyo, per-capita tax is 5,000 yen (metropolitan tax 1,500
yen + city tax 3,500 yen).

7) Filing and payment procedures
Individual income taxation in Japan is based on the self-assessment principle. In
general, taxpayers must file tax returns to declare income and deductions and to pay
the tax due. However, the national income tax liability of individuals compensated inyen at gross annual amounts not exceeding ¥20 million is settled through employer
withholding if income other than main income source does not exceed ¥200,000. For anonresident, if tax is withheld from payments and the amount withheld satisfies theliability, income tax return does not need to be filed. Married persons are taxed
separately, not jointly, on all types of income.
Income tax returns must be filed, and the final tax paid, between February 16 and March
15 (Note) for income accrued during the previous calendar year. For those taxpayers
who filed tax returns for the preceding year and who reported tax liabilities of ¥150,000
or more after withholding, prepayment of income tax for the current year is due on 31
July and 30 November. Each prepayment normally equals one-third of the previous
year’s total tax liability, less amounts withheld at the source. If prepaid and withheld
payments exceed the total tax due, they are refundable if a return is filed.
(Note) Tax return claiming refund can be filed before February 16.
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8) Resident status and scope of taxable income

An individual's tax status governs the types of income that are subject to national
income tax and local inhabitants’ tax as well as deductions and tax rates.
A nonresident taxpayer (an individual other than the resident who has a domicile orowns a residence continuously for more than one year) is subject to Japanese income
tax on Japan-source income regardless of where it is paid.
Most tax treaties, however, provide for an exemption from Japanese tax on employment
income of a nonresident taxpayer present in Japan for 183 days or less during a calendar
year, if certain other conditions are satisfied. One has to prepare a certain applicationand submit it to the tax office in order to obtain a tax exemption.
An individual of non-Japanese nationality having a domicile or residence in Japan foran aggregate period of five years or less within the last ten years is further classified
as a nonpermanent resident taxpayer. A nonpermanent resident taxpayer is subject toincome tax on Japan-source income plus that part of non-Japan source income that is
paid in and/or remitted to Japan.
Non-Japanese individuals who are neither nonresidents nor nonpermanent residents areclassified as permanent residents.
A permanent resident taxpayer is subject to Japanese income taxes on his or her worldwide income. If he or she has to pay double taxes to different countries, he or she may
be allowed a tax deduction.

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Division of resident status
Japan-source income

Non Japan-source income
Paid in abroad

Paid in

Paid in

Paid inPortion deemedJapanabroadJapanremitted toJapan

Remainder
retained abroad

Permanent
Resident
Resident
Non-permanent

Taxableresident
Non-residentNontaxableScope of taxable income for each division of resident status
Classification

Japanese

Period ofAggregate period of having

Division ofnationality

having a

domicile or residence

resident statusresidence

within last 10 years

Yes

Over 5 years

No
Having domicile

residentYes
5 years or lessNo

havingdomicile

No

Duration of aYesyear or more

Havingresidence

Non-permanent
resident

Yes

Not

Permanent

Over 5 years

resident
5 years or lessNo

Permanent

Non-permanent
resident

Less than a year

Non-resident

9) Social insurance
In a broad sense, social insurance includes Health insurance, Nursing care insurance,
Welfare pension insurance, Unemployment insurance and Labor accident insurance.
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9-1) Social insurance programs
Social insurance programs in Japan include health insurance, nursing care insurance,
welfare pension insurance. Health insurance covers medical care expenses for
employees and their dependents in the case of disease, injury and delivery. The nursing
care insurance is the system that covers the care of care recipients from the budget of
insurance premium. Welfare pension members would receive an extra benefit besides
their basic pension of the national pension system when they become elderly and incase they get handicapped. When they pass away, their spouses or children under theage of 20 would be able to receive their pension.
Full-time employees and employed directors should join Health Insurance and Welfare
Pension. Contract employees or part-time workers, whose working hours exceed 3/4 ofthat of full-time employees should also join the systems.
(Employer who is hiring more than 500 employees may need to let all part-time
employees into social insurance system even their work hours are below 3/4 of full-time
employees.)
Every person who is 40years old or more and less than 65 years old need to enter the
Nursing care insurance which is part of health insurance.
The premiums are borne equally by employers and employees. Employers withhold thepart borne by employees from their salary and bonus, and employers make total
premiums payment at the end of the following month.
9-2) Employment Insurance and Worker’s Accident Compensation Insurance
Employment Insurance is a system to help stabilize the life of employees in the caseof unemployment and help them to find the next job.
Accident Compensation Insurance covers the injuries during commuting and working,and disease or death due to work, under the system, compensation is made to
employees or their family.
As a rule, all employees should join Employment Insurance. The system is also
compulsory for short-time workers like contract employees and part-timers if they are
expected to be in employment for equal or more than 31 days and if they work forequal or more than 20 hours a week.
All employees except the representative director of the companies should join
Accident Compensation Insurance regardless of their employment status. As a rule,other directors are not subject to this system, but if they also work like other employees,
they can also join the insurance. Also, the family of the representative director issubject to this insurance only if they work like other employees and are not a board
member.
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Employment Insurance premium is borne by both employers and employees at arespective rate. Employers withhold the part borne by employees from their monthly
salary and bonus. Accident Compensation Insurance premium is fully borne byemployers.
Insurance premiums of these two systems are calculated on the expected salary amountfrom April to March of the following year, and the full amount is paid in July. (If thepremiums exceed a certain amount, it can be paid in 3 installments in July, October
and January.)
Insurance premium rate for standard monthly remuneration (FY2023)
Insurance

Rate borne by

Rate borne byRate

employers

employees

Health insurance

102.90/1,000(*1)

51.45/1,000

51.45/1,000

Nursing care insurance

18.20/1,000(*1)

9.10/1,000

9.10/1,000

Welfare pension insurance

183.00/1,000

91.50/1,000

91.50/1,000

Employment insurance

15.50/1,000(*2)

9.50/1,000

6.00/1,000

Worker’s accident
compensation insurance

3.00/1,000(*3)

3.00/1,000-(*1) Rates may slightly vary to prefectures. This table shows the rate National Health Insurance
Association Osaka Branch applies from March 2023.
(*2) Rate applicable to businesses under general industries category for April 2023 to March 2024.
(*3) Rate applicable to businesses under other business category. The rate may vary depending on thetype of business.

9-3) Social Security Agreement
OutlineAlong with the internationalization of industries, more and more people work and live
abroad. When company employees are transferred abroad, they have to join social
insurance of both countries, and problem of having to pay double insurance premiums
arises. To receive pension after retirement, it is necessary to be in the social insurance
program for a certain period of time. Otherwise, the insurance premiums are just paidin vain.
Between Japan and the countries below, Social Security Agreement is reached in orderto prevent double payment of social premiums and to total the payment period.

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Countries between which Japan have reached Social Security Agreement as of February 2022
Germany, UK, Korea, US, Belgium, France, Canada, Australia, Holland, Czech, Spain, Ireland, Brazil,
Switzerland, Hungary, India, Luxemburg, Philippines, Slovakia, China, Finland, and Sweden ( Italy is
preparing to get into effect.)

Basically, Social Security Agreement applies to all countries listed above, there might
be difference because social security systems vary from one country to another.
For more information, please see the below URL of Japan Pension Service
https://www.nenkin.go.jp/service/shaho-kyotei/index.html

9-4) Lump-sum Withdrawal Payments (Pension)
Foreigners who is leaving Japan may claim Lump-sum Withdrawal Payments when the
person satisfy all conditions.
For more information, please see below;
https://www.nenkin.go.jp/service/jukyu/sonota-kyufu/dattai-ichiji/index.html

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5. Appendix
Useful addresses and telephone numbers
JETRO（Japan External Trade Organization） Investing in Japan
https://www.jetro.go.jp/en/invest
TEL 03-3582-4684(Tokyo) / 06-4705-8650(Osaka)
What is “invest Tokyo”?
https://www.investtokyo.metro.tokyo.lg.jp/en/
Tokyo One-Stop Business Establishment Center (TOSBEC)
https://www.startup-support.metro.tokyo.lg.jp/onestop/en/

TEL 03-3582-4934

MIPRO(Manufactured Imports and Invest Promotion Organization)
http://www.mipro.or.jp/english/

TEL 03-3989-5151（Tokyo）

Osaka Business and Investment Center
http://o-bic.net

TEL 06-6944-6298

IBPC Osaka
http://www.investosaka.jp/eng/

TEL 06-6615-5522

The Japan Institute of Certified Public Accountants association (JICPA)
http://www.hp.jicpa.or.jp/english/index.html

TEL 03-3515-1120

Japan Federation of Certified Public Tax Accountants Association
http://www.nichizeiren.or.jp/eng/index.html

TEL 03-5435-0931

National Tax Agency Japan (English)
http://www.nta.go.jp/english/index.htm
Ministry of Finance (English)
http://www.mof.go.jp/english/index.htm

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