When doing business in Japan, there are a variety of tax obligations to consider, including federal, state, and specific taxes. The corporate tax system in Japan is complex and varied, requiring careful understanding of all its components.
At the national level, the standard corporate income tax rate in Japan is 23.2% of taxable profits for all types of companies. For small and medium-sized enterprises with registered capital of 100 million yen (approximately $650,000) or less and up to 100 shareholders, a preferential rate of 15% applies to the first 8 million yen (approximately $52,000) of profits and 23.2% applies to the remaining profits.
In addition to the federal corporate tax in Japan, there are also regional corporate taxes. The location use tax consists of a standard amount determined depending on the amount of registered capital and the number of employees, as well as a variable percentage rate. This rate is usually equal to 10.3% of the federal corporate tax amount. Thus, with a federal tax of 1 million yen (approximately $6,500), the regional location use tax will be 103,000 yen (approximately $680).
Business tax is assessed only on the basis of income. The rates begin to apply on income exceeding 2.9 million yen (approximately $21,000), with rates of 3%, 4%, or 5% applied. However, large businesses face a more complex system that includes not only income but also capital and added value, allowing even loss-making transactions to be taxed.
There is also a special local corporate tax in Japan, which is 43.2% of the business tax amount. If the business tax was 500,000 yen ($3,200), then the special local corporate tax would be 216,000 yen ($1,500).
A consumption tax, similar to VAT, is 10% and applies to the sale of goods and services in Japan. However, a reduced rate of 8% applies to some goods and services, such as food (except alcohol and restaurant meals) and printed publications. Companies in Japan with annual sales of over 10 million yen (about $65,000) are required to register for consumption tax.
The fixed asset tax is 1.4% of the assessed value of land, buildings, and depreciable assets of Japanese businesses. This tax is collected annually by municipal governments. For example, if your assets are assessed at 50 million yen ($330,000), the tax would be 700,000 yen ($4,600) per year.