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Japan Tax Overview
Like all other countries, Japan has its system of tax laws that determine who is responsible for paying taxes and at what rate. These differences often play a major role in determining whether a company decides to do business or even relocate to another country.
This tax overview will look at the three most important categories of tax laws in Japan: personal taxes, corporate taxes, and value-added taxes.
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Japan’s Personal Taxes
Here’s everything you need to know about personal taxes in Japan:
Who is Taxed?
In Japan, an individual who owns a residence (jusho) or has lived in Japan and maintained a temporary place of abode (kyosho) for more than one year is subject to taxes on all income generated within the country.
What Is the Tax Rate?
Japan’s personal tax rate is progressive. Tax rates vary from 5% to 45%, depending on the individual’s taxable income.
In addition to the personal tax rate, a surtax of 2.1% and local income taxes may apply to personal income. The local inhabitants’ tax is imposed at a flat rate of 10% in most localities and is applied to the taxpayer’s prior year income.
For non-residents, the tax rate is a flat 20.42% on Japan-sourced income with no deductions available. A non-resident may be subject to the local inhabitants’ tax at a rate of 10% if they are registered as a resident as of 1 January of the following year.
National vs. International Income
If you are a resident of Japan, your worldwide income is taxable according to the personal income tax rates. However, if you pay taxes to another country and there is a double tax treaty in place between that country and Japan, a foreign tax credit may be granted.
Capital Gains, Exemptions, and Other Considerations
Capital gains in Japan are taxed at a flat 20.315% rate. Real property is subject to a tax rate of 1.7% of the value appraised by local tax authorities. Depreciable fixed assets are taxed at 1.4% after statutory depreciation.
Japan Corporate Taxes
Here’s everything you need to know about corporate taxes in Japan:
Who Is Taxed?
Japan taxes resident companies that have their corporate headquarters in Japan. Permanent establishments are taxable on their locally-sourced income.
The worldwide income of the resident company is taxable in Japan.
What Is the Tax Rate?
Companies with paid-in capital of over 100 million JPY are subject to a corporate income tax rate of 23.2%.
Those companies with paid-in capital less than 100 million JPY are subject to a 15% corporate income tax rate for the first JPY 8 million. Those with turnover above JPY 8 million are subject to a 23.2% corporate income tax rate.
In addition to the corporate income tax rate, there is a local corporate income tax for 10.3% of corporate tax liabilities. A standard enterprise tax and local corporate special tax are assessed progressively. These tax rates vary based on taxable income but have rates between 4.8% and 9.6%.
The total effective tax rate varies depending upon the size of a company’s paid-in capital.
What Is Taxable Income?
All income generated worldwide is taxable to resident companies in Japan. Foreign-based companies are assessed at a flat rate based on their Japanese-sourced income.
Tax Incentives and Deductions
Japan has many double tax treaties that allow companies to take a credit against foreign income taxes paid in another country. There are also R&D incentives designed to promote innovation, as well as Internet of Things (IoT) investment tax incentives.
Japan VAT Taxes
Value-added taxes, better known as VAT taxes, are a common form of consumption tax. The value-added portion is the difference between a company’s sales and its cost of purchasing services or goods from another business. Here’s what you need to know about VAT taxes in Japan:
Who Is Taxed?
VAT taxes are levied on the sales of goods and services in Japan. Exports and certain services to non-residents are taxed at a zero rate.
Certain transactions, including sales or lease of land, sales of securities, and provision of public services, are not subject to taxation.
What Is the Tax Rate?
The VAT tax rate in Japan is a flat 10%. A lower rate of 8% applies to food and newspaper subscriptions.
Is Japan Right for Your Business?
SERVIAP is a leading Professional Employer Organization (PEO) ready to help your business expand operations throughout the Western Hemisphere. PEO is a model of co-employment, where we assume total responsibility for your talent, allowing you to focus on the strategic activities of your organization.
Contact us today to learn more about how you can expand your business in Japan.
