Tax rates in Japan

Company Tax

23.2%

Tax Rate For Foreign Companies

Resident companies are taxed on their worldwide income whereas non-resident companies are taxed only on Japanese-source income at standard corporate rates. A foreign corporation with a permanent establishment in Japan is liable for corporate income taxes only on the income attributable to such permanent establishment.

Capital Gains Taxation

Capital gains are taxed as ordinary income at the standard corporate tax rate, with capital losses generally available as a full tax deduction. Capital duty is included in the local inhabitant tax and local enterprise tax.

The recognition of capital gains or losses from the transfer of certain assets between group companies is to be deferred until the asset is transferred to another group company or a non-group company.

Main Allowable Deductions and Tax Credits

In order to file for tax privileges - including deductions for business expenditure, tax loss carryforwards and accelerated depreciation - companies must apply for a "blue form" tax return at the beginning of a fiscal year.
Reserves for doubtful receivables and returns of goods not sold are deductible for corporate tax purposes. Deductions are also available for charitable contributions (up to certain limits). Corporations can deduct 50% of the entertainment expenses for food and drink; while expenses for entertainment are only deductible for SMEs (paid-in capital of up to JPY 100 million), up to the smaller of JPY 8 million or the actual disbursement for the entertainment expense. Start-up expenses are allowed to be amortised on a voluntary basis. Interest expenses are generally deductible in the calculation of taxable income.
The remuneration paid to directors is deductible only in specific cases. Enterprise tax and business premises tax are deductible in the calculation of the taxable income.
Net operating losses can only be used to offset up to 50% of a company's taxable income. However, small or medium-sized enterprises (SMEs) with a share capital of no more than JPY 100 million are exempt from this restriction, unless they are owned by a large company. There are certain situations in which net operating losses carryforwards may be even more limited, such as when a company undergoes a change of ownership exceeding 50% due to discontinuing an old business and starting a new one.
95% of dividends received by a company from a foreign company in which it has held at least one-fourth of the outstanding shares for an uninterrupted period of at least six months can be excluded from the company’s taxable income.

For further information on tax incentives, consult the website of JETRO (Japanese External Trade Organization).

Other Corporate Taxes

Other taxes include: stamp duty (JPY 200 to 600,000), municipal fixed assets tax (levied at 1.4%), a real estate acquisitions tax levied at 3%-4% (reduced temporarily to 1.5%-2% until 31 March 2024) and inheritance tax (progressive rates from 10% to 55%).

Registration and license tax is levied where certain property is registered, at a rate from 0.1% to 2% of the taxable basis or at a fixed amount. A share registration tax is assessed at 0.7% on the registration of new or additional share capital.

A business premises tax is levied in some cities, including Tokyo, Osaka, Nagoya, Fukuoka, etc. Companies with more than 100 employees in a designated city and/or with business premises in excess of 1,000 square metres are subject to the tax based on the usage of the business (JPY 600 per square metre) and gross payroll (0.25% of gross payroll).

Social security contributions paid by the employer amount to a maximum of 16.23%.

Family corporations are liable for an additional tax on their undistributed current earnings in excess of specified limits, with rates as follows: first JPY 30 million 10%; next JPY 70 million 15%; over JPY 100 million 20%.

Other Domestic Resources

National Tax Agency

Tax Rate

Allowable Deductions and Tax Credits

Deductions include: personal allowances with additional allowances for dependents, casualty losses, medical expenses and contributions to government authorities.
Charitable contributions designated by the Ministry of Finance in Japan are tax-deductible (subject to limitations). Life insurance (or private pension) premiums paid to a Japanese agency in local currency are deductible to a limited extent in computing national and local taxes. Earthquake insurance premiums are also deductible for the purpose of both national and local taxes to a limited extent.
Employees can claim an earned income deduction according to their level of income (capped at JPY 1.95 million; minimum JPY 550,000 or gross employment income, whichever is lower).
Personal exemptions are allowed for the individual (up to JPY 480,000 for the national tax and JPY 430,000 for local inhabitant tax, for an income below JPY 24 million), a non-dependent spouse (but only by individuals with an income below JPY 10 million), and children aged 16 or older (provided that their income does not exceed JPY 480,000/year). 
A self-employed taxpayer is allowed to claim business expenses against income if he can prove that the expenses were necessary.

Special Expatriate Tax Regime

Resident individuals are taxed on their worldwide income. Non-permanent residents are taxed on their Japanese-source income and on foreign-source income paid in or remitted into Japan. Non-residents are taxed on their Japanese-source income.
A rate of 20.42% applies to non-residents' employment income, which includes the 2.1% surtax. A non-resident taxpayer may be subject to the local inhabitant’s tax (10%) if they are registered as a resident as of 1 January of the relevant year.

Foreign tax credits are provided for resident taxpayers on foreign-source income, though generally limited to the lesser of foreign income tax paid or the Japanese tax payable on the income base.