Enterprise taxes must be paid by individuals engaged in certain types of business that are specified in local tax law. Taxable income is normally calculated according to the provisions for income tax purposes, except where special stipulations apply. Returns must be submitted by the 15th March, and taxes are to be paid in August and November as outlined in the tax notices issued by the prefectural government. Individual enterprise tax differs according to the type of business; although it typically ranges from 3% to 5%.

Source: JETRO, Taxes in Japan: Overview of Personal Tax System, 2013

 

This special corporate tax, following the same reasoning as the local enterprise tax, provides local governments with tax revenues from enterprises registered in their tax jurisdiction. Tax burdens start from 2.19% up to 4.29% for taxable incomes over 8 million yen. This special tax though is said to be abolished during the Tax Reform from 1 April 2015 on.

Source: Rob Van Nylen, Accounting and Taxes (EU-Japan Centre for Industrial Cooperation Report)

 In addition to the Enterprise tax rate applicable, a Special local corporate tax is added. The effective local tax rate is the sum of the Enterprise tax and the Special local corporate tax. Tax revenue from the Special local corporate tax is reallocated by the national Government to local governments, in order to decrease the gap in tax revenue between urban and rural areas.

 The rate of the Special local corporate tax is calculated as follows:

 

Figure 7: Special local corporate tax rate (applied to Enterprise tax rates)

Tax base

Paid-in capital of JPY 100 million or less (≈ EUR 700 000) i.e. SMEs

Taxable income x Standard rate of Enterprise tax

81%

It means the Special local corporate tax will be as follows:

 

Figure 8: Effective Special local corporate tax rate

Tax base

Paid-in capital of JPY 100 million or less (≈ EUR 700 000) i.e. SMEs

Standard rate

Maximum rate

Taxable income up to JPY 4 million in a year (≈ EUR 28 000)

2.187%

2.3895%

Excess over JPY 4 million (≈ EUR 28 000) and up to JPY 8 million in a year (≈ EUR 50 000)

3.24%

3.53565%

Excess over JPY 8 million (≈ EUR 50 000)

4.293%

4.6818%

Offices in at least three different prefectures and capital of at least JPY 10 million (≈ EUR 70 000): only rate applicable

4.293%

4.6818%

At the end, the effective local taxes will be the addition of the Local Enterprise tax and the Special local corporate tax. The following table shows the addition of the Enterprise tax rate and the Special local corporate tax rate. The following rates will be the effective ones for the local Enterprise tax rate. 

Figure 9: Effective Enterprise tax rate

Tax base

Paid-in capital of JPY 100 million or less (≈ EUR 700 000) i.e. SMEs

Standard rate

Maximum rate

Taxable income up to JPY 4 million in a year (≈ EUR 28 000)

4.887%

5.3395%

Excess over JPY 4 million (≈ EUR 28 000) and up to JPY 8 million in a year (≈ EUR 50 000)

7.24%

7.90065%

Excess over JPY 8 million (≈ EUR 50 000)

9.593%

10.4618%

Offices in at least three different prefectures and capital of at least JPY 10 million (≈ EUR 70 000): only rate applicable

9.593%

10.4618%

 

As stated before, the current Enterprise tax rate is supposed to be a reduced one and the Special local corporate tax is assessed as a temporary measure until a new tax system is implemented in the future. However, the Enterprise tax rates before the reduction are almost the same as the sum of the reduced Enterprise tax and the Special local corporate tax.

 Note that both local Enterprise tax and Special local corporate tax are tax-deductible expenses at the time of the final payment. The effective tax rate is calculated after taking into account the tax-deductible nature of local Enterprise tax and Special local tax payments.

 The most recent Tax Reform of 2008 introduced the Local Corporate Special Tax into the total corporate tax scheme. The main goal of this temporary tax is to create a more balanced local government tax income. 

 

Present tax rates of the local corporate special tax are as below (Updated April 2015 [2]):

  • Up to 4 million yen taxable income: 1.6%
 (2016-: 0.9%)
  • Up to 8 million yen taxable income: 2.3%
 (2016-: 1.4%)
  • Over 8 million yen of taxable income: 3.1% (2016: 1.9%)

 

Source: Rob Van Nylen, Accounting and Taxes (EU-Japan Centre for Industrial Cooperation Report)

Source: [2] MInistry of Finance, Heisei 27 nendo zeisei kaisei no taikou (Tax Reform 2015) (in Japanese)

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