National Corporation Tax is a national tax levied against profit after subtracting expenses (they will not be levied when loss is incurred) and through self-assessment. Due to the economic situation of Japan, the government has modified the fiscal legislation several times the past few years. Lowering the corporate taxation rate was important aspect of the growth strategy of the present government, while at the same time broadening the tax base. However, in recent years no major efforts to decrease corporate taxation have been seen. For SMEs in Japan, a special reduced rate of 17% (instead of the regular 19%) is in place until 2027.
|
% |
|
FY 2016 |
FY 2018 |
FY 2019 |
FY 2025-2027 |
|
Regular companies |
|
23.40 |
23.20 |
23.40 |
23.20 |
|
SMEs |
Income < ¥8mln/y |
19.0 (15.0) |
19.0 (15.0) |
19.0 (15.0) |
17.0 |
|
Income>¥8mln/y |
23.40 |
23.20 |
23.20 |
23.20 |
Source: JETRO
It means for a SME with a permanent establishment in Japan that its business income will be taxed on a 17% rate basis up until JPY 8 million. All income in excess of JPY 8 million (until JPY 1 billion) will be taxed at 23.20%
For any domestic corporation registered in Japan, both for domestic and subsidiaries of foreign companies, a corporate tax on national level is levied by the National Tax Agency, an integral part of the Ministry of Finance. The present corporate taxation level will vary from 17 up to 23.2% on the annual net business income of the company. The total tax burden for corporations will vary between 22.46% up to a steep 36.81% (March, 2019, In Tokyo) as effective rates depending upon factors like capital, employees, place of business registration, geographical spread of offices and manufacturing plants nationwide and total taxable income.
The consolidated taxation system was replaced with a new regime of group relief under the 2020 Tax Reform Act and effective for tax years beginning on or after April 1, 2022.
Under the system of the thin capital taxation system interest is partly excluded from a corporation’s deductible expenses when the corporation has borrowed money exceeding three times the amount of its capital from its foreign leading shareholders. The thin capitalization system in Japan its main goal is prevent overseas headquartered enterprises from over-leveraging their fully-owned subsidiaries or branches in order to claim excess corporation tax deductions through interest charges booked into the annual financial statements of the local commercial entity in Japan.
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