Definition of SME under Japanese law

The Japanese Small and Medium Enterprise Basic Act (Chushokigyōkihonhō) does not have one comprehensive definition for SMEs. It discerns a four of types of SMEs depending on their business activities. However, the Corporation Tax Act overrides any other legal definition and is used on these pages as it is the only one applicable for tax purposes. Under the Japanese Corporation Tax Act, a company is considered as a SME when its capital does not exceed JPY 100 million (≈ EUR 714,000, 2023 JP Government rates), regardless its business (JETRO, See 3.3.2 note 3)





Business activity

Overall Capital or investment (JPY)

Regular employees

Regular employees

Manufacturing etc.

< 300 million

< 300

< 20


< 100 million

< 100

< 5

Service providers

< 50 million

< 100

< 5


< 50 million

< 50

< 5

Source: SME Agency (In Japanese)

The definition of an SME adopted by the European Commission in the recommendation 2003/361/CE, i.e. fewer than 250 employees and up to EUR 50 million annual turnover (or an annual balance sheet total not exceeding EUR 43 million), therefore differs from the one used in Japan.

Major taxes in Japan





Taxes on:





Individual income

Corporate income

Inhabitants’ tax

Enterprise tax

Inhabitants’ tax


Gifts and inheritances






Motor vehicle tonnage


Fixed assets

Special landholding

City planning

Light motor vehicles

Enterprise establishment



Tobacco (J)


Local consumption


Golf course utilization

Tobacco (J)


Stamp duty (J)

Registration and licenses

Real estate acquisition

Automobile acquisition


The Tokyo Metropolitan Bureau of Taxation offers a comprehensive guide in English explaining the various taxes applied in Japan at the national, prefectural and local levels. (2022 edition)


European SMEs are subjected to different taxes when doing business in Japan:

The National Tax Agency (NTA) administers the business taxation system on a nationwide scale for both corporate entities and individuals running a business.

The basic principle of the business taxation system in Japan, is based upon a self-assessment method with an external accounting office or internal auditor/board of auditors for bigger companies, which need to be filed within 2 months, at the local taxation bureau of the registered corporate address, after the closing of the financial year.

The taxation system is a neutral system for all domestic corporations engaged in economic activities. 
Important to bear in mind is that tax evasion and late payment are subject to steep fines in Japan, sometimes amounting up to 50% of additional taxation.

Another important point is that the actual payment of the business tax and the consumption tax to the National Tax Agency is due within 2 months after the closing of the financial year.

Compared to other Asian developed economic nations, Japan’s business taxation percentage has always been on the higher side, as approximately 40% burden on profits has been the norm for a long time. In recent years however, there have been government efforts to lower the corporate tax burden and attract more foreign companies.

As many Japanese SMEs have been financially struggling there have been a number of fiscal measures in place to alleviate their tax burden. Smaller business therefore are enjoying a lower tax burden than larger companies. Although many of these measures are deemed temporarily, they are usually extended and have become semi-permanent.

Blue form tax return system

The corporate taxpayer can select between the blue or white form tax return systems. The blue form tax return system is intended to encourage better, uniform and systematic record keeping and reporting by corporate taxpayers by offering certain benefits and preferential tax treatment to approved blue form taxpayers. The blue form tax return is not only limited to corporate taxpayers but can also be used by individual taxpayers. Important to bear in mind that a blue tax form return status is a privileged status, approved by the head of the local tax office, and hence can also be revoked at any time. JETRO, 3.3.10 point 3

Accounting in Japan

Accounting and tax support is provided by certified public accountants and tax accountants. The role of certified public accountants is to perform audits under the Certified Public Accountant Law, while tax accountants engage in typical tax agent services such as the preparation of tax...

Taxable presence

Under Japanese Tax Law, Japanese companies are taxed on their worldwide income, while foreign companies are taxed only on the income earned from their activities in Japan. A Japanese company is defined as a company whose head office or main office is located in Japan (usually when the company is...

Tax treaties

Main points: Tax treaties will modify the scope of exposure to Japanese taxes for a foreign companyMany tax exemptions may apply to a foreign companyIn order to benefit from tax exemptions, the company has to notify the relevant Japanese tax officeMost of the European Union member states have signed...


Online business

E-business can easily follow the definitions of a permanent establishment in order to determine the taxable situation of a company doing business in Japan. If a SME is conducting business in Japan online without having any physical presence in Japan, it will not be taxable in Japan...


EU-Japan Centre's News

Please take a look at the New Year's Special Column written by Mr. Tanabe, Managing Director of the…
The EU-Japan Centre’s office in Tokyo is regularly publishing "Industry and Policy News”. By…
The EU-Japan Centre is pleased to start a new weekly service by publishing brief summary of the…
The EU-Japan Centre is currently calling for expert report proposals for its "About Japan"…
Boost your R&D team by hosting a top Japanese university student of technical disciplines. Open…
The EU-Japan Centre is pleased to start a new weekly service by publishing brief summary of the…


01/09/2023 - 31/08/2024
Vulcanus in Japan student internship programme Are you a company in Japan willing to host a European trainee? This programme is for you! “Vulcanus in Japan” is a 1-year internship programme for…
The Space.Japan Helpdesk, invites you to participate in a webinar co-organized with METASTARS. Space. Japan Helpdesk aims to support cooperation between Europe and Japan in space-related Industries…
Subscribe to
our newsletters

The EU-Japan Centre currently produces 5 newsletters :

  • EU-Japan NEWS - our flagship newsletter covering the Centre's support services, information about EU (or Member States) - Japan cooperation
  • Japanese Industry and Policy News
  • “About Japan” e-News (Only available for EU companies / EU organisations)
  • Japan Tax and Public Procurement Weekly Tender Digest (Only available for EU companies / EU organisations)
  • Tech Transfer Helpdesk Newsletter