When a company or a branch office is newly established in Japan in agreement with Japanese law, tax notification relating to the start-up must be submitted to tax authorities within a specified period after establishment.
The company will be subjected to various taxes. Corporate taxes is the collective name for the number of taxes that are imposed on the company’s earnings. Singly, these taxes include:
- Corporation tax (hōjinzei),
- Local corporation tax (chihō hōjinzei),
- Enterprise tax (hōjin jigyōzei),
- Special enterprise tax (tokubetsu hōjin jigyōzei), and
- Inhabitant tax (hōjin jūminzei).
These taxes are imposed by either the national or the local government in Japan.
The types of Japanese corporate tax
The practical tax rate for a large company located in Japan comes to around 30.62% of taxable income. But, the precise amount is subject to factors such as location, size of share capital, and the number of employees.
Corporation tax (hōjinzei) in Japan
This type of tax is charged by the national government on the revenue of the business. In Japan, for small or medium-sized companies, a marginal tax rate of 15% and 23.2% is charged, while a steady tax rate of 23.2% is imposed on large companies.
Local corporation tax (chihō hōjinzei) in Japan
In Japan, this type of tax was introduced in 2014. It is received by the national government to handle the maldistribution of wealth. Local corporation tax is measured as 10.3% of the corporation tax amount.
Enterprise tax (hōjin jigyōzei) in Japan
This type of tax is charged on taxable income by the prefecture where your business operates. Businesses with a share capital of under 100M yen are only subject to the income component, which is charged on taxable income. For businesses with a share capital of over 100M yen, the tax rate is lower but extra taxes are imposed based on the size of the business.
Special enterprise tax (tokubetsu hōjin jigyōzei) in Japan
In Japan, this type of tax was introduced in 2019. It is received by the national government to deal with the unevenness in tax revenue between prefectures. It is based on the income component of business tax and announced together with business tax irrespective of being a national tax.
Inhabitant tax (hōjin jūminzei) in Japan
This type of tax is acquired by the local government to compensate for the local infrastructure essential for the business to operate.
There are two components:
- the corporation tax component, which is based on the corporation tax amount, and
- the per-capita tax component, which is based on the size of the business. Both components may vary between municipalities.
The per-capita tax component can differ depending on capital and the number of employees.
A company founded in Japan can benefit from an assortment of tax-related processes in the event it becomes a small and medium-sized entity. Also, a company established in Japan that doesn’t plan to increase its capital funds and plans to be a small and medium-sized entity will be able to enjoy various tax benefits.
Establishing a company in Japan is the only way to enjoy all these tax benefits, so if you are ready to open your company in Japan, contact your Damalion expert now.
