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Address Taxation

Once the incorporation procedures are completed, you will be required to file tax-related documents with the tax office.
It is necessary to get a bird's eye view of the taxation system, which is an important aspect of operating a Japanese corporation.

*Please be noted that the following explanation is based on the assumption that the form of the business is a joint stock company (Kabushiki Kaisha, aka KK: 株式会社) or a limited liability company (Godo Kaisha, aka GK: 合同会社).

Overview of the Japanese taxation system

In Japan, companies are primarily subject to the following taxes:

  • Taxes on profits (income): "Corporate Income Tax (Hojinzei:法人税), Corporate Inhabitant Tax (HojinJyuminzei:法人住民税), and Corporate Business Tax (HojinJigyozei:法人事業税)

  • Consumption Tax (Shohizei:消費税) on the volume of transactions

  • Property Tax (Koteishisanzei:固定資産税) on fixed assets owned by a company.

 

The Corporate Income Tax is a national tax. In contrast, the Corporate Inhabitant Tax, Corporate Business Tax, and Property Tax are local taxes. The Consumption Tax consists of both a national tax portion and a local tax portion.

Therefore, tax-related registration must be submitted to both the tax office (Zeimusyo:税務署) and the local government.

Consumption Tax

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Required Tax registration documents after incorporation

After the incorporation, you will receive a Certificate of Complete Historical Records (RirekijikoZenbuShomeisho:履歴事項全部証明書, aka TokiboTohon登記簿謄本) and a copy of the Articles of Incorporation (Teikan: 定款) at the Legal Affairs Bureau (Homukyoku:法務局). Generally, tax-related registration must be completed at the tax office for national taxes and local government for local taxes upon receipt of these documents.

Each registration form has its due date, especially certain forms, such as an Application for Approval of a Blue Tax Return (Aoiroshinkokusyo-no-Shonin-no-Shinseisyo:青色申告書の承認の申請書) that allows certain tax deductions and carry-over of NOL, and an Application for Approval of Special Payment Terms for Withholding Tax (Gensencyoushuzei-no-Noki-no-Tokurei-no-Shonin-nikansuru-Shinseisho:源泉徴収税の納期の特例の承認に関する申請書) that allows withholding tax payment on a semiannually basis instead of monthly, must be submitted by the due date, or you may not receive any tax benefits or be subject to penalties.

Therefore, we encourage you to consult with Quantum Accounting's professional tax accountants from the preparatory stage of incorporating your company.

After incorporation, you should immediately submit the following documents to the tax office:

・Notification of Incorporation (HojinSeturituTodokesyo:法人設立届出書)

・Application for Approval of a Blue Tax Return (oiroshinkokusyo-no-Shonin-no-Shinseisyo:青色申告書の承認の申請書)

The following documents should also be submitted at the same time as the two documents mentioned above if you plan to pay remuneration to directors and salaries immediately after incorporation:

・Notification of the Commencement of Payroll (Kyuryoshiharaijimusyotnado-no-Zeimusyonado-no-Kaisetutodokesyo:給与支払事務所等の開設届出書)

・Application for Approval of Special Payment Terms for Withholding Tax (Gensencyoushuzei-no-Noki-no-Tokurei-no-Shonin-nikansuru-Shinseisho:源泉徴収税の納期の特例の承認に関する申請書)

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Overview of the Consumption Tax

The Consumption Tax is an indirect tax that is generally imposed on consumption in Japan. Almost all sales of goods, provision of services, and imports from abroad (a receipt of foreign goods from bonded areas) within Japan are subject to the Consumption Tax. The tax is levied at a standard rate of 10% and a reduced rate of 8% for foods and drinks except for alcohol (the rates include both the national and local tax).

With regard to the Consumption Tax, issues such as the advantage and/or disadvantages of taxable or non-taxable status, whether to choose the standard taxation method or the simplified taxation method when becoming a taxable entity, etc., require tax strategies based on the estimated sales and purchases volumes of your company. Accordingly, you need to draft a detailed business plan and consider which tax position is best suited for you. The tax position of the Consumption Tax cannot be changed during the fiscal year, and thus you need to determine the election before the start of the fiscal year. These are complex and time-consuming tasks, and it would be quite difficult to proceed with the process without the involvement of tax professionals.

You should also be aware that a new invoicing system (qualified invoice system), which is similar to the system used by countries that impose VAT, will be introduced on October 1, 2023. Under the qualified invoice system, you will be required to retain a qualified invoice issued by a registered invoice issuer in order to be eligible to claim a consumption tax credit.

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Pass-through election of the GK for U.S. parent

If the parent company is a U.S. entity, based on a check-the-box election under U.S. tax law, the Japanese subsidiary GK can report its income as part of the U.S. parent company's income on a pass-through basis for U.S. tax purposes

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For more details, please refer to this article.

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If you are considering expanding your business to Japan, please contact Quantum Accounting Inc. for a free consultation during the planning phase or general consultation (available in both English and Japanese). Quantum Accounting's professionals are experts in accounting, tax, legal, and labor issues. Our goal is to provide you with a one-stop professional firm for all the services you need to expand your business into Japan.

 

We are confident that we can help you. For further information, please contact from CONTACT US.

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