Japan

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TAXES - ACCOUNTING

 

 

Corporate tax

Tax rate for resident companies

The taxes levied in Japan on income generated by the activities of a corporation include corporate tax (national tax), corporate inhabitant tax (local tax), and enterprise tax (local tax) (hereinafter collectively referred to as "corporate taxes").

Corporations having paid-in capital of more than \100 million are subject to corporate enterprise tax on a pro forma basis, using a pro forma standard ratio of one-fourth. For the other:

Brackets of taxable income

Up to
¥4 million
¥4 million
to ¥8 million
Over
¥8 million

Corporate tax

Inhabitant taxes

   (1)Prefectural

   (2)Municipal

Enterprise tax

22.00%

 

1.10%

2.70%

5.00%

22.00%

 

1.10%

2.70%

7.30%

30.00%

 

1.50%

3.69%

9.60%

Total tax rate

30.80%

33.10%

44.79%

Effective tax rate

29.33%

30.85%

40.87%


Source: Jetro

The rates for local taxes may vary somewhat depending on the scale of the business and the local government under whose jurisdiction it is located.

   
Tax rate on long-term capital gains In Japan, capital gains is taxed at the rate of 30%.
   
System governing groups of companies and dividends paid by subsidiaries to their parent companies Dividends are subjected to a withholding tax whose maximum rate amounts to 5%, when the actual beneficiary is a company, which possesses directly more than 15% of rights to vote in a resident distributor company of Japan. In the other cases, dividends are subjected to a 15% withholding tax.
   
Tax rate on branches Branches are taxed in the same way as the other companies in Japan.




Income tax

Fiscal year The fiscal year begins on January 1-st and ends on December 31 of the same year.
   
Income tax rate Rate is progressive from 10% to 37% divided in 4 brackets:
Tax rates, annual incomes in yens:
0 - 3.300.000 rate is 10%
3.300.000 - 9.000.000 rate is 20%
9.000.000 - 18.000.000 rate is 30%
Superior to 18.000.000 rate is 37%
   
Tax deductions or other allowances In Japan, fiscal deductions include:
Insurance allowances disease, life insurance, school fees etc.
Direct deductions for individuals:
-Annual fixed deductions of 380,000 yens per persons.
-Specific deductions are granted to disabled persons, elderly people, active students.
-an annual fixed deduction of 530,000 yens for people working aged from 16 to 22 years old.



VAT rates

Standard rates A consumption tax of 5%
   
Reduced rates Financial and capital-intensive transactions, educational and medical services are exempted from the VAT in Japan.



Other important taxes


Name of tax
Rate
Tax on royalties  
10%  
Tax on interests  
10% of their gross amount  
Donations and successions  
Exemption up to 600,000 yens, 10% until 1.5 million yens and 70% above 100,000,000 yens.  


 

Accounting

Introduction
Confidentiality in the Japan accounting system is very important.


Obligations and publications
Three different laws prescribe financial accounting and accounting edition in Japan:
The Commercial Code, Transferable securities and the Law of Exchange and the Corporation of Income tax Law.
The Commercial code gives the required regulations for a Limited Liability Company
(Kabushiki Kaisha) to prepare an annual report and appendix.
The annual report must be subjected to the general assembly of shareholders and must include the balance sheet and the income statement.
According to the law of transferable securities and the law of exchange, registrants must file to the Ministry of Finance the annual and biannual statement reports, as well as a copy in the foreign exchange markets where transferable securities are registered.
The corporation of income tax law gives methods to calculate the taxable income and require that incomes and charges must be registered in the account books to be qualified by virtue of the law.
These three laws are strongly interconnected in their objectives of accounting harmonization and are also called the Triangular Legal system.

Certification and auditing
The control of accounts has two main objectives. First of all, controlling the financial situations of companies, but also estimating the growth of a sector.

Professionals and representative organizations
- Finance corporation Research Institute.



Useful links
For further information, please contact Invest Japan.

Last modified in 2006 - ongoing update
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