Japan Accounting and Tax Considerations

It is important to be aware of your Japan accounting and tax considerations. Tetra Consultants’ accounting team will ensure your company is compliant with local regulations and requirements by timely filing annual returns and financial statements, tax compliance, audits and bookkeeping.

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    Japan accounting and tax service

    Many international clients engage Tetra Consultants for Japan accounting and tax services. Tetra Consultants will timely complete your firm’s financial statements, corporate tax returns and manage auditors on your behalf and without the need to travel. It is important to meet the deadlines stipulated by the Japan National Tax Agency. Failure to comply will result in late penalties and fines. Contact us now for a free consultation. Our team of experts will revert within the next 24 hours.

    Annual reporting requirements

    • Japanese companies must file a final tax return for corporate tax, local corporate tax, corporate inhabitant tax, enterprise tax, and special local corporate tax on their income within two months from the day following the last day of each taxable year. This is regulated by the Japan National Tax Agency.
    • A Japanese business corporation must choose its fiscal financial year when it begins operations. Thereafter the accounting period must not exceed 12 months. A corporation is required to file its tax return and settle all its tax within tow months after the close of the fiscal financial year.
    • Many companies plunge into international business without considering the tax implications of their decisions and corporate structure. In Japan, there are many forms of taxes that must be registered and filed within a specific period of time. Failure to do so will result in penalties and this will result in losses for your company.

    Corporate income tax

    • The corporation tax in Japan is 23.2% for companies with share capital above JPY 100 million.
    • Local inhabitants’ tax is also applicable to Japanese companies depending on the location and the size of the business. The inhabitant tax is charged by prefectures and involves 3 components: (a) progressive standard rates up to 3.6% of taxable profits and (b) 1.2 % of value-added factor and (c) 0.5% of share capital and capital surplus.
    • The above results in an effective tax rate of minimum of 30% for Japanese corporations. Branch companies are also taxed in a similar way.
    • Capital gain in Japan are taxable as ordinary income and capital losses are allowed to be deductible losses.

    Consumption Tax

    • Supply of goods and services are subject to consumption tax (i.e Value Added Tax). Typically, a rate of 10% is applicable for most of the services and an 8% tax rate is applicable for selected services. If your company supplies certain services such as exporting, then a 0% tax is applicable.
    • Japan intends to implement a revised consumption tax system effective 1 October 2023.
    • Registration as Consumption taxpayer is compulsory for companies whom exceed the threshold of taxable sales of JPY 10 million.

    Withholding tax

    • Dividends paid to resident and non-residents are subject to a 20% withholding tax.
    • Interest paid to resident and non-residents on loans are also subject to 20% withholding tax.
    • Royalties paid to resident and non-resident are subject to a 20% withholding tax.
    • The technical services fees to non-resident and residents are subject to 20% withholding tax as well.

    Other considerations

    • Transfer pricing rules are applicable for goods and services exchange between international affiliated entities. (i. e related parties) The Japanese registered company need to demonstrate with evidence and sufficient documentation that the transactions between affiliated entities are completed on an arms-length basis.
    • As of 1st January 2019, Japan has concluded 75 income tax treaties and one inheritance/estate tax treaty.

    Our team of experts is able to advise on how to legally reduce your tax obligations. Contact us now to find out more about your local accounting and tax obligations. Our team of experts will revert within the next 24 hours.

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