Japanese Taxation
The Japanese tax system is very different from the Italian one.
The peculiarities and advantages that accurate tax management can offer are incredible compared to the average European standards.
The professionals selected by B2J will be able to explain all the benefits derived from investments made in Japan, fully respecting the national and international regulations outlined in current legislation.
Japan
Source
June 9, 2022
Income derived from dividends, interest, capital gains, and gains from the sale of securities are subject to a withholding tax at the source.
Articles 30 and 92 of the Japanese Constitution establish, respectively, the duty of citizens to pay taxes imposed by law and the authority to enact tax laws to finance the administration of local governments, consisting of 47 prefectures and 1,800 municipalities. The main domestic legislative tax provisions are based on the following legal sources:
- Inheritance Tax Law (73/1950)
- General National Tax Law (66/1962)
- Income Tax Law (33/1965)
- Corporation Tax Law (34/1965)
- Consumption Tax Law (108/1988)
Personal Income Taxation
The Japanese tax system distinguishes the following categories of taxpayers:
- Resident taxpayers, taxed on worldwide income under the worldwide principle.
- Non-permanent resident taxpayers, taxed on income earned in Japan and on income paid within Japan, even if not produced there.
- Non-resident taxpayers, taxed exclusively on income earned in Japan.
The system provides personal deductions for resident taxpayers, such as:
- Up to ¥380,000 deductible from national tax for spouses. This amount increases to ¥480,000 if the spouse is over 70 years old.
- ¥380,000 for children over 16 years of age, increased by ¥250,000 for educational deductions if the dependent child is between 19 and 23 years old.
- Other deductions for medical expenses, charitable contributions exceeding ¥2,000 (deductible up to 40% of income), premiums for life insurance, and pension plans provided by Japanese agencies.
Non-resident taxpayers are excluded from all tax benefits.
The system is progressive with income brackets and rates as follows:
| TAXABLE INCOME (in yen) | RATE | FIXED AMOUNT |
|---|---|---|
| Up to ¥1,950,000 | 5% | – |
| Over ¥1,950,000 to ¥3,300,000 | 10% | ¥97,500 |
| Over ¥3,300,000 to ¥6,950,000 | 20% | ¥232,500 |
| Over ¥6,950,000 to ¥9,000,000 | 23% | ¥962,500 |
| Over ¥9,000,000 to ¥18,000,000 | 33% | ¥1,434,000 |
| Over ¥18,000,000 to ¥40,000,000 | 40% | ¥4,404,000 |
| Over ¥40,000,000 | 45% | ¥13,204,000 |
From January 1, 2013, to December 31, 2037, an additional tax has been introduced to support reconstruction costs following the 2011 Tohoku earthquake, applying a 2.1% surcharge on income tax.
Income from employment earned in Japan by non-resident taxpayers is subject to a proportional tax at a rate of 20% on gross income, plus the 2.1% surcharge.
Income from dividends, interest, capital gains, and securities sales is subject to a withholding tax of 20.315%(15.315% national tax and 5% local tax) for residents. Royalties are not subject to withholding, while for non-residents, the lower rate of the applicable treaty is applied.
Corporate Taxation
Only Japanese-registered companies are considered resident entities for tax purposes and taxed on worldwide income under the worldwide principle. Non-resident entities are taxed on income produced in Japan.
The tax system provides for a foreign tax credit to offset the Corporation Tax under certain conditions.
Tax is determined by multiplying the taxable base by the respective rate:
- Capital over ¥100 million: 23.2% rate.
- Capital under ¥100 million: 15% rate for income up to ¥8 million, 23.2% for income exceeding ¥8 million.
Since October 1, 2019, a Local Corporate Tax has been introduced, applying a 10.3% rate on the Corporation Tax.
Capital gains are generally included in the global income. Interest is subject to a 20% withholding tax, of which 5% is for Local Corporate Tax.
Dividends received from a Japanese company are excluded from taxable income for Corporation Tax purposes if the recipient holds at least 100% ownership. For ownership below 33.3%, 50% of dividends are included in the taxable base. For ownership below 5%, 80% of dividends are included.
Royalties are not subject to withholding. Interest, royalties, and dividends received by non-resident entities are subject to withholding according to applicable treaties. In the absence of a treaty, a 20% withholding tax applies.
Consumption Tax
The Consumption Tax (similar to VAT) applies to imports and most sales of goods and services in Japan. The standard rate is 10%, with a reduced 8% rate for specific items such as food and beverages (excluding alcohol) and certain publications.
Filing and Payment Obligations
- Individuals: Tax returns must be submitted by March 15 of the year following the tax period.
- Corporations: Returns and payments must be completed within two months of the end of the fiscal year, extendable to four months upon agreement with local authorities.