Corporate Taxation in Japan

Published on October 30, 2025 and written by Cyril Jarnias

Japan, the world’s third-largest economy, offers a stable and sophisticated business environment. However, its tax system may appear complex for foreign companies. This article will guide you through the intricacies of Japanese taxation, helping you effectively navigate this unique regulatory landscape.

The Japanese Tax Landscape: A Maze of Taxes to Master

The Japanese tax system is renowned for its complexity, but a thorough understanding can reveal interesting opportunities for foreign companies. Here’s an overview of the main taxes corporations face in Japan:

Corporate Tax is the cornerstone of corporate taxation in Japan. For fiscal years beginning on or after April 1, 2024, the standard rate is set at 23.2% for companies with capital exceeding 100 million yen. Small and medium-sized enterprises benefit from a reduced rate of 15% on the first 8 million yen of annual income[1].

Consumption Tax, the Japanese equivalent of VAT, has been 10% since October 2019. However, a reduced rate of 8% applies to certain food items and non-alcoholic beverages. Companies with annual revenue exceeding 10 million yen are required to register and collect this tax.

• Enterprise Tax, with rates varying according to company size and business type
• Inhabitants Tax, levied by prefectures and municipalities
• Fixed Asset Tax, applied to real estate and depreciable assets used for business purposes

Business Premises Tax is imposed in major Japanese cities on companies occupying more than 1,000 m² of space or employing more than 100 people. It is calculated based on premises area (600 yen per m²) and payroll (0.25% of gross payroll).

Registering with Japanese Tax Authorities: A Crucial Step for Your Establishment

Tax registration is a fundamental step for any company wishing to operate legally in Japan. Here are the main procedures to follow:

1. Obtaining a Tax Identification Number: Upon establishing your company in Japan, you must register with the local tax office (Zeimusho) that has jurisdiction over your headquarters. A unique tax identification number will be assigned to you, essential for all future transactions with the tax administration.

2. Consumption Tax Registration: If your projected revenue exceeds 10 million yen, you must register for consumption tax collection. This procedure can be completed simultaneously with obtaining your tax number.

3. Appointment of a Tax Representative: Foreign companies without a physical presence in Japan must appoint a local tax representative. This representative will be responsible for tax filings and communications with Japanese authorities.

4. Opening a Business Bank Account: Although not mandatory from a tax perspective, opening a Japanese bank account will greatly facilitate your financial and tax operations in the country.

Tax Obligations in Japan: A Schedule to Strictly Follow

Once your company is registered, you must comply with a set of regular tax obligations. Here are the main deadlines not to miss:

Corporate Tax Returns: They must be filed within two months following the end of the fiscal year. A one-month extension may be granted upon request. Companies are generally required to make quarterly provisional payments.

Consumption Tax Returns: For most companies, they are due annually, within two months after the end of the fiscal year. Large companies (revenue exceeding 1 billion yen) must file quarterly returns.

Withholding Taxes: Employers must report and remit monthly withholdings from their employees’ salaries, generally before the 10th of the following month.

Fixed Asset Tax: It is due annually, typically in four installments (May, July, December, and February).

Foreign Executive Income Declarations: Non-resident executives may be subject to specific filing requirements, particularly if they receive compensation from Japanese sources.

It is crucial to meet these deadlines to avoid penalties that can be substantial. The Japanese tax administration is known for its rigor but also for its willingness to help taxpayers acting in good faith.

Double Taxation Agreements: An Asset for International Expansion

Japan has concluded tax treaties with numerous countries to avoid double taxation and prevent tax evasion. These agreements are particularly important for companies operating internationally.

Extensive Tax Treaty Network: Japan has signed agreements with over 70 countries, covering most major world economies. These treaties define the rules for allocating taxing rights between Japan and its partners on various types of income.

• Reduction or elimination of withholding taxes on dividends, interest, and royalties
• Clear definition of permanent establishment rules, crucial for determining profit taxation
• Mechanisms for resolving tax conflicts between countries
• Information exchange between tax administrations to combat fraud

Application to Foreign Companies: To benefit from tax treaty advantages, companies must generally prove their tax residency in the partner country and meet certain economic substance conditions.

Special Case of the United States: The tax treaty between Japan and the United States is particularly detailed and advantageous, reflecting the importance of economic relations between these two countries.

Japan vs. Offshore Jurisdictions: A Choice of Substance

Although Japan is not considered a low-tax jurisdiction, it offers unique advantages that can make it more attractive than some tax havens for serious businesses:

Stability and Reputation: Japan enjoys an excellent international reputation and enviable political and economic stability. This can be a major asset for companies seeking to establish a credible presence in Asia.

Infrastructure and Innovation: The country offers world-class infrastructure and an environment conducive to innovation, particularly in sectors like robotics, artificial intelligence, and green technologies.

Access to Asian Markets: Japan can serve as a strategic gateway to other growing Asian markets.

Comparison with Hong Kong and Singapore: Although these jurisdictions offer lower tax rates, Japan stands out for the size of its domestic market and sophisticated business ecosystem.

Targeted Tax Incentives: Japan offers attractive tax incentives in certain priority sectors, such as R&D or renewable energy, which can significantly reduce the effective tax burden.

Transparency and Compliance: By choosing Japan, companies ensure they operate in an environment compliant with the strictest international standards, thus avoiding reputational risks associated with offshore jurisdictions.

Conclusion: Japan, a Strategic Choice for Your Asian Expansion

Japanese taxation, although complex, offers a stable and predictable framework for foreign companies. With its extensive double taxation agreements, targeted incentives, and sophisticated business environment, Japan positions itself as a serious alternative to traditional offshore jurisdictions for companies seeking sustainable establishment in Asia.

However, navigating the Japanese tax system requires specialized expertise and meticulous planning. It is crucial to surround yourself with experienced professionals to optimize your tax structure while remaining compliant with local and international regulations.