Laws & Regulations on Setting

Up Business in Japan
Section 3. Taxes in Japan
3.1 Overview of Japanese corporate tax system for
investment in Japan
3.1.1 Neutrality of tax system with respect to mode of business presence
(branch or subsidiary)
Corporations engaged in economic activities in Japan are subject to taxes in Japan on
the profits generated by those economic activities. Steps have been taken, however, to
ensure that the tax system does not impose unfair burdens on multinational
corporations engaged in economic activities in Japan on the basis of the mode of their
business presence in Japan. Income of corporations established in Japan is, as a rule and
with the exception of certain non-taxable and tax-exempt income, subject to taxation,
regardless of where it was generated (i.e., the source country of income), but when that
income includes profits earned in foreign countries that are taxed in the source
countries of that income, foreign taxation deductions are available whereby taxes paid
in a foreign country may within certain bounds be deducted from Japanese taxes owed
for the purpose of eliminating double taxation between the source country of income
and Japan. Regarding Japanese branches of foreign corporations, measures such as only
certain income is subject to taxation in Japan, have been implemented to avoid
international double taxation in Japan.
The scope of taxable income of Japanese branches of foreign corporations will change
significantly from the business year commencing on or after April 1, 2016. Under the
new regulation applicable from the business year commencing on or after April 1, 2016,
Japanese branches, head office, etc. shall be respectively deemed to be an
independent corporation and subject to taxation. Due to this, the income of a Japanese
branch subject to taxation will be the income attributable to the Japanese branch
(permanent establishment) which is the income earned by the Japanese branch if the
branch is deemed to be a company which is separated/independent from the head
office, etc. as well as other prescribed income. When calculating the income attributable
to the Japanese branch (permanent establishment), the profits/losses from the internal
transactions between the branch and head office, etc. are to be recognized based on
the presumption that transactions are conducted with the arm's length prices.

3.1.2 Withholding at source and self-assessment/payment

Multinational corporations engaged in activities in Japan that earn income subject to
taxation in Japan calculate and pay the taxes owed through withholding procedures or
self-assessed income tax procedures according to their form of corporation and type of
income.