Japan corporate tax guide

Corporate residence and taxable presence

A corporation with its head office or principal office in Japan is treated as domestic under the NTA’s domestic-law test, which looks to registration and constitutional records. Domestic corporations are generally taxed on worldwide income. This is not a generic rule that every foreign company becomes Japanese-resident because its owner opens a laptop in Tokyo.

Foreign companies nevertheless need a serious Japanese permanent-establishment and source-income analysis. A fixed business location, a branch, contract-concluding activity and the role of people in Japan can matter. A home office can raise questions even without a formal office lease. Treaty definitions, attribution of functions and assets, and anti-fragmentation rules must be examined rather than reduced to a checklist of rented desks.

If another country also claims corporate residence, the actual treaty may involve several factors or agreement between competent authorities. Corporate residence, PE, CFC attribution to the shareholder, payroll and consumption tax are distinct tests. Passing one does not dispose of the others.

National and local corporate tax

The ordinary national corporation-tax rate is 23.2%. A qualifying corporation with capital of no more than JPY100 million can have a lower rate on the first JPY8 million of annual income, normally 15%, subject to ownership, exclusion and other conditions. For business years beginning from 1 April 2025, that lower slice is 17% where annual income exceeds JPY1 billion. Certain excluded businesses instead face 19% on the slice. A foreign-owned company must check the large-parent exclusions.

Local corporate tax, corporate inhabitant tax, enterprise tax and special corporate enterprise tax sit alongside national corporation tax. Some are computed on another tax, some on income, and some by capital, headcount or value added. Municipality, capital, group ownership and entity size can materially change the result. A table showing 23.2% as Japan’s all-in business burden is misleading.

For business years starting on or after 1 April 2026, defense special corporation tax is 4% of the statutory corporation-tax base after the JPY5 million basic deduction, with period and other adjustments. The 4% is not applied to business profit. NTA guidance also requires a return even where this tax is zero; interim filing starts for years commencing from 1 April 2027.

Defense tax: worked example

Suppose, only for illustration, that the applicable full-year statutory corporation-tax base for defense tax is JPY8 million and the full JPY5 million deduction is available. The defense tax is JPY120,000: (8 million − 5 million) × 4%. At a JPY4 million base, that particular computation is zero. Neither figure tells you the company’s ordinary or local corporate taxes.

Do not calculate the base by taking a group’s book profit and multiplying it by 4%. Credits, attribution rules, short years and filing structures can affect the statutory amount. The cash forecast should show each tax layer separately, including installments and payment dates.

Controlled foreign companies

The CFC regime examines foreign related companies controlled through Japanese residents, domestic corporations and relevant connected ownership or effective control. It distinguishes paper companies, cash-box and other specified categories from entities tested under economic-activity standards. The published exemption tax-burden thresholds are 27% for specified categories such as paper companies and 20% for other foreign related companies. These are calculated foreign tax burdens, not merely the headline rate of the jurisdiction.

Economic activity involves the nature of the business, physical substance, self-management and control in the home jurisdiction, plus a local-business or unrelated-customer test depending on the industry. Failing the tests can produce company-level inclusion. Passing all of them can still leave specified passive income subject to inclusion. A nominee director and a registered address do not establish that a business is actually managed abroad.

The work file should contain an ownership tree including connected persons, foreign financial statements, tax calculations, contracts, premises and staffing evidence, decision records and a transaction-by-transaction passive-income review. Attribution timing and attachments changed in the 2025 reforms; apply the rules for the actual foreign and Japanese fiscal years. Do not assume that paying a dividend later eliminates the earlier analysis.

Withholding tax and treaties

A payment can be a dividend, interest, royalty, service fee, reimbursement, capital movement or branch remittance. Each has different source, deductibility and withholding consequences. The ordinary domestic withholding headline for many payments to a non-resident or foreign corporation is 20.42% in 2026; specified deposit and bond interest commonly has a 15.315% rate. Listed dividends, ownership thresholds and exemptions require separate treatment.

Treaties can reduce or remove withholding where the recipient qualifies and the necessary procedure is followed. Collect legal ownership and beneficial-owner evidence, tax residence, the applicable treaty article, anti-abuse analysis and the NTA forms before payment. An invoice sent from a treaty country is not enough.

Intra-group service fees, loans and royalties also need transfer-pricing support and actual performance. Separate who owns an intangible from who performs and controls the work that creates its value. Director compensation has domestic deductibility restrictions. Moving owner withdrawals into an expense account after year-end does not make them deductible.

Consumption tax and registration

The standard consumption-tax rate is 10%, including national and local components; a reduced 8% applies to specified food and beverages excluding alcohol and restaurant services, and qualifying subscription newspapers. Supplies, imports, digital services and exports need their own place-of-supply and exemption analysis. A foreign customer is not by itself proof that every invoice is outside Japanese consumption tax.

The usual small-business test refers to taxable sales of no more than JPY10 million in the base period, generally two years before for individuals or the second preceding business year for corporations. Specified-period tests, elections, invoice registration, group-control rules and new-company exceptions can override that starting point.

A new company with capital of JPY10 million or more at the relevant start can be taxable even without a base period. That has a direct immigration connection: a company funded at JPY30 million for a new Business Manager application cannot assume the familiar two-year startup exemption. Qualifying invoice issuer registration also removes the small-business exemption irrespective of the headline turnover test.

Before registration, compare customers’ input-credit needs, expected taxable purchases, import arrangements and the consequences of elections. Keep compliant invoices and electronic records, and identify whether the simplified method is available and suitable. The best answer may differ between a domestic B2B consultancy and an exporter.

Formation and filing obligations

Choose the entity and ownership after reviewing the business model and residence route. A subsidiary, foreign branch and representative office do not offer the same legal or tax treatment. A representative office intended for auxiliary functions is not a general-purpose revenue business. Banking approval and immigration approval remain separate decisions.

Prepare incorporation and tax registrations, the blue-return election, payroll withholding setup, local registrations and consumption-tax decision on a single calendar. JETRO describes the ordinary corporation-tax final filing/payment deadline as two months after the fiscal year-end. An approved filing extension does not simply make tax payment interest-free. Newly established entities have a specific deadline for blue-return approval, which should be checked before the first year closes.

Loss carryforwards can reach ten years for losses in business years starting from 1 April 2018, with blue-return and continuous-filing conditions. Larger-company limits and reorganisation restrictions matter. Do not treat accumulated losses as freely transferable assets.

Review outsourced bookkeeping against the underlying operations: owner travel, where contracts are negotiated, inventory and fulfillment, intercompany balances, payroll and actual management. We coordinate structuring and implementation; foreign management providers, where appropriate, are independent counterparties rather than an in-house management service.

Restructuring and departure

Japan’s personal departure deemed-disposal tax is not a corporate migration formula. This review has not established a universal corporate exit-tax classification covering every migration and transfer. The applicable rules can instead arise through asset disposals, branch attribution, liquidation, distributions and non-qualified reorganisations. A map should show that research limitation rather than mark corporate exit tax absent.

Before transferring a business or winding it up, list assets, contracts, intellectual property, employees, licenses, shareholder loans and retained profits. Determine the legal transaction, market values, tax basis, withholding and continuity of consumption-tax/payroll obligations. The destination country’s arrival treatment is a separate inquiry.

For an international owner, a useful engagement joins the personal move, Japanese operating footprint and foreign-company compliance in one implementation plan. The initial inquiry should identify your profit level, entity countries, shareholders, customer markets and which people will actually work from Japan.