In today’s increasingly interconnected global economy, Japan, as the world’s third-largest economy, is attracting more and more foreign investors. However, entering the Japanese market also means facing a complex and unique tax environment. Understanding Japan’s tax policies is not only a compliance requirement but also key to formulating wise investment strategies.
This guide aims to provide foreign investors interested in investing in Japan with a comprehensive and practical overview of tax policies. From basic tax introductions to the latest preferential policies, from common risk warnings to practical information channels, we strive to cover all aspects of investors’ greatest concerns. By answering 18 carefully selected questions, this guide will help you quickly grasp the core elements of the Japanese tax system, identify potential tax risks, and fully utilize possible tax benefits.
1.How can I obtain tax-related policy consulting services in Japan?
The National Tax Agency provides tax consulting services for foreigners. You can get help through the following means:
Japan National Tax Agency
Official website: https://www.nta.go.jp
Contact phone: 03-3581-4111
Address: 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo, Japan
Ministry of Internal Affairs and Communications of Japan (responsible for local taxation)
Official website: https://www.soumu.go.jp
Contact phone: 03-5253-5111
Address: 2-1-2 Kasumigaseki, Chiyoda-ku, Tokyo, Japan
Ministry of Finance of Japan
Official website: https://www.mof.go.jp
Contact phone: 03-3581-4111
Address: 3-1-1 Kasumigaseki, Chiyoda-ku, Tokyo, Japan
Ministry of Economy, Trade and Industry of Japan
Official website: https://www.meti.go.jp
Contact phone: 03-3501-1511
Address: 1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo, Japan
Japan Chamber of Commerce and Industry (industry association related to tax policies)
Official website: https://www.jcci.or.jp
Contact phone: 03-3283-7700
Address: 3-2-2 Marunouchi, Chiyoda-ku, Tokyo, Japan
Japan Federation of Certified Public Tax Accountants’ Associations
Official website: https://www.nichizeiren.or.jp
Contact phone: 03-3356-4461
Address: 4-37 Yotsuya Honshio-cho, Shinjuku-ku, Tokyo, Japan
Japan External Trade Organization (JETRO)
Official website: https://www.jetro.go.jp/en/invest/
Contact phone: 03-3582-5511
Address: 1-12-32 Akasaka, Minato-ku, Tokyo 107-6006, Japan
2.As a foreign investor, which main types of taxes in Japan should I pay attention to?
As a foreign investor, you should mainly pay attention to the following types of taxes:
Corporate tax (corporate income tax)
Consumption tax (similar to VAT)
Withholding income tax (for dividends, interest, etc.)
Capital gains tax (for capital gains)
Inheritance tax and gift tax (if involving inheritance or gifting of assets within Japan)
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/index.htm
3.What is the corporate income tax rate in Japan?
The standard corporate tax (corporate income tax) rate in Japan is 23.2%. However, the actual tax burden also needs to consider local corporate tax, corporate inhabitant tax, and business tax. After comprehensive calculation, the actual tax burden for large enterprises in Tokyo is about 29.74%. Small and medium-sized enterprises may enjoy lower rates.
Detailed information can be found on the website:
https://www.mof.go.jp/english/tax_policy/tax_system/japanese_tax_system_1999/zc001f01.htm
4.How does Japan tax dividend income for foreign investors?
Japan typically imposes a 20% withholding tax on dividends paid to foreign investors. However, if Japan has signed a tax treaty with the investor’s country of residence, the tax rate may be reduced.
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/withholding/index.htm
5.What is the consumption tax rate in Japan? How does it affect investment?
The current consumption tax rate in Japan is 10%. As an investor, you should note that consumption tax may affect a company’s pricing strategy and consumer behavior, thereby impacting the company’s profitability.
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/consumption_tax/index.htm
6.Does Japan tax capital gains? What are the rates?
Japan taxes capital gains. For individual investors, the tax rate for long-term holdings (over 5 years) is 20%, while for short-term holdings it is 39%. Capital gains for corporations are usually taxed as ordinary income at the corporate income tax rate.
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/individual/index.htm
7.What investment-related tax incentives does Japan offer?
Japan offers several investment-related tax incentives, such as tax credits for R&D expenses, accelerated depreciation for investments in certain specific areas (like environmental technology), tax benefits for investments in specific economic zones, etc.
Specific information can be found on the website:
https://www.meti.go.jp/english/policy/index.html
8.What tax treaties has Japan signed with other countries? How do they affect investment?
Japan has signed tax treaties with many countries to avoid double taxation and promote international investment. These agreements may reduce withholding tax rates and simplify tax procedures.
Specific information can be found on the website:
https://www.mof.go.jp/english/tax_policy/tax_conventions/index.htm
9.Does Japan implement CRS (Common Reporting Standard)? How does it affect investors?
Japan has implemented CRS. This means that Japanese financial institutions will collect and report to tax authorities information on financial accounts held by foreign tax residents, which will be exchanged with other participating countries. Investors should be aware of cross-border tax compliance.
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/automatic_exchange_of_information/index.htm
10.How does Japan tax real estate investments by foreign investors?
Foreign investors’ real estate investments in Japan may involve the following taxes:
Real estate acquisition tax and registration and license tax at the time of acquisition
Fixed asset tax and city planning tax during the holding period
Capital gains tax upon sale
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/property/index.htm
11.Does Japan have a holding company tax system?
Japan has implemented a holding company tax system that allows qualified holding companies to treat dividends received from subsidiaries as tax-free. This may affect the investment structure of multinational companies.
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/company/index.htm
12.What are Japan’s transfer pricing rules?
Japan implements strict transfer pricing rules, requiring transactions between related companies to comply with the arm’s length principle. Violation of regulations may result in additional taxation and fines.
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/company/transfer_pricing.htm
13.Where can I find a complete compilation of Japan’s tax policies?
A complete compilation of Japan’s tax policies can be obtained through the following channels:
a) National Tax Agency Law Interpretation Database (in Japanese): This includes the latest tax laws, government ordinances, ministerial ordinances, and other regulatory documents.
Website: https://www.nta.go.jp/law/index.htm
b) Ministry of Finance of Japan Tax System Website (in English): Provides an overview of the tax system and major policy documents in English.
Website: https://www.mof.go.jp/english/tax_policy/index.htm
c) Japanese Law Data Provision System (in Japanese, some in English): This is a comprehensive legal database operated by the Japanese government, containing all current laws and regulations.
Website: https://elaws.e-gov.go.jp/
It is recommended to check these resources regularly, especially after annual tax reforms, to ensure you are aware of the latest tax policy changes.
14.What are the most common tax risks for foreign investors in Japan?
The most common tax risks for foreign investors in Japan include:
Permanent establishment recognition risk: Inadvertently constituting a permanent establishment in Japan may result in global income being taxed.
Transfer pricing risk: Cross-border transactions with related parties that do not comply with the arm’s length principle may face adjustments and penalties.
Consumption tax reporting errors: Misjudging whether consumption tax needs to be paid or improper reporting may lead to penalties.
Improper withholding of income tax: Failure to correctly withhold income tax when making payments to non-residents may result in penalties.
Incorrect application of tax treaties: Failure to correctly apply or benefit from tax treaty advantages.
Thin capitalization risk: Excessive reliance on related party debt financing may lead to limited interest deductions.
Anti-tax avoidance rule risk: If deemed to have engaged in tax avoidance behavior, additional taxation may be faced.
It is recommended to hire professional tax advisors and conduct regular tax health checks to identify and reduce these risks.
15.What are the main anti-tax avoidance rules in Japan?
Japan has implemented several anti-tax avoidance rules, mainly including:
Transfer pricing rules: Regulating cross-border transaction pricing between related companies.
Thin capitalization rules: Limiting companies’ excessive use of related party debt financing.
Controlled Foreign Company (CFC) rules: Preventing the use of subsidiaries in low-tax countries or regions to delay tax payments.
General Anti-Avoidance Rule (GAAR): Authorizing tax authorities to recharacterize behaviors that abuse tax laws.
Interest deduction limitation rules: Limiting companies’ excessive use of interest deductions to reduce taxable income.
Specific information can be found on the website:
https://www.nta.go.jp/english/taxes/company/index.htm
16.Are there any tax incentives specifically for foreign investors in Japan?
Japan indeed has some tax incentives specifically for foreign investors:
Asian Headquarters Special Zone Plan: Providing tax incentives for foreign companies setting up Asian headquarters or R&D centers in Tokyo.
National Strategic Special Zones: Foreign companies can enjoy special tax incentives and regulatory conveniences in designated areas.
Highly Skilled Professional Visa Holder Benefits: Offering personal income tax benefits for highly skilled foreign professionals.
Start-up Visa Related Benefits: Providing tax support for foreign entrepreneurs starting businesses in specific areas.
Specific information can be found on the websites:
Cabinet Office National Strategic Special Zone:
https://www.kantei.go.jp/jp/singi/tiiki/kokusentoc/index.html
JETRO Investment Guide:
https://www.jetro.go.jp/en/invest
It is advisable to regularly check these policies as they may be adjusted according to Japan’s economic strategies. Also, consider consulting professional tax advisors to determine if your investment qualifies for these preferential policies.
17.How to apply for tax reduction or exemption policies in Japan?
Depending on the individual or company’s financial situation and industry category, taxpayers can apply for specific tax reduction or exemption policies. The application process is usually completed through the online system of the Japan National Tax Agency by submitting corresponding supporting documents.
Specific information can be found on the website:
https://www.nta.go.jp/taxes/shiraberu/taxanswer/shohi/6201.htm
18.How do foreign individuals in Japan file annual tax returns?
Foreign nationals working or investing in Japan need to file annual tax returns, applicable taxes include income tax, consumption tax, and capital gains tax. The filing period is generally March 15th each year, and taxpayers can complete the filing through the National Tax Agency’s online platform.
Specific information can be found on the website:
https://www.nta.go.jp/taxes/shiraberu/taxanswer/gensen/2515.htm
