A Guide to Japanese Taxes for New Businesses

Starting a business in Japan is not easy and involves a complex tax landscape. Therefore, Understanding Japanese taxes for new businesses is crucial for ensuring compliance, avoiding penalties, and planning finances effectively. This article aims to provide a detailed guide on the various taxes new companies in Japan need to be aware of.

Japanese Tax System

Japan’s tax system is composed of 1. National and 2. local taxes, each with its own set of regulations and requirements. Also, The national taxes include corporate tax, consumption tax, and withholding tax, while local taxes consist of inhabitant tax, enterprise tax, and fixed assets tax.

National Taxes

1. Corporate Tax (法人税 – Houjinzei): This tax is levied on the income of corporations. It is essential for businesses to understand the rates and filing requirements to ensure timely and accurate submissions.
2. Consumption Tax (消費税 – Shouhizei): Similar to value-added tax (VAT), this is imposed on the sale of goods and services. Businesses must register for this tax, collect it from customers, and remit it to the government.
3. Withholding Tax (源泉所得税 – Gensen Shotokuzei): This tax is withheld at the source from payments such as salaries, interest, and dividends. Companies need to know which payments are subject to this tax and the applicable rates.

Local Taxes

1. Inhabitant Tax (住民税 – Juuminzei): This tax is paid by both individuals and corporations based on their income and the location of their residence or business.
2. Enterprise Tax (事業税 – Jigyouzei): Levied on business income, this tax varies depending on the type and size of the business.
3. Fixed Assets Tax (固定資産税 – Kotei Shisanzei): This tax is imposed on the value of fixed assets, such as land and buildings, owned by a business.

Importance of Compliance

Compliance with Japanese tax regulations is very important for new companies to avoid legal issues and financial penalties. Not complaining can lead to severe consequences, including fines and increased scrutiny from tax authorities. Understanding and adhering to these regulations helps new businesses maintain good standing and focus on growth.

Type of Tax	Who is Subject to It	How to Calculate	Important/Useful Reference Links
Corporate Tax (法人税 – Houjinzei)	Corporations, SMEs, and larger companies	Based on taxable income. Rates differ for SMEs (approximately 15% for income up to JPY 8 million) and larger companies (approximately 23.2%).	Guide to Corporate Tax in Japan
Inhabitant Tax (住民税 – Juuminzei)	Residents and corporations	Combination of municipal and prefectural taxes. Typically, 6% municipal and 4% prefectural, totaling 10% of income.	Expatica – Local Resident Taxes
Enterprise Tax (事業税 – Jigyouzei)	Self-employed individuals and corporations	Progressive tax rates are based on income. Rates vary by business type and location.	JETRO – Business Taxes in Japan
Consumption Tax (消費税 – Shouhizei)	Businesses engaging in the sale of goods and services	Flat rate of 10% on taxable sales. Businesses must register, collect the tax from customers, and remit it to the government.	EU-Japan Centre – Consumption Taxes
Withholding Tax (源泉所得税 – Gensen Shotokuzei)	Employers, payers of interest, dividends, and royalties	Varies by payment type and recipient’s status (e.g., 20% for dividends paid to residents). Specific rates apply depending on treaties and individual circumstances.	PwC – Withholding Taxes
Registration and License Tax (登録免許税 – Touroku Menkyozei)	New businesses and corporations needing registration	Fixed rates for registration of businesses and licenses. For example, the registration of a company might involve a tax of JPY 150,000.	Tokyo Metropolitan Tax Guide
Fixed Assets Tax (固定資産税 – Kotei Shisanzei)	Owners of fixed assets such as land and buildings	Based on the assessed value of the assets. Typically, a rate of 1.4% of the asset’s value is applied.	NICHIZEIREN – Guide to Japanese Taxes
Social Insurance Contributions	Employers and employees	Rates vary by type of insurance (e.g., health, pension, unemployment). Employers must contribute a portion of employees’ premiums and remit to relevant agencies.	National Tax Agency (NTA) Japan

How to Handle Your Taxes in Japan in 4 Steps

To ensure compliance and efficiency, here are four essential steps to manage your tax obligations effectively:

Step 1: Register with Government Agencies

The first step in handling your taxes in Japan is to ensure proper registration with the relevant government agencies. This process includes:

1. Business Registration: Register your business with the Legal Affairs Bureau. This step is necessary for obtaining a company seal and registering your company name.
2. Tax Registration: Register for corporate tax, consumption tax, and other relevant taxes with the National Tax Agency (NTA). This registration ensures that your business is recognized by the tax authorities and allows you to receive important tax-related information.
3. Social Insurance Registration: Register for social insurance contributions with the Japan Pension Service and other relevant agencies. This registration is mandatory for businesses with employees and covers health insurance, pension, and other social security contributions.

Proper registration helps establish your business’s legal and tax identity, ensuring compliance from the outset.

Step 2: Hire a Tax Accountant

Hiring a tax accountant can provide numerous benefits for managing your business taxes:

1. Expertise and Knowledge: A tax accountant brings specialized knowledge of Japanese tax laws and regulations, ensuring accurate and compliant tax filings.
2. Time Savings: Handling tax matters can be time-consuming. A tax professional can manage these tasks, allowing you to focus on your business operations.
3. Tax Planning: An accountant can help with tax planning strategies to optimize your tax liabilities, potentially saving your business money.
4. Audit Support: In the event of a tax audit, having a professional on your side can provide peace of mind and ensure that your business is well-represented.

For detailed guidance on finding and hiring a tax accountant in Japan, refer to our Ultimate Guide to an accountant in Japan.

Step 3: Maintain Detailed Financial Records

Maintaining detailed and accurate financial records is crucial for several reasons:

1. Compliance: Proper records ensure that you can accurately report your income, expenses, and other financial activities to the tax authorities.
2. Audit Readiness: In case of a tax audit, having organized and detailed records can facilitate the process and demonstrate compliance.
3. Financial Management: Detailed records help you monitor your business’s financial health, enabling better decision-making and financial planning.
4. Tax Deductions: Accurate records ensure that you can claim all eligible tax deductions, potentially reducing your tax liabilities.

Records should include invoices, receipts, bank statements, payroll records, and any other documents related to your financial transactions.

Step 4: File Your Taxes

Filing your taxes timely and accurately is essential to avoid penalties and interest charges. Here are some key points to consider:

1. Understand Deadlines: Familiarize yourself with the filing deadlines for different types of taxes, such as corporate tax, consumption tax, and social insurance contributions.
2. Accurate Filings: Ensure that all information on your tax returns is accurate and complete. Double-check figures and documentation before submission.
3. Use Online Services: The National Tax Agency offers electronic filing services (e-Tax), which can simplify the process and reduce the risk of errors.
4. Seek Professional Help: If you are unsure about any aspect of your tax filings, consult with a tax professional to avoid mistakes and ensure compliance.

For more information on filing corporate tax and other obligations, visit National Tax Agency (NTA) Japan.

Top 3 Resources and Assistance Available for New Businesses in Japan

Navigating the Japanese tax system can be challenging, but several resources and organizations provide valuable assistance and information for new businesses. Here are the top three resources available:

National Tax Agency (国税庁 – Kokuzei-chō)

The National Tax Agency (NTA) is the primary government body responsible for tax administration in Japan. It offers a wealth of resources and guidelines to help businesses understand and comply with tax regulations.

1. Guidelines and Publications: The NTA provides detailed guidelines on various taxes, including corporate tax, consumption tax, and social insurance contributions. These publications are available in both Japanese and English, making them accessible to foreign entrepreneurs.
2. Online Services: The NTA’s e-Tax platform allows businesses to file their tax returns electronically, simplifying the process and reducing the risk of errors. The platform also provides tools for calculating taxes and submitting payments online.
3. Consultation Services: The NTA offers consultation services where businesses can seek advice on specific tax issues. This service can be particularly useful for complex tax matters or for understanding new regulations.

Local Tax Offices

Local tax offices play a crucial role in providing support and information specific to the business location. These offices are responsible for administering local taxes such as inhabitant tax, enterprise tax, and fixed assets tax.

1. Local Guidelines: Each local tax office provides guidelines and publications tailored to the specific tax regulations of the region. This localized information is essential for businesses to comply with regional tax obligations.
2. Personalized Assistance: Local tax offices offer personalized assistance and consultations, helping businesses understand their tax responsibilities and navigate any local tax issues they may encounter.
3. Workshops and Seminars: Many local tax offices conduct workshops and seminars on tax-related topics, providing valuable learning opportunities for new business owners.

To find the contact information for your local tax office, refer to the Tokyo Metropolitan Tax Guide.

Japan External Trade Organization (JETRO)

JETRO is a government-related organization that provides extensive support and resources for foreign businesses looking to establish operations in Japan. It aims to promote trade and investment by offering various forms of assistance.

1. Investment Support: They offer comprehensive support for foreign businesses, including market entry strategies, information on regulatory requirements, and assistance with administrative procedures.
2. Business Setup Services: JETRO provides practical support for setting up a business in Japan, such as finding office space, hiring employees, and connecting with local service providers.
3. Information and Research: JETRO’s website features a wealth of information on Japan’s business environment, including tax guides, industry reports, and economic data. This information helps businesses make informed decisions and plan their operations effectively.

For more details, visit the JETRO website.

Final Thoughts

Understanding the various tax obligations, including corporate tax, inhabitant tax, enterprise tax, and others, is essential to ensure compliance and avoid financial penalties. Utilizing resources from the National Tax Agency, local tax offices, and JETRO can provide valuable support and guidance, helping business owners manage their tax responsibilities effectively. By staying informed, maintaining accurate records, and seeking professional advice, new businesses can focus on growth and success in the Japanese market. Proper tax management not only ensures compliance but also contributes to the overall financial health and sustainability of the business.