Monday, September 30, 2013

Overview of Japanese corporate tax for investor in Japan

Corporations engaged in economic activities in Japan are subject to taxes in Japan on the profits generated by those economic activities. 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 is generated. However, for those incomes earned in foreign countries that are taxable in that source countries, foreign taxation deductions are available, whereby taxes paid in the foreign country may be deducted from Japanese taxes.

Domestic-source income:

The scope of taxable income for corporate tax differs by the activity of a foreign corporation in Japan. For the purpose of determining the income of non-residents and foreign corporations subject to withholding tax, domestic-source income (Japan source income) is defined as follows:

(1) Certain interest on public and corporate bonds, interest on savings and deposits derived from offices in Japan
(2) Interest on loans for business operations in Japan
(3) Dividends on shares or securities investment trusts of domestic corporations
(4) Consideration for use of real estate or similar property in Japan; rental/lease of ships or aircraft to residents or domestic corporations
(5) Salaries, wages, bonuses and other compensation for the provision of services in Japan
(6) Retirement allowances and pensions for services rendered as residents
(7) Consideration for the services of freelance professionals in Japan
(8) Certain consideration for rendering professional services in Japan exercised by entertainers, freelance professionals, technicians, etc.
(9) Usage fees or consideration for transfers of patent rights, know-how, copyrights, etc., in connection with services in Japan
(10) Usage fees for machinery and equipment in connection with services in Japan
(11) Prizes offered in Japan for publicity/advertising purposes
(12) Pensions paid on the basis of agreements concluded in Japan
(13) Profit on redemption of discount bonds issued in Japan
(14) Certain income resembling interest income in nature
(15) Certain income from the transfer of real estate in Japan
(16) Distribution of profits in accordance with a silent partnership contract (Tokumei Kumiai contract)
(17) Certain income other than the above derived from the management, ownership, or transfer of assets in Japan
(18) Domestic business income
(19) Distribution of profits pursuant to a partnership agreement provided for by Civil Law, and other kindred partnership agreements

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