Monday, October 7, 2013

Calculation of income subject to Japan corporate tax

Taxable income subject to corporate tax for each taxable year is determined with tax adjustments to corporate profits calculated under generally accepted corporate accounting standards and other accounting practices. Costs and expenses incurred in earning profits are deductible.

A foreign corporation face no restriction on the location in which costs and expenses are incurred for deduction. However, detailed statements of costs and expenses incurred and deducted from income in Japan must be settled, and these costs and expenses must be allocated fairly in the prescribed manner. Some examples of items for which there are limits on deductible costs and expenses are:

- Corporate tax and penalty imposed
- Donation
- Entertainment and social expense
- Amount exceeding depreciable limit of depreciable and deferred asset
- Compensation of director

Representative office is, in principle, not subject to Japan corporate tax because it is not supposed to engage in income-generating busiess activity, except publicity/advertising, information gathering, market survey and other non-siginificant, subsidiary business tasks.

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