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A business in Japan is subject to many different taxes. “Corporate taxes” is the collective name for a number of taxes that are levied on the company’s earnings. As of July 2021, these taxes include: 1) corporation tax, 2) local corporation tax, 3) enterprise tax, 4) special enterprise tax, and 5) inhabitant tax. These taxes are levied by either the national or the local government.
Types of Japanese corporate tax
The effective tax rate (the total of the above, excluding per-capita tax) for a large company situated in Tokyo comes to around 30.62% of taxable income. However, the exact amount is subject to factors such as location, size of share capital, and employee numbers.
Corporation tax (hōjinzei):
This tax is levied by the national government on the income of the business. For small or medium-sized companies, a marginal tax rate of 15% and 23.2% is used, while a flat tax rate of 23.2% is used for large companies.
| Category | Tax rate | |
| Capital under 100M yen | Part of annual income under 8M yen | 15% |
| Part of annual income over 8M yen | 23.2% | |
| Capital over 100M yen | All income | 23.2% |
Local corporation tax (chihō hōjinzei):
Introduced in 2014, this tax is collected by the national government to address the maldistribution of wealth. Local corporation tax is calculated as 10.3% of the corporation tax amount.
Enterprise tax (hōjin jigyōzei):
This tax is levied on taxable income by the prefecture where your business operates. Businesses with a share capital of under 100M yen (excluding certain businesses such as electricity retailers) are only subject to the “income component,” which is imposed on taxable income. For business with a share capital of over 100M yen, the tax rate is lower but additional taxes are levied based on the scale of the business.
| Category | Tax rate (income component) | |
| Capital under 100M yen | Part of annual income under 4M yen | 3.5% |
| Part of annual income between 4M – 8M yen | 5.3% | |
| Part of annual income over 8M yen | 7.0% | |
| Capital over 100M yen | Part of annual income under 4M yen | 0.495% |
| Part of annual income between 4M-8M yen | 0.835% | |
| Part of annual income over 8M yen | 1.18% | |
| Capital component + added value component | ||
Special enterprise tax (tokubetsu hōjin jigyōzei):
Introduced in 2019, this tax is collected by the national government to address the imbalance in tax revenue between prefectures. It is based on the income component of business tax and declared together with business tax despite being a national tax.
| Category | Tax rate |
| Capital under 100M yen | 37% |
| Capital over 100M yen | 260% |
Inhabitant tax (hōjin jūminzei):
This tax is collected by the local government to compensate for the local infrastructure necessary for the business to operate. There are two components: the corporation tax component, which is based on the corporation tax amount, and the per-capita tax component, which is based on the scale of the business. Both components may differ between municipalities. For example, below are the rates for the corporation tax component for a business operating in one of the 23 special wards of Tokyo:
| Category | Tax rate (corporation tax component) | |
| Capital under 100M yen | Annual corporation tax amount under 10M yen | 7% |
| Annual corporation tax amount over 10M yen | 10.4% | |
| Capital over 100M yen | 10.4% | |
The per-capita tax component can change depending on capital and the number of employees. For example, below are the amounts for a business with one office located in one of the 23 special wards of Tokyo:
| Capital () | Employee number | Per-capita tax () |
| Under 10M | Under 50 | 70,000 |
| Over 50 | 140,000 | |
| Between 10M – 100M | Under 50 | 180,000 |
| Over 50 | 200,000 | |
| Between 100M – 1B | Under 50 | 290,000 |
| Over 50 | 530,000 | |
| Between 1B – 5B | Under 50 | 950,000 |
| Over 50 | 2,290,000 | |
| Over 5B | Under 50 | 1,210,000 |
| Over 50 | 3,800,000 |
Please note that per-capita tax must be paid even if the business has had no taxable income for the year.
TOMA Consultants Group offers consulting services in English and provides all-round, up-to-date taxation support. Please contact us for a free consultation on how we can best support your business in Japan.