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Here, in the second part of our articles about the kinds of taxes corporations pay, we will discuss more the kinds of tax corporations pay.

In the first part of this series, we gave a quick overview of how these taxes differ from the tax individuals pay. After this, we will look at the payment schedule for your company’s taxes and dues.

I. What taxes do companies pay?

Like we mentioned the first part of this series, companies have to pay different taxes compared to the taxes a regular employee would be required to pay.

Generally speaking, taxes in Japan are divided into major categories according to what body the tax is paid to, how the tax is collected, and what the tax is used for.

What government body the tax is paid to National tax Paid to the national government
Local tax Paid to the local government bodies
How the tax is collected Direct tax Directly collected from the tax payer who actually pays the tax himself
Indirect tax The entity that collects and remits to the government is not the same as the tax payer
What the tax is used for Ordinary tax Appropriated to general revenue sources
Earmarked tax For specific purposes only

A.Corporate Income Taxes

i. Corporate Tax

There are two kinds of corporate tax ― corporate tax (national tax), and local corporate tax (national tax). Both are levied on the company’s income (earnings, profit), and are divided into three tax brackets of taxable income:

  • Up to 4 million yen
  • 4 million yen to 8 million yen
  • Over 8 million yen

Corporate tax (national tax) heads directly to the national government.

For small to medium enterprises (SMEs) (companies with a paid-in capital of less than 100 million Japanese yen), the tax rate is 15% companies with taxable income up to 8 million yen.

For taxable income of over 8 million Japanese yen, the excess of 8 million is taxed at around 23% (exact tax rates vary depending on the corporation’s start of accounting year).

The tax rate for Local corporate tax (national tax) is 0.66% for taxable income up to 8 million and around 1% for the income excess of 8 million (exact tax rates vary depending on the corporation’s start of accounting year).

ii. Corporate Inhabitant Tax

Corporate inhabitant tax is levied both on income and on a per-capita basis. Per-capita levy means it does not take into consideration the company’s earnings (even if the company shows a loss). Instead, it uses the size of the corporation (reflected in its capital amounts) and the number of employees as its tax base.

The standard tax rates are broken down into 3.2% as prefectural tax and 9.7% as municipal tax. However, local governments may choose to set the tax rate to 4.2% for prefectural tax and 12.1% for municipal tax. For example, the Tokyo Metropolitan government employs the higher-than-standard tax rate in its 23 special wards.

Tax rates for corporate inhabitant tax per-capita levy are based according to the capital amounts as follows:

  • Less than 10 million JPY
  • Over 10 million JPY up to 100 million JPY
  • Over 100 million JPY up to 1 billion JPY
  • Over 1 billion JPY to 5 billion JPY
  • Over 5 billion JPY

Furthermore, the tax levied according to capital can vary according to the number of employees (whether there are 50 or less employees or more than 50 employees).

B. Business taxes

This tax is levied on the corporation’s income (earnings, profit). It is divided into three brackets of taxable income:

  • Up to 4 million yen
  • 4 million yen to 8 million yen
  • Over 8 million yen

Since this is a local-level tax and not a national-level tax, the difference in tax rates among these three brackets aren’t as large as the difference in rates for national taxes.

i. Income Tax Withheld at Source, Municipal Tax

Income tax and municipal tax is withheld from employees and staff, including the company president. In principle, this tax is remitted on the 10th of the month following the salary date. However, if the company has less than 10 employees which this tax is levied on, remittance could be done twice a year.

ii. Social Insurance Premium

Generally speaking, there are four kinds of insurance systems:

Workers’ Accident Compensation Insurance Collectively known as “labor insurance”
Employment Insurance
Health Insurance and Nursing Care Insurance Collectively known as “social insurance”
Employees’ Pension Insurance

Coverage under the insurance systems above are compulsory, and everyone shares the obligation of taking out one of the above forms of public health (medical) insurance if eligible. Those ineligible for the insurance systems above must be part of the National Health Insurance and National Pension Insurance schemes.

For corporations, employers are responsible for the necessary procedures for their employees’ coverage. The contribution burden, however, is shared by both employee and employer.

The same contribution rate is used to calculate contributions based on both the employees’ monthly salaries and bonuses. Part of the insurance contribution is payable by the employee; the rest by the employer. The employee portion is often withheld from the gross monthly salary of the employee. This is later remitted to the respective government offices together with the contribution paid by the employer.

iii. Consumption Tax 

In principle, these taxes are paid by business owners. However, they are added to the price of products, etc., and are ultimately borne by the consumer.

For corporations, this tax must be paid if the sales of the year before the preceding year exceed 10 million yen. Consumption tax on taxable purchases (tax inclusive) may be deducted from consumption tax on taxable sales revenue (tax exclusive) when calculating the amount of tax to be paid.

The current overall consumption tax rate is currently at 8% (6.3% from the national consumption tax rate; and 1.7% from local consumption tax rate). In principle, tax filing and payment are to be made within two months from the day after the last day of the fiscal year.

Consumption tax paid by the enterprise attributed to taxable revenue shall be creditable/refundable by filling the consumption tax return to the extent that such transactions are recorded in the accounting book and relevant invoices are kept.

C.Other taxes

i. Stamp Duty

Stamp duty is imposed on receipts, contracts, and certain documents. The amount is generally determined based on the amount stated in the document.

ii. Fixed Asset Tax

The annual fixed assets tax is levied by the local tax authorities on real property and depreciable fixed assets used in business purposes. Real property is taxed at 1.7% (including city planning tax) of the value appraised by the local tax authorities. The depreciable fixed assets tax is assessed at 1.4% of the cost after statutory depreciation.

iii. Registration and License tax

When property is registered, the tax is levied at a rate from 0.1% to 2% of the taxable basis of at a fixed amount. The taxable basis depends upon the property being registered. It is also levied for the registration of real estate/companies and the issue of business licenses.

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