Japanese Tax Basics for Foreign Business Owners
For a foreign owner starting a business in Japan, the tax system can be hard to grasp. We gently organize the three basics to get straight first: the 'residency classification', the 'taxes on a company', and 'consumption tax'.
- The resident/non-resident distinction and the scope of taxation
- The main taxes on a company
- The basics of consumption tax and invoices
- When a foreign owner should consult a specialist
01First, understand the "residency classification"
In Japan's income tax, the scope of income taxed changes depending on whether the person is a 'resident' or a 'non-resident'. It is judged by whether you have an address in Japan, whether you have lived there for a year or more, and so on.
| Classification | Scope of income taxed |
|---|---|
| Resident (other than non-permanent) | All income, domestic and overseas |
| Non-permanent resident | Domestic-source income plus income remitted from abroad, etc. |
| Non-resident | In principle, only income arising in Japan |
02The main taxes on a company
If you set up a company (corporation) in Japan and run a business, mainly the following taxes apply.
- Corporate tax: a national tax on the company's profit (income)
- Corporate inhabitant tax: a local tax paid to prefectures and municipalities
- Corporate enterprise tax: a local tax levied on corporations that carry on business
- Consumption tax: paid when taxable sales exceed a set amount
03The basics of consumption tax and invoices
Consumption tax is a tax on the provision of goods and services. In principle, an obligation to pay arises once taxable sales exceed a set amount. To issue qualified invoices to counterparties, you must become a registered business.
If you import/export or deal with overseas customers, the treatment of consumption tax becomes more complex still.
04When to consult a specialist
Foreign owners tend to trip over tax in the following situations. Consulting a specialist early helps you avoid trouble.
- When setting up a company (sole proprietor or corporation; the consumption-tax choice)
- When hiring employees (withholding, social insurance)
- When you have income in both your home country and Japan (double taxation, tax treaties)
- At closing and filing time
Summary
Understanding the 'resident/non-resident distinction' first is the starting point of Japanese tax.
A corporation faces several taxes — corporate, inhabitant, enterprise and consumption tax.
At incorporation, hiring and cross-border transactions, consult a specialist early to prevent trouble. We support you in five languages.
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Sources & References
This article is based on information available at the time of publication. Rules and systems may change. Please consult a professional before making any individual decisions.
