Taxation in Japan 2018
8
Taxation in Japan
Preface
This booklet is intended to provide a general overview of the taxation
system in Japan. The contents reflect the information available up to
20 October 2018
While the information contained in this booklet may assist in gaining a
better understanding of the tax system in Japan, it is recommended
that specific advice be taken as to the tax implications of any
proposed or actual transactions.
Further information on matters in this booklet can be obtained from
KPMG Tax Corporation either through your normal contact at the firm
or using the contact details shown below.
KPMG Tax Corporation
Izumi Garden Tower, 1-6-1 Roppongi, Minato-ku,
Tokyo 106-6012, Japan
Tel: +81 (3) 6229 8000
Fax: +81 (3) 5575 0766
E-mail: info-tax@jp.
Osaka Nakanoshima Building 15F, 2-2-2 Nakanoshima, Kita-ku,
Osaka 530-0005, Japan
Tel: +81 (6) 4708 5150
Fax: +81 (6) 4706 3881
Dainagoya Building 26F, 3-28-12, Meieki, Nakamura-ku,
Nagoya 450-6426, Japan
Tel: +81 (52) 569 5420
Fax: +81 (52) 551 0580
The information contained herein is of a general nature and is not intended to address the
circumstances of any particular individual or entity. Although we endeavor to provide
accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No
one should act on such information without appropriate professional advice after a
thorough examination of the particular situation.
Contents
1
Taxation of Companies ....................................................... 1
1.1
Introduction ....................................................................... 1
1.2
Tax Status of Companies .................................................. 1
1.2.1 Residence ................................................................................ 1
1.2.2 Branch of a Foreign Company vs. Japanese Company ........... 1
1.2.3 Permanent Establishment (PE) ............................................... 2
1.3
Tax Rates .......................................................................... 5
1.3.1 Corporation Tax ....................................................................... 5
1.3.2 Business Tax ........................................................................... 6
1.3.3 Prefectural and Municipal Inhabitant Taxes .......................... 11
1.3.4 Special Tax Due by Specified Family Company .................... 12
1.3.5 Effective Statutory Corporate Income Tax Rate.................... 14
1.4
Taxable Year of Companies ............................................. 15
1.5
Taxable Income ............................................................... 16
1.5.1 Japanese Companies ............................................................ 16
1.5.2 Foreign Companies having a PE in Japan ............................. 16
1.6
Capital Gains ................................................................... 17
1.6.1 Capital Gain Rollover Rules ................................................... 17
i
1.6.2 Special Rules for Land Acquired in 2009 and 2010 ............... 18
1.7
Treatment of Excess Tax Losses .................................... 19
1.7.1 Tax Losses Carry-forward...................................................... 19
1.7.2 Tax Losses Carry-back........................................................... 21
1.7.3 Change of Control ................................................................. 21
1.8
Deduction of Expenses ................................................... 22
1.8.1 Valuation of Inventories ......................................................... 22
1.8.2 Valuation of Marketable and Investment Securities ............. 22
1.8.3 Provision for Bad Debts......................................................... 23
1.8.4 Bad Debt Expenses ............................................................... 25
1.8.5 Directors¡¯ Compensation....................................................... 26
1.8.6 Retirement/Severance Allowances for Directors .................. 29
1.8.7 Restricted Stock .................................................................... 29
1.8.8 Stock Options ........................................................................ 30
1.8.9 Devaluation Loss ................................................................... 30
1.8.10 Corporate Taxes, etc. ............................................................ 31
1.8.11 Donations .............................................................................. 31
1.8.12 Entertainment Expenses ....................................................... 32
1.8.13 Interest ¨C Thin Capitalization Regime/Earnings Stripping
Regime .................................................................................. 33
1.8.14 Translation into Japanese Currency (Yen) of
Assets/Liabilities in Foreign Currencies ................................ 34
1.8.15 Management Service Fees ................................................... 35
1.8.16 Allocation of Head Office Expenses ...................................... 35
1.9
Tax Depreciation ............................................................. 36
1.9.1 Fixed Assets and Depreciation .............................................. 36
1.9.2 Deferred Charges .................................................................. 41
ii
1.10 Revenue to be excluded from Taxable Income ............... 42
1.10.1 Dividends Received from Japanese Companies ................... 42
1.10.2 Revaluation Gain on Assets .................................................. 42
1.10.3 Refunds of Corporate Tax, etc. ............................................. 43
1.11 Tax Credits ...................................................................... 43
1.11.1 Withholding Income Tax Credits ........................................... 43
1.11.2 Foreign Tax Credits ............................................................... 44
1.11.3 Tax Credits for Research and Development (R&D)
Expenditure ........................................................................... 44
1.11.4 Tax Credits for Salary Growth ............................................... 47
1.11.5 Tax Credits for Acceleration of Wage Increases and
Capital Investment ................................................................ 49
1.11.6 Restriction on Eligible Companies for Applying Tax
Credits ................................................................................... 50
1.12 Administrative Overview ................................................. 52
1.12.1 Tax Returns and Tax Payment .............................................. 52
1.12.2 Tax Audits and the Statute of Limitation ............................... 55
1.13 Group Taxation Regime ................................................... 56
1.13.1 100 Percent Group ................................................................ 56
1.13.2 Dividends Received Deduction (DRD)................................... 57
1.13.3 Deferral of Capital Gains/Losses ........................................... 58
1.13.4 Donations .............................................................................. 60
1.13.5 Non-Recognition of Capital Gains/Losses from Transfers
of Shares to the Share Issuing Company .............................. 61
1.13.6 Valuation Losses of Liquidating Companies /Merged
Companies ............................................................................ 62
iii
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