\nIn general, a Japanese subsidiary can either be a Kabushiki Kaisha or Godo Kaisha. They have a separate legal personality from a parent corporation. For Japanese tax purposes, they fall into the category of domestic corporations.\u00a0 Any income recognized by the domestic corporation is subject to Japanese corporate tax.<\/p>\n
Branch<\/span><\/strong> Japanese corporate taxes are composed of two (2) national taxes and two (2) local taxes.<\/p>\n Effective tax rate below includes following taxes:<\/p>\n However, it does not include enterprise taxes based on measures other than income, which is so-called \u201cSize-based Enterprise Taxation.\u201d<\/p>\n Subsidiary<\/strong><\/span> Where the paid-in capital of a company is JPY 100 million or less, the effective tax rate in the Tokyo area is approximately 34.6%.<\/p>\n On the other hand, where the paid-in capital of a company is more than JPY 100 million, the effective tax rate in the Tokyo area is approximately 30.6%. However, in this case, the company is subject to the Size-based Enterprise Taxation.<\/p>\n Branch<\/strong><\/span> Subsidiary<\/strong><\/span> Broadly, value-added basis enterprise tax in Tokyo is calculated as 1.26% of the sum of wages, net interest, net rent and taxable income for the year. Also, capital basis enterprise tax in Tokyo is calculated as 0.525% of the sum of paid-in capital and capital surplus.<\/p>\n Branch<\/strong><\/span> Subsidiary<\/strong><\/span> For a subsidiary, the tax should be imposed based on the subsidiary’s paid-in capital and capital surplus.<\/p>\n Branch<\/strong><\/span> For reference, below is the matrix of inhabitant tax per capita in Tokyo, assuming only one office and fewer than 50 employees.<\/p>\n ( JPY)<\/p>\n
\nJapanese branch creates a permanent establishment (PE<\/strong>) of a foreign corporation.\u00a0 \u00a0Head office and Japanese branch have a same legal personality.\u00a0 In this case, profit and loss attributed to Japan branch are subject to Japanese corporate tax.<\/p>\n![\"Japanese](\"https:\/\/suga-taxfirm.com\/wp-content\/uploads\/2018\/03\/subco-vs-branch.png\")
<\/p>\nEffective tax rate<\/h2>\n
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\nThe effective rate varies depending on the amount of paid-in capital of\u00a0a subsidiary.<\/p>\n
\nIn general, the same rules as Subsidiary should apply. However, the paid-in capital of Japan branch, to determine whether it exceeds JPY 100 million depends on the amount of its head office.<\/p>\nSize-based Enterprise Taxation<\/h2>\n
\nWhere the paid-in capital of a subsidiary is more than JPY 100 million, the company is subject to the Size-based Enterprise Taxation in addition to corporate income taxes. There are \u201cvalue-added basis enterprise tax\u201d and \u201ccapital basis enterprise tax.\u201d<\/p>\n
\nGenerally, the same rules as Subsidiary should apply. However, capital basis enterprise tax for Japan branch should be taxed on an adjusted capital amount of a foreign corporation prorated by the number of employees in Japan branch out of the entire number of employees of the foreign corporation.<\/p>\nInhabitant tax per capita<\/h2>\n
\nInhabitant tax per capita is a kind of minimum local corporation tax imposed based on the total amount of paid-in capital and capital surplus (and the number of employees working in Japan). This tax should be imposed every fiscal year even if the entity realizes a tax loss in a fiscal year.<\/p>\n
\nFor a Japan branch, the tax should be imposed based on the headquarters’ paid-in capital and capital surplus, converted to JPY.\u00a0 As a result, if the headquarters is a large corporation, inhabitant tax per capita may be high even if the business in Japan is small.<\/p>\n
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