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Japan Corporate - Corporate residence

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Domestic and foreign corporation

A company that has its head office in Japan is a domestic corporation. The nationality of its shareholders or place of central management is not relevant.

A corporation other than a domestic corporation is regarded as a foreign corporation.

Permanent establishment (PE)

Under domestic tax law, the scope of Japan-source income in respect of which a foreign corporation is taxable depends upon the type of taxable presence that it has in Japan. The types of taxable presence that a foreign corporation may have in Japan include the following:

  • Branch, factory, other fixed places in which business is conducted in Japan, mine, quarry, building for rent, etc., but exclude a specified place used only for the business of purchasing assets and for keeping them (Direct PE).
  • Construction, installation, assembly project, or supervisory services related thereto for a period of greater than one year.
  • Certain agents (Agent PE), as follows:
    • A person in Japan who has an authority to conclude contracts for a foreign corporation (excluding contracts to purchase assets) and exercises such authority continuously (Contracting Agent).
    • A person in Japan who keeps for a foreign corporation a certain quantity of assets sufficient to meet ordinary demand from the foreign corporation’s customers and delivers the said assets to the customers according to their requirements (Fills Order Agent).
    • A person in Japan who, solely or principally for or on behalf of a foreign corporation, habitually performs an important part of solicitation of orders, negotiations, or other acts leading up to the conclusion of contracts with respect to the business of the foreign person (Secure Order Agent).

As a matter of law, the articles of Japan’s tax treaties have precedence over domestic tax law. In general, there are no significant differences between the definitions of PE under domestic tax law and Japan’s tax treaties. However, once a PE has been established for a foreign corporation under domestic law, all Japan-source income is taxable to the PE (as opposed to just income ‘attributable to’ the PE, as is the case under most treaties).

Note that Japanese domestic rules with regard to the taxation of PEs in Japan are consistent with the revised Model Tax Convention.


Last Reviewed - 30 November 2017

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