Consumption tax (value-added tax or VAT) is levied when a business enterprise transfers goods, provides services, or imports goods into Japan. The applicable rate is 8%. As of 1 October 2019, the rate increased to 10%. Exports and certain services to non-residents are taxed at a zero rate. Specified transactions, such as sales or lease of land, sales of securities, and provision of public services, are not subject to taxation.
Consumption tax paid by the business enterprise attributable to taxable revenue shall be creditable/refundable by filing the consumption tax return to the extent that such transaction is recorded in the accounting book and relevant invoices are kept.
In response to the increase in consumption tax rate to 10% from 1 October 2019, lower consumption tax rates on certain goods were introduced. Also, in response to the multiple tax rates, an invoice system will be introduced from 1 October 2023. In the four-year transitional period to the introduction of an invoice system, several measures will be implemented.
The lower consumption tax rate of 8% still applies to food (excluding when purchased in restaurants) along with newspaper subscriptions where there is at least an issue twice per week. Until the invoice system is introduced, the credit for consumption taxes paid will follow the current method for tracking, where the lower tax rate on applicable items should be indicated in the invoice. With the increased administration cost of tracking the different rates, the simplified method of determining consumption taxes paid will be allowed.
After the new invoice system is introduced, qualified invoices issued by the registered businesses should be maintained for claiming credits of consumption taxes paid. Businesses (other than exempt entities) will need to file an application with their tax office to become qualified for issuing qualified invoices indicating details such as the business registration number, the applicable tax rate, etc.
Note that consumption tax is also imposed on the cross-border provision of digital services (e.g. e-books, music, and advertising) by foreign service providers. In this respect, a reverse-charge mechanism is applicable for business-to-business (B2B) transactions, and foreign service providers may need to register for consumption tax purposes with regard to business-to-consumer (B2C) transactions.
Also, Japanese sponsors are subject to a reverse-change system for sports or music/art attractions in Japan provided by foreign entertainment providers.
A customs duty is levied on imported goods based on the custom tariff table.
Excise taxes are levied on gasoline, aviation fuel, tobacco, and liquor.
Fixed assets tax
The annual fixed assets tax is levied by the local tax authorities on real property and depreciable fixed assets used for business purposes. Real property is taxed at 1.7% (standard rate including city planning tax) of the value appraised by the local tax authorities. The depreciable fixed assets tax is assessed at 1.4% of cost after statutory depreciation.
A stamp duty is levied on certain documents prepared in Japan. The tax amount is generally determined based on the amount stated in the document. The maximum amount of stamp duty is JPY 600,000.
Registration and licence tax
Registration and licence tax is levied where certain property is registered, at a rate from 0.1% to 2% of the taxable basis or at a fixed amount. The taxable basis depends upon the property being registered (e.g. the amount of paid-in capital registered by a company or the value of real estate as assessed by local tax authorities).
In general, the employer has an obligation to withhold payroll taxes monthly, and for annual year-end adjustment.
Labour and social insurance paid by employer
There are four types of insurance systems in Japan that enterprises employing workers that meet certain conditions must enrol in. Workers’ accident compensation insurance is borne entirely by the employer. Employment insurance, health insurance/nursing care insurance, and employees’ pension insurance is born by both the employer and employee.
The employer is generally liable to pay a share of the following contributions on salary or bonus, including fringe benefits, to be paid in Japan. The employer’s share consists of the following contributions:
|Contribution||Standard premiums on monthly salary||Standard premiums on bonus|
|Health insurance for the Metropolis of Tokyo (each prefecture has its own health insurance rate, and rates are slightly higher for individuals between the ages of 40 and 64) (1)||4.935% (on a maximum of JPY 1,390,000 of wages per month)||4.935% (on an annual cap of JPY 5.73 million of irregular annual total payments)|
|Welfare pension, plus child allowance||9.15% (on a maximum of JPY 620,000 of wages per month)||9.15% (on a maximum of JPY 1.5 million of irregular payments per month)|
- The rate is applied from April 2020. Premiums on child allowance will be imposed separately at 0.36%.
- In addition, workers’ accident compensation insurance will be imposed. The rate varies depending on the type of business.
Family corporation tax
If an individual shareholder together with family members own, either directly or indirectly, more than 50% of the total issued shares or voting rights of a Japanese corporation, the corporation is treated as a family corporation (with the exception of corporations with paid-in capital of JPY 100 million or less) and is subject to the family corporation tax in addition to corporation tax.
A family corporation is liable for an additional tax at the rates shown below on its undistributed current earnings in excess of specified limits, calculated via the following formula:
Taxable undistributed current earnings = Undistributed current earnings - Certain deduction (1)
(1) Certain deduction is the largest of the (i) 40% of income, (ii) JPY 20 million, and (iii) 25% of the year-end capital amount - (capital reserve less current year’s increase)
|Taxable undistributed current earnings||Family corporation tax rate (%)|
|First JPY 30 million per annum||10|
|Next JPY 70 million per annum||15|
|Over JPY 100 million per annum||20|
Business premises tax
Business premises tax is levied and designated by each city in Japan, such as Tokyo, Osaka, Nagoya, Fukuoka, and other cities with a population of more than 300,000. A company that uses business premises in excess of 1,000 square metres and/or has more than 100 employees in a designated city is responsible to pay this tax based on the usage of the business (JPY 600 per square metre) and gross payroll (0.25% of gross payroll).