Japan

A domestic corporation in Japan is taxed on its worldwide income, including foreign branch income. However, 95% of dividends received by a domestic corporation from a foreign company in which it has held at least 25% (or lower, depending on the relevant tax treaty) of the outstanding shares of that foreign company for a continuous period of six months or more can be excluded from the company’s taxable income. See the description of Dividend income in the Income determination section for more information.

A foreign corporation is taxed only on its Japan-source income. A foreign corporation with a permanent establishment (PE) in Japan is liable for corporate income taxes only on the income attributable to the PE.

Corporate tax

Corporate tax rates for fiscal years beginning on or after 1 April 2024 are provided in the table below.

National local corporate tax

National local corporate tax for fiscal years beginning on or after 1 April 2024 is a fixed rate of 10.3% of the corporate tax liability.

Enterprise tax (and special corporate business tax)

Enterprise tax is calculated in different ways depending on the capital base of the taxpayer. For small and medium sized enterprises, enterprise tax is calculated based on the taxpayer’s income only. However, for large enterprises, the calculation will also refer to the taxpayer’s capital base and its 'value added base' (which will include items such as personnel costs and rent). Therefore, loss-making large enterprises may still be liable to pay enterprise tax.

As part of the 2024 Tax Reform Act, taxpayers subject to size-based enterprise tax in the previous fiscal year will now be subject to size-based enterprise tax in the current year if the total amount of paid-in capital and capital surplus exceeds JPY 1 billion, regardless of whether their paid-in capital is JPY 100 million or less at the end of the current fiscal year. Additionally, taxpayers that are wholly owned subsidiaries of corporations whose total paid-in capital and capital surplus exceeds JPY 5 billion and where the total paid-in capital of the taxpayer is JPY 100 million or less but the total paid-in capital and capital surplus together exceeds JPY 200 million will also be subject to size-based enterprise tax.

As a transitional measure, a tax credit is available for certain taxpayers to relieve the additional enterprise tax burden that may arise until 1 April 2026.

The standard enterprise rates for fiscal years beginning on or after 1 April 2024 are shown in the table below. Rates for Tokyo, which applies a higher-than-standard rate are shown in parentheses. Note that special enterprise tax rates are applicable to corporations engaged in energy or gas supply and in insurance, which are not provided here.

Special corporate business tax is a national tax but is collected through the enterprise tax return.

* Tax rates shown in parentheses for corporations with paid-in capital of JPY 100 million or less reflect a higher-than-standard tax rate, which will apply to where the corporation has annual income over JPY 25 million or annual revenue over JPY 200 million (notwithstanding the lower capital amount). ** If the paid-in capital of a corporation is less than JPY 100 million but at least JPY 10 million, and the corporation has places of business in more than two prefectures, the graduated rates are not applicable, and only the highest rate will be applied.

Inhabitants' tax

Inhabitants’ tax is imposed on a corporation’s income allocated to each prefecture and city (or municipal borough). The allocation is generally made on the basis of the number of employees, in the same way as enterprise tax. Applicable rates for fiscal years beginning on or after 1 April 2024 are shown below.

In addition to the above, inhabitants’ tax is imposed on a per capita basis, in the range from JPY 70,000 (in cases where the amount of paid-in capital is JPY 10 million or less and the number of employees in each prefecture and city is 50 or less) to JPY 3.8 million (in cases where the amount of paid-in capital is over JPY 5 billion and the number of employees in each prefecture and city is over 50). The actual inhabitants’ tax amount will be determined by each local government by the factors of paid-in capital and the number of employees.

Effective statutory tax rate

The total corporate income tax burden (i.e. effective tax rate) varies depending upon the size of a company’s paid-in capital. Since enterprise tax is deductible, the effective tax rate is less than the total of the statutory rates of national and local corporate tax, enterprise tax and inhabitants’ tax.The following is the summary of the effective statutory tax rates in the case of corporations operating in Tokyo (without consideration of value-based and capital-based enterprise tax):

• Effective tax rate is calculated after deducting the enterprise tax and special corporate business tax.

Global Minimum Tax (Pillar 2)

Effective for consolidated accounting years beginning on or after 1 April 2024, the Income Inclusion Rule (IIR) as part of the Organisation for Economic Co-operation and Development’s (OECD’s) Global Minimum Tax (‘Pillar 2’) will be applicable to Japanese headquartered multinational corporations, and to Japanese subsidiaries of foreign headquartered multinationals, where the worldwide gross revenue of the ultimate parent entity in two or more of the four fiscal years immediately preceding the fiscal year is 750 million euros (EUR) or more. Such corporations will be subject to the new Global Minimum Tax on the minimum taxable amount, and the new Global Minimum Local Corporate Tax on the resulting Global Minimum Corporate Tax amount, for each applicable fiscal year.

In addition, filing of the GloBE Information Return to the tax authorities is also required for consolidated accounting years beginning on or after 1 April 2024.

Other parts of Pillar 2, such as the qualified domestic minimum top-up tax (QDMTT) and the under-taxed profits rule (UTPR) will be introduced in subsequent tax reforms.