Japan

Consumption tax

Japan’s consumption tax (value-added tax or VAT) is levied when a business enterprise transfers goods, provides services, or imports goods into Japan. The general rate is 10%; however, a lower rate of 8% applies to food and beverages (excluding when purchased in restaurants and alcoholic beverages) and to newspaper subscriptions that meet certain criteria. 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 a corporation that is attributable to taxable revenue shall be creditable/refundable by filing a consumption tax return to the extent that such transaction is recorded in the accounting books and relevant invoices are kept.

A new Qualified Invoice System (QIS) was introduced as part of Japan’s 2016 Tax Reform, which will be effective from 1 October 2023. Under the QIS, a consumption taxpayer (a ‘taxpayer’ who files consumption tax returns and pays or receives a refund of consumption tax) can in principle only take an input tax credit if such taxpayer receives a ‘qualified invoice’ from a seller that is registered as both (i) a consumption taxpayer and (ii) a qualified issuer (QII). Effectively, the new system will require sellers to include their QII number in invoices so that the purchaser receiving such invoice will be able to take the input credit for the consumption tax included in the invoice. The requirement is similar to that of a seller to include its VAT number on an invoice in the European context.

Businesses (other than exempt entities) will need to have filed an application with their tax office to become a QII no later than 30 September 2023 in order to be able to issue qualified invoices from 1 October 2023.

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.

Customs duty

Customs duty is levied on certain imported goods based on the customs tariff table.

Excise taxes

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% of the value appraised by the local tax authorities. The depreciable fixed assets tax is assessed at 1.4% of cost after statutory depreciation. The taxable basis of certain fixed assets acquired by 31 March 2025 by a small and medium-sized enterprise (SME) under an accredited plan will be reduced by one half or one third.

Stamp duty

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).

Payroll taxes

In general, the employer has an obligation to withhold payroll taxes monthly and for the annual year-end salary 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 bonuses, including fringe benefits, to be paid in Japan. The employer’s share consists of the following contributions:

* Premiums on child allowances 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.

Family corporation tax is an additional tax at the rates shown in the table below, which is charged on a corporation’s undistributed current earnings in excess of specified limits calculated in the following formula.

Taxable undistributed current earnings = Undistributed current earnings – the permitted deduction*

* The deduction is the greater of (i) 40% of income, (ii) JPY 20 million, or (iii) 25% of the year-end capital amount – (capital reserve less current year’s increase in capital reserve)

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 corporation 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 physical footprint of the business (JPY 600 per square metre) and gross payroll (0.25% of gross payroll).