JAPAN Law and Practice Contributed by: Junichi Ueda, Etsuko Hara, Nobuto Shirane, Takahiro Hayase, Yutaka Shimoo and Miki Goto, Anderson Mori & Tomotsune
• 45.945% (for the portion of taxable income of JPY40 million or more). Employees and their employer jointly contribute in equal parts to employee social expenses, such as national health insurance premiums and employees’ pension insurance premiums. In addition, if an employee dies, their heirs would be subject to inheritance tax. In general, inheritance tax is imposed both on domestic and foreign assets. How - ever, depending on the nationalities and residence period of the decedent and their heirs in Japan, the taxable assets may be limited to domestic ones in some situations. By way of example, in cases where foreign individual Japanese residents with certain types of working visas die in Japan, their heirs without Japanese nationality would be subject to inheritance tax only on domestic assets, as long as they: • are not Japanese residents at the time of the dece - dent’s death; or • have lived in Japan with certain types of visas for a period not exceeding ten years in the past 15 years before the decedent’s death. 5.2 Taxes Applicable to Businesses A company doing business in Japan is subject to vari - ous taxes. Corporate income tax must be paid where a company has its head office or principal office in Japan (such a company is a domestic corporation). If a company does not have its head office or principal office in Japan, such a company is a foreign corporation. For foreign business operators, several exceptional rules would apply. The company must only pay corporate income tax on domestic-sourced income. As for some categories of income, such as dividends and interest, income tax will be withheld at the time of payment, but corporations can credit the amount of such income tax from the amount of corporate income tax subject to certain limitations. Inhabitant tax and enterprise tax must be paid if a company has its head office or principal office in Japan or has its permanent establishment in Japan.
Consumption tax, which is a type of VAT, must be paid if a company conducts certain kinds of transactions, such as: • sales of goods, leases of goods and provisions of services in Japan; • certain categories of digital services provided to Japan; and • importation transactions. Notwithstanding the foregoing, with some excep - tions (eg, where a company’s capital is JPY10 mil - lion or more), consumption tax will be exempted if the amount of taxable sales in the base period – which is the fiscal year two years prior to the current fiscal year – is less than JPY10 million. Under the qualified invoicing system, a buyer who claims an input (pur - chase) consumption tax credit is required to receive and retain invoices that are issued by a registered seller and include certain types of information. In addition to the foregoing, there are other taxes, including: • fixed property tax; • stamp duty; • registration tax; and • real estate acquisition tax. Regarding Pillar Two of the OECD’s Two Pillar solu - tion, the Income Inclusion Rule (IIR) was firstly imple - mented under the 2023 tax reform in Japan and came into force on 1 April 2024. The IIR specifically applies to the ultimate parent corporation of a multinational corporation group, the consolidated revenue of which is equivalent to no less than EUR750 million in two or more accounting business years in the four most recent consolidated accounting business years. In addition, the Undertaxed Profits Rules (UTPR) and the Qualified Domestic Minimum Top-up Tax (QDMTT) also apply to the financial years starting on or after 1 April 2026. The IIR has a certain exemption that is equivalent to the de minimis rule. In addition, there are transitional safe harbours according to the content of country-by- country (CbC) reporting – for example, the de minimis
517 CHAMBERS.COM
Powered by FlippingBook