JAPAN Law and Practice Contributed by: Yutaka Shimoo, Anderson Mōri & Tomotsune
Individual and Corporate Non-Residents If a non-resident has a PE in Japan and the business income is attributable to the PE, the non-resident is required to report this income. Such reported income is generally taxed in the same way as it would be for residents. In the absence of a PE, business profits are non-taxa - ble unless these profits are categorised as other types of domestic-sourced income that triggers tax report - ing or withholding at the time of payment in Japan. Passive income is generally subject to income tax at a progressive tax rate, the maximum rate of which is 55.945% (including 10% local tax). Passive income is generally subject to withholding tax and the withheld amount is credited in the calculation of the tax amount in the tax reporting. However, as an exception, regarding dividends or interests derived from some types of listed securities in a special securities account, an individual taxpayer can select taxation (i) only by withholding at a flat tax rate of 20.315%; or (ii) by separate reporting (plus withholding) at the progressive tax rate or at 20.315% of the flat tax rate, except where the taxpayer is a large shareholder. In addition, interests derived from bank deposits or some types of bonds in Japan are gener - ally only subject to withholding in practice. Corporate Residents Any passive income is subject to corporate income tax at approximately 30–35% of the flat tax rate (includ - ing local tax). In addition, dividends and interests are generally subject to withholding tax and the withheld amount is credited in the calculation of the tax amount in the tax reporting. Individual and Corporate Non-Residents 3.3 Passive Income Individual Residents If a non-resident has a PE in Japan and the passive income is attributable to the PE, the non-resident is required to report this income. Such reported income is generally taxed in the same way as it would be for residents.
concepts of PEs remain unchanged under most appli - cable tax treaties.
3. Taxation of Cross-Border Income 3.1 Income From Immovable Property Tax Treatment Individual residents Any income from immovable property such as a rental fee is generally subject to income tax at a progres - sive tax rate, the maximum rate of which is 55.945% (including 10% local tax). Corporate residents Any income from immovable property such as a rental fee is subject to corporate income tax at approximate - ly 30–35% of the flat tax rate (including local tax). Individual and corporate non-residents Non-residents are generally subject to withholding on any income from immovable property which is catego - rised as domestic-sourced income. However, if a non-resident has a PE in Japan and the income is attributable to this PE, the non-resident is required to report this income. In addition, where that immovable property is real estate or certain types of assets in Japan, non-residents are required to report their income from that immovable property regardless of whether they have a PE, or not. Such reported income is generally taxed in the same way as it would be for residents. 3.2 Business Profits Individual Residents Any business income is generally subject to income tax at a progressive tax rate, the maximum rate of which is 55.945% (including 10% local tax). Corporate Residents Any business income is subject to corporate income tax at approximately 30–35% of the flat tax rate (including local tax).
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