JAPAN Law and Practice Contributed by: Yutaka Shimoo, Anderson Mōri & Tomotsune
paid in Japan. The amount of employment income is generally limited to that income attributable to work physically executed in Japan. However, if a non-res - ident is an executive of a Japanese corporation, the salary paid by the Japanese subsidiary will be catego - rised as domestic-sourced income regardless of the executive’s actual workplace. In addition, if a non-resident employee (generally excluding an executive of a Japanese corporation) meets all the following requirements, the non-resident would generally be exempt from taxation in Japan under the applicable tax treaties: • the individual’s stay in Japan does not exceed 183 days per year; • the individual’s salary is paid by a foreign corpora - tion; and • no domestic Japanese corporation is responsible for paying any part of the individual’s salary. 3.6 Other Income The tax treatment of cross-border income in Japan is generally consistent with the OECD Model Conven - tion. Accordingly, there is no specific type of income not listed above that is subject to special taxation rules in Japan. 4. OECD/G20 Global Tax Reform 4.1 Pillar One – Amount B The National Tax Agency of Japan (NTA) has announced that a simplified and streamlined approach to taxation will not be implemented for the time being. Based on this, the NTA prepared an FAQ titled “Simplified and Streamlined Approach (FAQ)” summarising the Japa - nese tax treatment of this approach in June 2025. 4.2 Pillar One – Amount A In Japan, the framework for Pillar One has not yet been fully developed. However, discussions are ongo - ing in alignment with the OECD framework. 4.3 Pillar Two A global minimum tax system has been introduced.
Specifically, at the first introduction, an Income Inclu - sion Rule (IIR) was introduced and became applicable to the business year of all corporations starting on or after 1 April 2024. In addition, the Undertaxed Profits Rule (UTPR) and Qualified Domestic Minimum Top-up Tax (QDMTT) have been introduced and are applicable to the business year of corporations starting on or after 1 April 2026. 4.4 Specific Features or Deviations of Pillar Two Japanese legislation on Pillar Two is consistent with the OECD framework. Specifically, these rules apply to the ultimate parent corporation of a multinational corporate group, the consolidated revenue of which is equivalent to no less than EUR750 million in two or more business accounting years in the four most recent consolidat - ed business accounting years. In addition, there are transitional safe harbours according to the content of country-by-country (CbC) reporting – for example, a de minimis test, simplified effective tax rate test, and a routine profits test. 4.5 Digital Services Tax The earnings of digital services provided by foreign business operators are subject to Consumption Tax, which is equivalent to VAT if the service recipient is located in Japan. Specifically, where the digital service by foreign busi - ness operators is a business-to-consumer (B-to-C) business, such business operators are generally required to report and pay Consumption Tax. Excep - tionally, if the digital service is provided through the specified platforms designated by the NTA and the consideration thereof is collected by the specified platforms, the specified platforms are subject to Con - sumption Tax, instead of the foreign business opera - tors (first type of platform taxation). On the other hand, in cases where a digital service by foreign business operators is a business-to-business (B-to-B) business, the service recipient is subject to Consumption Tax, instead of the foreign business operators (reverse charge mechanism).
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