JAPAN Law and Practice Contributed by: Hiromi Hayashi, Daisuke Tsuta, Masaki Yukawa and Keiichi Bando, Mori Hamada & Matsumoto
The report also recommends that such provid - ers be required to publicly disclose their poli - cies, notify contributors of the grounds for ban - ning, and publicly disclose how measures are implemented. Based on this report, the “Act on Dealing with the Infringement of Rights Caused by Information Distribution via Specified Tel - ecommunications” was enacted in 2024. For more details, see 10.1 Laws and Regulations for Social Media . 1.2 Digital Economy Taxation Income Tax (Individual Income Tax and Corporate Tax) General rules If a business operator is a resident individual or domestic corporation for Japanese income tax purposes, its worldwide income is subject to individual income tax or corporate tax. If it is a non-resident individual or foreign corporation for Japanese income tax purposes, only income categorised as domestic source income, includ - ing income attributable to its permanent estab - lishment in Japan, is subject to individual income tax or corporate tax. No digital services tax Japan does not have a digital services tax. How - ever, foreign business operators providing elec - tronic services to Japanese customers should be aware of the treatment of consumption tax, as outlined below. Licensing of the sale of software When a Japanese company is licensed by a foreign producer or provider to sell software to Japanese customers, there is an issue as to whether payments by the Japanese company to the foreign producer or provider may be treated as domestic source income and is subject to withholding tax in Japan.
If Japanese customers download software from a server or via a cloud service located outside Japan, and the Japanese company is merely facilitating the sale of the software, payments made by the Japanese company are treated as compensation for its marketing services and are not subject to withholding tax in Japan. However, if the Japanese company is granted reproduction or modification rights for the soft - ware, it may be considered to be selling the soft - ware that it has reproduced or modified under those rights. Consequently, payments made by the Japanese company would be treated as a licence fee for the copyright and would be sub - ject to withholding tax in Japan. Consumption Tax (Value Added Tax) General rules Sales or leases of goods located in Japan are generally subject to consumption tax, and the sellers or lessors are required to file a consump - tion tax return and pay consumption tax. Sales or leases of goods located outside Japan are not subject to consumption tax. In general, services provided inside Japan are generally subject to consumption tax, and the service providers are required to file a con - sumption tax return and pay consumption tax. In general, services provided outside Japan are generally not subject to consumption tax. How - ever, services treated as “provision of electronic services” are subject to special rules (discussed below). The provision of electronic services Services provided via electronic and telecom - munication networks, such as the internet, are treated as “provision of electronic services” and whether they are subject to consumption tax is determined by the location of the recipients
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