general overview of japanese taxes

A. Overview of Japanese taxes –Corporation tax, Inhabitant tax and Enterprise tax
 

1.    Summary
                                                               Standard statutory rate
              Corporation tax                                      30.00%
              Inhabitants tax                                      6.21%
              Enterprise tax                                      7.56% (+ size-based factors)
 
                Total statutory tax rate                           43.77%
 
              Effective tax rate                                      40.69%
                                                             ======
As enterprise tax is deductible from taxable income on a cash basis, the effective tax rate is lower than the total statutory tax rate.
 

2.    Detail
2.1               Corporation tax
The tax on ordinary income is the tax levied on net income accruing to a corporation in a business year. As this type of tax is internationally very well-known, it should be unnecessary to explain its nature. A company whose paid-in capital is over ¥100 million is subject to corporation tax at the rate of 30%.
 2.2. Inhabitants tax
A local tax consisting of prefectural and municipal taxes is computed as a percentage of the corporation tax. (Allocation to each local jurisdiction is based on the number of employees and offices.) Each prefecture and municipality may elect an inhabitants tax rate within the range.
 
Prefecture
6%
Municipality
14.7%
Tokyo metropolitan (combined)
20.7%
*In addition, each local government levies equalization per capita tax on each corporation that has an office or business place in its jurisdiction. This tax varies from ¥70,000 to ¥3,800,000, depending on the sum of paid-in capital plus capital surplus and number of employees.
 
2.3. Enterprise tax
From the fiscal year beginning on or after April 1, 2004, a new "size-based" tax (Gaikei Hyojun Kazei) is applied to the company whose paid-in capital is more than 100 million yen as of the year end. Under the new tax system, factors such as the size of a corporation's personnel costs and its capital will determine the amount of tax payable whereas the existing profit-based enterprise tax will also continue to apply, although with the reduced tax rate. Thus, a loss company will be required to pay tax. The applicable rate is shown below.

Profit-based tax :
First ¥4,000,000 per annum

3.99%
Next ¥4,000,000 per annum
5.775%
Over ¥8,000,000 per annum
7.56%
Value added-based tax (Note)
0.504%
Capital-based tax (on share capital + capital surplus)
0.21%

(Note)  a value-added factor  is  the sum of (income + salary expense* + net interest expense + net rent expense)].

*Salary expense is capped at 70% of the total of salary expense + net interest expense + net rent expense.
 

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