When setting up and operating a business in Japan, understanding the country’s taxation system is critical for compliance and financial planning. Japan’s tax structure is comprehensive, covering income, transactions, and properties. These taxes are administered at both the national and local levels, ensuring a balance between centralized and regional governance.
 

1. Taxes on Corporate Income
 

Corporate income taxes form the cornerstone of Japan’s business tax system, reflecting the earnings and financial health of a company. These taxes ensure that companies contribute fairly to the national economy based on their profitability:
 

• Corporate Income Tax (Hojinzei: 法人税): This is the primary tax levied on a company’s income and applies uniformly across industries.
   

• National Local Corporate Tax (ChihoHoujinzei: 地方法人税): Introduced as part of a reform to balance regional economic disparities, this tax supplements corporate income tax revenues for local governments.
   

• Corporate Inhabitant Tax (HojinJyuminzei: 法人住民税): Paid to both prefectural and municipal governments, this tax supports local infrastructure and services.
   

• Enterprise Tax (HojinJigyozei: 法人事業税): Levied on business income, this tax directly funds prefectural-level public works and initiatives.

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2. Taxes on Sales of Goods, Services and Imports
 

• Consumption Tax (Shohizei: 消費税): Comparable to VAT in other countries, Japan’s consumption tax is currently set at 10% (with a reduced 8% rate for certain essential goods). This tax underscores Japan’s focus on equitable contribution to public revenues while keeping daily essentials affordable.

3. Taxes on Properties and Transactions
 

Owning property or conducting transactions in Japan comes with its own set of responsibilities. These taxes help maintain Japan’s urban planning, infrastructure, and land management systems:

Property-Related Taxes:
 

• Fixed Asset Tax (Kotei Shisanzei: 固定資産税): Levied annually on land, buildings, and depreciable assets.

• City Planning Tax (Toshi Keikakuzei: 都市計画税): Imposed on land and buildings located within designated urban planning areas to fund urban development projects.

• Stamp Tax (Inshizei: 印紙税): Applied to official documents, contracts, and receipts to ensure proper documentation and compliance.

• Real Property Acquisition Tax (Fudosan shutoku zei:不動産取得税): Levied on the purchase of land or buildings, promoting proper documentation and registration of real estate transactions.

Automobile-related Taxes:

Owners of vehicles in Japan are subject to the following taxes, which contribute to infrastructure maintenance and environmental regulation:
 

• Automobile Weight Tax (Jidosha Juryo Zei: 自動車重量税): Levied based on the weight of the vehicle, primarily collected during mandatory vehicle inspections (shaken).

• Automobile Tax (JidoshaZei: 自動車税): An annual tax based on the engine displacement or type of vehicle, paid by registered vehicle owners.

• Light Motor Vehicle Tax (KeijidoshaZei: 軽自動車税): A specific tax for smaller vehicles with lower engine displacement, reflecting their reduced impact on infrastructure and the environment.

4. Withholding Income Tax
 

• Withholding tax  (GensenShotokuzei: 源泉所得税): Ensures immediate revenue collection from salaries, dividends, and certain other income types. It reduces administrative burdens for individuals while promoting timely compliance.

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Key Compliance Notes

The above taxes consist of both national and local components. As a result, tax-related registration documents must be submitted to both the tax office (Zeimusho: 税務署) and local government offices. Proper compliance is essential to avoid penalties and to take full advantage of any available tax benefits.