Taxes for Doing Business in Japan: A Simple Guide for Individuals and Companies

Hi, my name is Taisei Koshida, and I am a certified public accountant and tax accountant in Japan.

I assist foreign business owners and entrepreneurs with accounting and tax matters in Japan, including tax filings and accounting support in English.

If you start or run a business in Japan, the taxes you need to pay differ depending on whether you operate as a sole proprietor or through a corporation.

This article provides a simple overview of the main taxes for doing business in Japan, including income tax, inhabitant tax, business tax, corporate tax, and consumption tax.

1. For individual businesses

(1) Income Tax:

Sole proprietors pay individual income tax based on their taxable income for the calendar year.

Japan uses progressive income tax rates ranging from 5% to 45%, depending on the amount of taxable income.

(2) Inhabitant Tax:

In addition to national income tax, individuals generally pay local inhabitant tax based on their income.

The income-based portion is generally around 10% in total, although a small fixed per-capita amount may also apply.

(3) Individual Business Tax:

Depending on the type of business, individual business tax may apply if your business income exceeds the annual business owner deduction of JPY 2,900,000.

The applicable tax rate is generally between 3% and 5%, depending on the type of business.

(4) Consumption Tax:

Whether a sole proprietor must pay consumption tax depends mainly on taxable sales in the relevant base period and certain other conditions.

As a general rule, a business is exempt from consumption tax if taxable sales in the base period are JPY 10 million or less. However, there are important exceptions, including cases where taxable sales during a specified period exceed JPY 10 million or where the business is registered as a qualified invoice issuer.

If you want to learn more about consumption tax, please refer to the following article:

An Easy Explanation of Consumption Tax for Doing Business in Japan

2. For Corporations like A Stock Company:

(1) Corporate Tax, Inhabitant Tax, and Business Tax

Corporations in Japan generally pay corporate tax, corporate inhabitant tax, and corporate business tax based on their taxable income for the fiscal year.

The combined effective tax rate is often around 30%, although the actual rate depends on factors such as the company’s size, income level, and location.

(2) Consumption Tax:

Corporations may also be required to pay consumption tax.

As with sole proprietors, the obligation generally depends on taxable sales in the base period and other conditions. A company may also become a taxable business due to its capital, taxable sales during a specified period, or registration under Japan’s qualified invoice system.

If you are a foreign sole proprietor and would like to learn more about filing a Japanese tax return (kakutei shinkoku / 確定申告), please see:

Tax filing assistance for self-employed individuals who are not Japanese.

Accounting and Tax Support for Businesses in Japan

Koshida Accounting and Tax Office provides accounting and tax services in Japan for foreign entrepreneurs, sole proprietors, and small businesses.

We provide English support for accounting in Japan, tax filings, corporate tax matters, and general taxation consulting for small businesses.

If you are looking for an accounting firm in Japan or need help understanding the Japanese tax system, please feel free to contact us through the inquiry form.