Japan Corporate Tax Rate Explained

Hi, my name is Taisei Koshida, a Certified Public Accountant and Tax Accountant based in Japan.

I specialize in helping foreign business owners understand and comply with Japanese tax rules. If you are planning to start a company in Japan or already operate one, understanding Japan’s corporate tax system is essential.

In this article, I explain the main corporate taxes in Japan, how they are calculated, and the approximate effective tax rates for small and medium-sized companies.

Corporate taxes in Japan are composed of corporate tax, corporate inhabitant tax, and corporate business tax.

What Is the Corporate Tax Rate in Japan?

Japan’s corporate tax system consists of several different taxes rather than a single corporate tax. Companies generally pay corporate tax, local corporate tax, corporate inhabitant tax, and corporate business tax.

The following is a simple overview of each tax.

Corporate Tax (National Tax)

The tax rate is 15% for profit portions under 8 million yen and 23.2% is applied to portions exceeding 8 million yen to calculate the corporate tax.

Local Corporate Tax

This is calculated by multiplying the corporate tax amount by 10.3%.

In short, the total corporate tax rate is 23.2 % times 110.3%(100%+10.3%) equals approximately 26%.

Corporate Inhabitant Tax

Similar to individuals, this tax is levied on corporations that have a residence in the area. Payments are made to prefectures and municipalities.

(1) Corporate Tax Basis

This is by applying a 7% tax rate calculated to the amount of corporate tax, with the total being distributed to both prefectures and municipalities. The tax rate on a the taxable income is 23.2% times 7%, equal to approximately 1.6%.

(2) Per Capita Basis

This tax is levied irrespective of taxable income. For small and medium-sized enterprises with a capital of 10 million yen or less, the total annual amount is approximately 80,000 yen.

Corporate Business Tax

This tax is levied on the businesses conducted by corporations and is payable to prefectures. Note that the Corporate Business Tax is deductible when calculating Corporate Tax.

(1) Corporate Business Tax

Taxable income up to 4 million yen is taxed at 3.5%, income over 4 million yen and up to 8 million yen at 5.3%, and income over 8 million yen at 7%. This tax is calculated by calculating the taxable income times the rates.

(2) Special Local Corporate Tax

This is calculated by applying a 37% rate to the amount of Corporate Business Tax.

What Is the Effective Corporate Tax Rate in Japan?

The effective tax rate considers the fact that the Business Tax is deductible when calculating Corporate Tax. To sum it up, for small businesses, for corporate income up to 4 million yen, the total effective corporate tax rate is around 22%. It’s about 24% for income up to 8 million yen, and for amounts over 8 million yen, it jumps to around 34%.

The actual effective corporate tax rate in Japan depends on factors such as taxable income, capital, and the location of your company. For many small and medium-sized companies, the effective tax rate is approximately 22% to 34%.

If you are starting a business in Japan or need assistance with Japanese corporate tax filings, our office provides accounting and tax services in English for foreign business owners throughout Japan.

Our accounting firm provides accounting, tax filing, and business advisory services in English for foreign entrepreneurs throughout Japan. If you need assistance, please feel free to contact us.

Contact Form