Overseas Subsidiaries and Japan’s Controlled Foreign Company (CFC) Tax
【Koshida Accounting Firm Column Date:】
“Nothing in life is to be feared. It is only to be understood.” – Marie Curie
Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.
I aim to assist non-Japanese business owners who need help with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.
This taxation aims to tax in Japan the profit generated by foreign subsidiaries established, without reasonable reason, in low-tax countries. When you consider breaking into overseas, be careful about unexpected taxes.
1. Four Criteria
(1) Business Criterion
Reasonable reasons for conducting business in this country are essential. Therefore, companies whose primary business is holding stocks or copyrights are not allowed.
(2)Real Criterion
Fixed facilities to conduct business are required, such as offices, stores, factories, etc.
(3)Administrate and control criterion
The subsidiary administrates, controls, and conducts the business itself in this country.
(4)Non-relate party criterion or located country criterion
Regarding the financial industry, wholesale industry, etc., trading with the non-relate parties primarily, regarding others, conducting business in this country primarily is essential.
2. Tax
(1) When all criteria met
If the tax-burdened rate of this country is under 20%, only the passive profit, such as interest, dividend, etc, is taxed according to the holding portion. However, this profit is under 20 million yen, and this portion of the whole profit is under 5%; this taxation is exempted.
(2) When both real criterion and administrate and control criterion are not met
When the above (2) and (3) criteria are not met, if the tax-burdened rate of this country is under 27%, all this company’s profit is taxed according to the holding portion.
(3) When one of criteria is not met
If the tax-burdend rate of this country is under 20%, all this company’s profit is taxed according to the holding portion.
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