Japan  Income Taxes and Tax Laws 2013

Capital Gains, Individuals

• A company is bound to report and pay within two months of the end of the tax year (it is usually possible to request an extension of an additional month).

• In 2012, as from 1.4.2012 Japan national corporate tax is 25.5% compared to the previous 30% rate. There is also a 10% surtax which applies till 31.3.2015 resulting in a 28.05% tax rate.
• Corporate tax on income of SMEs below 8 million yen is 15% on condition that the total equity is less than 100 million yen. An additional 10% surtax applies for three years ending 31.3.2015 resulting in a 16.5%tax rate.
• In addition to corporate tax (a national tax) there are two classes of local tax paid by the corporation:
        1) Inhabitant Tax.
        2) Enterprise Tax.
  These two classes of local tax significantly increase the rate of Japan corporate tax, so that it may, in actual fact, reach 38% in Tokyo.
• While Inhabitant Tax is not recognized as a deductible expense, "Enterprise Tax" may be deducted as an expense.
• Income from a dividend is not classed as regular income. A dividend received by one company from another Japanese company, when the holding in the payer's equity is 25% or more, held for more than 6 months is tax exempt.




Japan Deduction of Tax at Source

Japan Taxation of Employees
Japan Income Tax
The employer is obligated to deduct tax at source from a salaried worker in accordance with the tax tables. The employer is obligated to pay the income tax to the authorities by the 10th of the month after the month of payment. When paying a salary to a foreign resident, 20% should be deducted at source.

Japan Social Security
The social security covers matters such as health insurance, pension insurance, unemployment insurance and more. The rates are as follows:
• Employer - 15.086%
• Employee - 14.3%


Dividend, Royalties and Interest in Japan
When payments of the following sorts are made to non- residents, deductions must be made at source at the following rates:



	%
Dividend	20
Royalties	20
Interest	20



Note: Starting January 1, 2013 an additional 2.1% surtax will be imposed on the above mentioned payments resulting in a 20.42% rate.

Japan Other Deductions




• Benefits to senior employees - mainly bonuses and compensation paid to employees are allowable as an expense. Nevertheless, payments of unreasonable amounts to directors will not be allowed as an expense.
• Entertainment expenses - the allowance on these expenses is calculated according to a formula that takes account of the amount of the company equity; the percentage allowed as an expense shall in no case exceed 90% of the expense, or a maximum of 3.6 million yen a year.
• Donations - as a general rule, donations to public or government institutions are allowable as an expense up to 40% of the income.
• Research and development - a credit of 20% is given for research and development plus additional credit for the excess of R&D expenses over those of the previous years. In any event, the total combined credit is limited to 30% of the corporation tax.
• Transactions between affiliated parties - such transactions are defined as being between 2 parties when the percentage holding, whether direct or indirect, between the companies is 50% or more. Reasonable proof of the price of the transfer between the affiliated parties is demanded from the taxpayer. As a rule, the law specifies 3 methods of calculating the reasonability of the price of the transfer.
• Interest expenses - there is a limit to the interest allowable to companies with an overseas obligation to foreign shareholders of 50% or more when the amount of the obligation is more than 3 times the amount of the equity.
• Offsetting losses - a company that meets the requirements of the blue form return is eligible to offset the loss forward, up to 80% of the current year's income, for the following nine years. SMEs can carry back losses for one year.
• Consolidated Returns - Companies in the same group may file a consolidated return and offset losses in the group under certain terms.


Japan Depreciation of Fixed Assets

In most cases either the straight line method or the declining balance method are allowed.
Depreciation is allowable at the following rates:



Class of Asset	No. of years depreciated
Buildings	50
Air conditioners	15
Sailing vessels	12-15
Aircraft	5-10
Computers	4-5
Machinery and equipment	6-22
Patents	3-10
Goodwill	5
Mining rights	5-8



Comments:
• An asset that costs less than 200,000 yen shall be depreciated over 3 years.
• An asset that costs less than 100,000 yen shall be fully depreciated in the year of purchase.