Benefiting from the Japanese tax system

This article is from the Outbound – Japan chapter of the 2015 Annual Review and is available for download here.


Chonghua Yao of Co-effort Law Firm explains the key taxes that foreign investors in Japan need to be aware of, such as corporate tax, consumption tax and individual income tax

1. Why have foreign investors recently started to express more interest in investing in Japan?

Recently, with the devaluation of the Japanese Yen and the bottoming out of the Japanese economy, which, although not showing a strong rebound, nonetheless has ticked up from rock bottom, and from the perspective of 70 years of social development and change since WWII, Japan has essentially established itself as a country ruled by law that combines a market economy with mainly government-provided social welfare. In addition to the country's scientific technology on the whole occupying a global leading position, its soft environment, i.e. the stability of its laws, the quality of living standards, public safety, education, medicine and protection of its environment and cultural heritage, also ranks near the top in the world. Accordingly, the low social system-level risks of investing in Japan and the fact that Tokyo will host the Olympics make it easy and attractive for foreign investors to invest in Japan.

2. What are the taxes that have a bearing on foreign investment in Japan?

Firstly, Japan is a country ruled by law that implements the statutory taxation principle. All taxes must be levied in accordance with laws and regulations. As Japan is divided administratively into the central cabinet, and locally into the prefectural level (the capital Tokyo, Hokkaido, Osaka Prefecture, Kyoto Prefecture and the other prefectures) and the municipal level (cities, towns and villages), a system of local autonomy is implemented, which is also reflected in the tax system. Table 1 explains the classification by type of tax. 

3. What is the corporate tax rate in Japan?

Corporation Tax Act