Japanese Corporate Taxes: Overview & Calculation Examples
Yoshio YamaguchiTax Burden for Corporations in Japan
In Japan, the taxes that corporations are required to pay include corporate tax, consumption tax, property tax, business office tax, and automobile tax, among others. However, the most significant in terms of amount are corporate tax and consumption tax.
In this article, we will take a closer look at corporate tax. On the income statement, corporate tax is listed below pre-tax profit under the heading "Corporate Taxes" or "Corporate, Inhabitant, and Business Taxes."
The information regarding tax rates and other details is based on laws as of September 30, 2024.
Here’s the breakdown of corporate taxes and related items:
| Tax Types | National & Local Taxes | Tax Base | Tax Rates |
| Corporate Tax | National Tax | Taxable Income[1] | 15%, 23.2% |
| Local Corporate Tax | National Tax | Corporate Tax | 10.30% |
| Prefectural Inhabitant Tax / Corporate Tax Levy | Local Tax | Corporate Tax | 1%–2% |
| Prefectural Inhabitant Tax / Per Capita Levy | Local Tax | ||
| Prefectural Inhabitant Tax / Corporate Enterprise Tax | Local Tax | Taxable Income[1] | 3.5%–7% (Income-based Levy) |
| Prefectural Inhabitant Tax / Special Corporate Enterprise Tax | Local Tax | Corporate Enterprise Tax | 37% |
| Municipal Inhabitant Tax / Corporate Tax Levy | Local Tax | Corporate Tax | 6%–8.4% |
| Municipal Inhabitant Tax / Per Capita Levy | Local Tax |
- [1] Taxable income refers to the amount obtained by making certain tax adjustments to the net profit or loss.
- Source: National Tax Agency No. 5759 Corporate Tax Rates as of September 30, 2024
- Source: Ministry of Internal Affairs and Communications
Corporate Tax
The taxable base for corporate tax is taxable income. Taxable income refers to the amount derived by applying certain tax adjustments to net income.
For large corporations, the corporate tax rate is 23.2%. However, for small and medium-sized enterprises (SMEs), the tax rate is 15% on the portion of taxable income up to 8 million yen, and 23.2% on the portion exceeding 8 million yen (*1).
Corporate Tax Rate for SMEs
| Portion up to ¥8 million | 15.00% |
| Portion exceeding ¥8 million | 23.20% |
In this context, a small to medium-sized corporation refers to an entity with a capital of ¥100 million or less at the end of the fiscal year. However, corporations fully controlled by a company with a capital of ¥500 million or more are excluded from this category. (*1) If the average income amount over three years exceeds ¥1.5 billion, a rate of 19% rather than 15% is applied.
For example, if the taxable income is ¥30 million: For corporations with capital exceeding ¥100 million: ¥30 million × 23.2% = ¥6.96 million
For corporations with capital of ¥100 million or less:
Corporate tax (on income up to ¥8 million):
¥8 million × 15% = ¥1.2 million
Corporate tax (on income over ¥8 million):
(¥30 million − ¥8 million) × 23.2% = ¥5.104 million
Total corporate tax: ¥1.2 million + ¥5.104 million = ¥6.304 million
The difference between these two amounts is ¥0.656 million. Additionally, since local inhabitant taxes are calculated based on these amounts, the difference between the two will further increase.
Prefectural Inhabitant Tax
The Prefectural Inhabitant Tax is a local tax administered by tax offices within each prefecture, such as prefectural and metropolitan tax offices. This tax is further divided into four categories: Corporate Tax Rate, Per Capita Levy, Corporate Enterprise Tax, and Special Corporate Enterprise Tax.
Corporate Tax Rate
The Corporate Tax Rate is calculated by applying a rate of 1%-2% to the amount of corporate tax (national tax). If a corporation has offices in multiple prefectures, the Corporate Tax Rate amount is apportioned based on the number of employees and paid to each relevant prefecture. The total amount does not change.
Per Capita Levy
Unlike other taxes, the Per Capita Levy must be paid by corporations regardless of their income level, meaning that both profitable and unprofitable corporations are equally responsible for paying it. The amount of the Per Capita Levy imposed by prefectures is determined based on the amount of capital and other factors, as shown below.
Per Capita Levy Amount (Prefectural Inhabitant Tax)
| Amount of Stated Capital, etc. | Per Capita Levy (Prefectural Inhabitant Tax) |
| ¥10 million or less | 20,000 |
| Over ¥10 million – ¥100 million | 50,000 |
| Over ¥100 million – ¥1 billion | 130,000 |
| Over ¥1 billion – ¥5 billion | 540,000 |
| Over ¥5 billion | 800,000 |
Source: Ministry of Internal Affairs and Communications
If a business has offices in multiple prefectures or municipalities, it will be required to pay the per capita levy to each respective prefecture . The total will increase.
Corporate Enterprise Tax
The Corporate Enterprise Tax is levied by the prefecture where the company's office or other facilities are located. This tax is further divided into the Income-Based Tax, the Value-Added Tax, and the Capital-Based Tax. However, the types of taxes applicable vary depending on the corporation's size.
For large corporations with over 100 million yen in capital, all three components—the Income-Based Tax, the Value-Added Tax, and the Capital-Based Tax—are applicable. In contrast, small and medium-sized corporations are only subject to the Income-Based Tax.
Below are the tax rates for the Income-Based Tax applicable to small and medium-sized corporations. The rates differ depending on the taxable income amount, as shown below:
Income-Based Tax Rates
| Amount of Taxable Income | Tax Rates |
| Portion up to ¥4 million | 3.50% |
| Portion over ¥4 million – ¥8 million | 5.30% |
| Portion exceeding ¥8 million | 7.00% |
The above tax rate is referred to as the standard tax rate. However, each prefecture may apply a tax rate that does not exceed 1.2 times the standard rate. For details, please refer to each prefecture’s website.
If you have offices in multiple prefectures, business taxes will be apportioned according to specific criteria and paid to each relevant prefecture. The total does not change.
Special Corporate Enterprise Tax
An additional tax, known as the Special Corporate Enterprise Tax, is levied at a rate of 37% on the amount of the corporate enterprise tax.
Municipal Inhabitant Tax
The Municipal Inhabitant Tax consists of two components: the corporate tax levy and the per capita levy.
Corporate Tax Levy
The corporate tax levy is calculated by applying a 6%–8.4% rate to the national corporate tax amount. If a company operates offices in multiple prefectures, the corporate tax levy is apportioned based on the number of employees and paid to each relevant prefecture. The total does not change.
Per Capita Levy
Unlike other taxes, the per capita levy must be paid by all corporations, regardless of whether they are profitable or not. Both profitable and unprofitable corporations are required to pay this tax. The amount of the per capita levy imposed by municipalities is determined based on the corporation's capital and the number of employees, as outlined below.
Amount of the Per Capita Levy (Municipal Inhabitant Tax)
| Amount of Stated Capital, etc. | Per Capita Levy (Municipal Inhabitant Tax) | |
| More than 50 Employees | 50 Employees or Fewer | |
| ¥10 million or less | 120,000 | 50,000 |
| Over ¥10 million – ¥100 million | 150,000 | 130,000 |
| Over ¥100 million – ¥1 billion | 400,000 | 160,000 |
| Over ¥1 billion – ¥5 billion | 1,750,000 | 410,000 |
| Over ¥5 billion | 3,000,000 | 410,000 |
If you have offices in multiple prefectures or municipalities, you will need to pay the per capita levy to each respective municipality.
Calculation Example
Below is an example calculation of corporate taxes for the following company:
- Capital: ¥10,000,000
- Taxable Income (pre-tax profit with certain tax adjustments): ¥100,000,000
- Number of Employees: 55
- Location: Machida-shi, Tokyo
- Classification: Small or Medium-Sized Enterprise (SME)
As a result of the calculation, the corporate taxes on the taxable income of ¥100 million amount to ¥36,683,220, with an effective tax rate of 36.68%. Unlike other taxes, the enterprise tax itself is deductible in the year in which it is actually paid and has the effect of depressing corporate taxable income. As a result, the effective tax rate is about 33%.
Calculation Example
| Tax Item | Tax Base | Calculation Formula | Tax Amount |
| Corporate Tax | 100,000,000 | 8,000,000*15% (100,000,000-8,000,000)*23.2% |
22,544,000 |
| Local Corporate Tax | 22,544,000 | 22,544,000*10.3% | 2,322,000 |
| (Prefectural Tax) Corporate Tax Rate | 22,544,000 | 22,544,000*2% | 450,880 |
| (Prefectural Tax) Per Capita Levy | 20,000 | ||
| (Prefectural Tax) Corporate Enterprise Tax | 10,000,000 | 4,000,000*3.75% 4,000,000*5.665% 92,000,000*7.48% |
7,258,200 |
| (Prefectural Tax) Special Corporate Enterprise Tax | 7,258,200 | 7,258,200*37% | 2,685,500 |
| (Municipal Tax) Corporate Tax Rate | 22,544,000 | 22,544,000*6% | 1,352,640 |
| (Municipal Tax) Per Capita Levy | 50,000 | ||
| Total | 36,683,200 |
The tax amount is rounded to the nearest hundred yen.
Filing Deadlines
You must submit your corporate tax and local corporate tax returns to the tax office, your prefectural inhabitant tax, business tax, and special corporate business tax returns to the Prefectual tax office, and your municipal inhabitant tax return to the City office.
The standard filing and payment deadline is two months after the end of the business year. However, if it is determined that a regular shareholders' meeting cannot be convened within two months of the business year-end, as stipulated in the articles of incorporation or other governing documents, you may apply for a one-month extension. Submitting this application can extend the filing and payment deadlines by one month.
If you receive an extension, no non-filing penalty or delinquent tax will be imposed as long as you file and pay within three months of the business year-end. Only interest tax (deductible as a business expense) will be assessed for the extended period beyond the initial two months.
Carried-Forward Losses
A tax loss occurs when taxable income results in a deficit. Under Japan’s Corporation Tax Act, these losses can be carried forward to offset future taxable income, thereby reducing the amount of tax payable in subsequent years.
To carry forward tax losses, a business must file a “Blue Return” application with the tax office. The period for which losses can be carried forward is ten years; the losses will expire beyond this period.
The entire loss amount can be carried forward for small and medium-sized enterprises with a capital of 100 million yen or less. However, a cap of 50% applies to large corporations.
It should be noted that even when a tax loss occurs, businesses must still pay the per capita portions of the prefectural and municipal inhabitant taxes.
Conclusion
We have reviewed the content of "Corporate Taxes, etc." or "Corporate, Inhabitant, and Enterprise Taxes" as listed on the income statement. These are broken down into corporate tax, local corporate tax, prefectural inhabitant tax (local tax), and municipal inhabitant tax (local tax), with local taxes further subdivided. The key points to understand are the tax base and the tax rate for each of these tax categories.
