Japan is a high tax jurisdiction with complex tax laws. Consequently, when tax planning in Japan, it is normal for a business to frequently engage the professional services of accountants and tax advisors. A summary follows:

When tax planning in Japan, note that the National Tax Agency imposes a capital gains tax of 30%.

Paying dividends in Japan is not a tax-efficient method of distributing funds from a company. That said, remittances made by a Japan branch office to its foreign parent are tax-exempt

Companies whose annual sales are less than 10 million yen (US$92,500) are exempt from consumption tax. When tax planning in Japan, entrepeneurs should note that a Japanese company is not required to issue a sales invoice.

A double tax treaty is signed by two countries to prevent the duplicate taxation of income earned in one country by a resident of another signatory country. In addition, it serves to reduce withholding tax on payments to non-resident individuals and companies.

Non-resident foreign investors can legitimately obtain tax credits on dividends paid from a Japanese company under the terms of the double tax treaties Japan has signed with the following nations: Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Brazil, Bulgaria, Canada
China, Czech Republic, Denmark, Egypt, Fiji, Finland, France, Georgia, Germany, Hungary, India, Indonesia, Ireland, Israel, Italy, Kyrgyzstan, Luxembourg, Malaysia, Mexico, Moldova, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Romania, Russia, Singapore, Slovakia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Tajikistan, Thailand, Turkey, Turkmenistan, Ukraine, Uzbekistan, the UK, the US, Vietnam and Zambia.

Foreign investors are attracted to Japan, as it is an attractive jurisdiction for wealthy entrepreneurs to reside. Japan boasted 1.477 million US dollar millionaires at the end of 2006, more than the rest of the Asia Pacific region combined.

Individuals resident in Japan (both employees and entrepreneurs) are liable to income tax on worldwide employment and personal income, including pensions. A maximum personal income tax rate of 40% is levied on annual income exceeding 18 million yen (US$166,000).

For more detailed information on tax planning in Japan, purchase our Asia Business Setup book.

For more information on tax planning in Japan, email email@healyconsultants.com or call us in Tokyo at +81 345 801 776.

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