Japan Corporate Tax - Guide for International Expansion

Expanding your business to Japan requires a solid understanding of the country's corporate tax landscape. As one of the world's largest economies and a key player in the Asia-Pacific region, Japan offers significant opportunities for international companies, but navigating its tax system is crucial for success.

Whether you're considering setting up operations in Tokyo, establishing a subsidiary, or simply understanding your tax obligations as a foreign company doing business in Japan, getting to grips with corporate taxation is essential. With Wise Business, managing your international payments and maintaining local currency accounts becomes straightforward, helping you focus on what matters most – growing your business in this dynamic market.

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This publication is provided for general information purposes and does not constitute legal, tax, or other professional advice from Wise Payments Limited, its subsidiaries or affiliates, and it is not intended as a substitute for obtaining business advice from a tax advisor or any other professional.

Japan Corporate tax rate in 2025

The standard corporate income tax rate in Japan is 23.2% for companies with taxable income exceeding ¥8 million (approximately £44,000). This rate applies to most large corporations operating in the country and represents the national corporate tax component.¹

However, Japan's corporate tax system is more complex than a single rate suggests. Small and medium-sized enterprises with annual taxable income of ¥8 million or less benefit from a reduced rate of 15% on income up to this threshold.¹ Additionally, companies must pay local taxes including inhabitant tax and enterprise tax, which can bring the effective corporate tax rate to approximately 30-31% when combined.¹

The corporate tax applies to both domestic and foreign companies conducting business in Japan. Japanese resident companies are taxed on their worldwide income, whilst non-resident companies are only taxed on their Japan-sourced income. Foreign companies with a permanent establishment in Japan are subject to the same tax rates as domestic companies on their Japanese business profits.¹

Japan has been gradually reducing its corporate tax rates over recent years to enhance international competitiveness. The country also offers various tax incentives and special deductions for research and development activities, environmental investments, and digital transformation initiatives.²

Read more about the corporate tax in United States

How to pay corporate tax in Japan

Payment Methods and Currency

All corporate tax payments must be made in Japanese yen. Companies can pay through bank transfers, at designated financial institutions, via online banking systems, or through the NTA's e-Tax system. The e-Tax electronic filing and payment system is increasingly popular among businesses as it offers convenience and faster processing times.³

Payment Timeline and Deadlines

Japanese companies must file their corporate tax returns and make payments within two months of their fiscal year-end. For companies with a March 31st fiscal year-end, this means filing and paying by May 31st. Companies can apply for a one-month extension, but interest charges may apply to any unpaid amounts.⁴

Interim Payments

Companies with annual corporate tax liability exceeding ¥100,000 must make interim tax payments. These are typically due six months after the start of the fiscal year and are calculated based on the previous year's tax liability divided by 12 and multiplied by 6.⁵

Penalties and Interest

Late payment penalties in Japan are significant and depend on the situation. The National Tax Agency (NTA) charges tiered interest on overdue taxes, starting at 2.4% for the first two months and increasing to 8.7% annually thereafter (for the 2025 tax year). Additionally, a late filing penalty is imposed for failure to file returns on time, with rates ranging from 5% to as high as 30% depending on whether the filing is voluntary or prompted by a tax audit.⁴

Tax Calculation Example

Let's consider a company with annual revenue of ¥200 million (approximately £1.1 million) and a profit margin of 10%, resulting in taxable income of ¥20 million.

At Japan's standard corporate tax rate of 23.2%, the national corporate tax would be:

¥20,000,000 × 23.2% = ¥4,640,000

However, when including local taxes (inhabitant tax and enterprise tax), the effective rate increases to approximately 30.6%:

¥20,000,000 × 30.6% = ¥6,120,000

If this company pays its taxes 30 days late, assuming an 8% annual penalty rate:

Interest = ¥6,120,000 × 8% × (30/365) = ¥40,200

Total amount due = ¥6,120,000 + ¥40,200 = ¥6,160,200

Wise Business for Japanese Operations

When expanding your business to Japan, the right financial tools will make the process smoother. Using a platform like Wise Business makes it easy to manage international finances. A multi-currency account allows businesses to pay for incorporation costs, registration fees, and government taxes in local currency without paying high exchange rate fees.

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Tax Compliance in Japan

A few proven steps to keep your company compliant with Japanese tax regulations:

• Register for taxes early: After incorporation, companies must register for National Corporate Tax, Local Corporate Tax, Enterprise Tax, Inhabitant Tax, and Consumption Tax (VAT). Registering promptly helps establish corporate tax residency and ensures you can operate legally without penalty risks.
• File annual returns: All corporations are required to file annual corporate tax returns. The tax year follows the accounting period defined in the company’s Articles of Incorporation, with final returns due within two months after the end of that period.
• Pay taxes on time: Payments can be made electronically. Late payments incur 2.4% interest for the first two months and 8.7% thereafter, while late filing penalties range from 15% to 20% of the outstanding balance.⁶
• Maintain accurate records: Clear financial records help support claims for any corporate tax allowance or deductions available under Japanese law, reducing the risk of disputes during audits.
• Stay updated on regulations: Tax laws in Japan can change, so consulting advisors and monitoring updates ensures ongoing compliance and prevents unexpected liabilities.

International Expansion to Japan

Japan’s corporate tax system plays a central role in shaping the financial landscapes of businesses. As the world’s fourth-largest economy and fifth in global trade volume, it is a strategic base for accessing the broader Asia-Pacific region. Known for its political stability and governance leadership within the G20, Japan consistently ranks high in investor confidence, making it one of the most attractive destinations for foreign direct investment (FDI).⁶

The domestic market itself is vast and resilient. In 2023, corporate profits reached record highs across manufacturing and non-manufacturing sectors, while capital investment surpassed 100 trillion yen. Coupled with ongoing infrastructure development and a 5.58% wage increase in 2024, the highest in decades, Japan is fostering both productivity and consumer purchasing power. For overseas businesses, this means entry into a stable, growing economy with strong long-term prospects.⁷

Japan also stands out as a hub for innovation. It has the highest number of researchers per capita in the G7, ranks second in R&D spending, and is home to one of the world’s largest pools of IT engineers.⁸ These strengths and Tokyo’s top global startup ecosystem position ensure access to advanced technology, technical talent, and innovative opportunities.⁹

Understanding the Japanese corporate tax rate is a critical first step for businesses interested in expansion. Many companies consult a corporate tax lawyer or take specialized corporate tax courses to stay compliant. Awareness of the corporate tax rate in Japan and related regulations will allow your company to operate smoothly and capitalize on Japan’s promising business environment.

Steps to start a business in Japan include:¹⁰

1. Conducting market research on your product or service.
2. Creating a business plan with financial forecasts and workforce requirements.
3. Choosing a business name and location suited to your target market.
4. Selecting a legal structure and registering with the Business Registry.
5. Protecting intellectual property with the Japan Patent Office.
6. Opening a local bank account to support operations.

You can fully leverage the opportunities to do business in Japan by understanding the corporate tax system and regulatory framework. Equally important is recognizing the country’s unique corporate culture and its emphasis on building long-term relationships.

Read more about the corporate tax in Nevada

Incorporation of Business in Japan

Foreign investors must register with the Legal Affairs Bureau and prepare specific documents to incorporate a business in Japan. The general requirements include:¹¹

• Acquisition of certification: regarding equity participants
• Articles of Incorporation: outlining company purpose, structure, and governance
• Payment of capital contributions: by members to designated bank accounts
• Application for registration of establishment (e.g., Godo-Kaisha LLC) at the Legal Affairs Bureau
• Registration of the company seal: with the Legal Affairs Bureau
• Certificate of registered information and seal impression certificate: usually obtained within two weeks after filing
• Opening a bank account: under the company’s name
• Notification of stock acquisition: to the Bank of Japan (where required)

Because taxation plays a central role in the setup process, many businesses consult corporate tax advisors early on. Tools such as a corporate tax calculator can help estimate liabilities under the current corporate tax rate, while outsourcing specific tax tasks can improve efficiency and reduce compliance risks.

Business Entities in Japan

Under the Companies Act of Japan, foreign companies can choose from several types of entities:¹²

• Representative Office: Suitable for early-stage market research and planning. It does not require registration, but cannot engage in sales, open corporate bank accounts, or sign leases in the company’s name.
• Branch Office: Easier to establish than a subsidiary, requiring only office registration and appointment of a local representative. It can conduct transactions, open bank accounts, and sign leases, but liabilities ultimately rest with the foreign parent company.
• Subsidiary Company: A fully independent entity under Japanese law. Subsidiaries can take the form of:
• Kabushiki-Kaisha (KK): A stock company ideal for larger operations and gaining credibility with clients and partners.
• Godo-Kaisha (GK): A more flexible and cost-effective limited liability company, often favored by smaller businesses or startups.

Foreign investors may also establish joint ventures with Japanese companies. They can work on aligning local expertise with international resources for stronger market entry.

International corporate tax best practices

Managing corporate tax obligations across multiple jurisdictions requires strategic planning and adherence to international standards. Here are essential practices for businesses operating globally.

Maintain Compliance with Local and International Standards

Ensure your business is properly registered in every jurisdiction where you operate. File all required tax returns punctually to avoid penalties, and stay current with evolving tax regulations. Understanding frameworks like the OECD's Base Erosion and Profit Shifting (BEPS) initiatives and Pillar Two Global Minimum Tax helps ensure transparency and prevents tax avoidance issues.

Leverage Double Taxation Treaties

Double taxation agreements (DTAs) are crucial for preventing the same income from being taxed twice. Japan has comprehensive tax treaties with over 70 countries, which can significantly reduce withholding taxes on dividends, royalties, and interest payments. Understanding these treaties and their specific provisions can help optimise your overall tax burden while remaining compliant.

Maintain Comprehensive Financial Records

Keep detailed, up-to-date financial records that support accurate tax return preparation. Well-organised documentation reduces the risk of errors that could lead to penalties and simplifies the audit process. This includes maintaining proper transfer pricing documentation for intercompany transactions, which is particularly important for multinational operations.

Take the complexity out of international expansion with Wise Business

Researching corporate tax is a crucial step when expanding your business into a new country. The next step is setting up the financial infrastructure to handle the complexities of operating across borders, from managing multi-currency cash flow to mitigating FX risk.

The Wise Business account provides the financial tools to make your international expansion to Japan efficient and simple. It's the one account for managing your money globally.

With a Wise Business account, you can:

• Pay suppliers and initial fees: Pay suppliers, global payroll, and one-off incorporation costs in the local currency.

• Get paid like a local: Use local account details for 8+ major currencies to easily receive payments from customers or investors.

• Manage your money across borders: Hold and exchange 40+ currencies in one account, always with the mid-market exchange rate and low, transparent fees.

• Streamline your accounting: Integrate with tools like Xero or QuickBooks to simplify tracking your company's international finances.

• Empower your team: Provide multi-user access for your finance team and issue expense cards for international spending.

Wise is designed to support every step of your journey, from paying your first registration fee to receiving international payments and managing your global treasury.

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FAQs - Corporate tax in Japan

Who is liable for corporate tax in Japan?

All companies incorporated in Japan are liable for corporate tax on their worldwide income. Foreign companies are subject to Japanese corporate tax only on their Japan-sourced income. This includes income from business operations conducted through a permanent establishment in Japan, such as branch offices or subsidiaries. Companies must register with the National Tax Agency and obtain a corporate number for tax purposes.

Are there any tax incentives for businesses in Japan?

Yes, Japan offers several tax incentives to promote business investment and innovation. These include enhanced deductions for research and development expenses (up to 14% of qualifying R&D costs), accelerated depreciation for digital transformation investments, and special deductions for environmental protection equipment. Small and medium enterprises also benefit from reduced tax rates on income up to ¥8 million annually.

What is the tax treatment of dividends in Japan?

Dividends received by Japanese companies from domestic sources are generally exempt from corporate tax to avoid double taxation. However, dividends from foreign subsidiaries may be subject to tax, though Japan's participation exemption system can provide relief for qualifying foreign dividends. Withholding tax rates on outbound dividends vary depending on applicable tax treaties, typically ranging from 5% to 20%.

What is the process for registering for corporate tax in Japan?

Companies must submit a "Notification of Commencement of Business" to the relevant tax office within two months of incorporation or starting business operations. This includes providing corporate details, business activities, and accounting periods. Foreign companies establishing a permanent establishment must also register and appoint a tax representative if they don't have a resident representative director.

What are the common pitfalls to avoid regarding corporate tax in Japan?

Key pitfalls include failing to understand the complex local tax components (inhabitant tax and enterprise tax) that increase the effective tax rate, missing interim payment deadlines, inadequate transfer pricing documentation for intercompany transactions, and not properly claiming available tax incentives. Additionally, foreign companies often underestimate the importance of maintaining proper substance in Japan to support their tax positions and may face challenges with the Japanese tax authority's detailed documentation requirements.

Sources used in this article:

1. PwC Tax Summaries: Japan Corporate Income Taxes
2. PwC Tax Summaries: Japan Tax Credits and Incentives
3. EU-Japan Centre: Tax Payment Procedures
4. PwC Tax Summaries: Japan Tax Administration
5. EU-Japan Centre: Filing Tax Returns
6. JETRO: Why Japan for Investment
7. JETRO: Investing in Japan - Chapter 3
8. JETRO: Investing in Japan - Chapter 6
9. JETRO: Investing in Japan - Chapter 7
10. Forum Expat Management: An Easy Guide to Starting a Business in Japan
11. JETRO: Setting Up a Business
12. EU-Japan Centre: Starting a Business in Japan Guide (PDF)

Sources last checked 10/09/2025