A Japan company pays corporate tax at a combined national and local rate of roughly 30 to 34 percent, collects and remits a 10 percent Consumption Tax (消費税, JCT) with an 8 percent reduced rate on food and newspapers, and since October 2023 can only pass on input tax credit using invoices from a registered Qualified Invoice Issuer (適格請求書発行事業者). Foreign-owned companies carry two additional duties on top of this: withholding tax on cross-border payments to related parties, and transfer pricing documentation once related-party transaction volume crosses set thresholds. On the legal side, the same foreign-owned structure typically needs an electronically signed contract reviewed for validity and a governing-law choice made deliberately rather than by default.
What Taxes Does a Japan Company Actually Pay?
Japan taxes a company at the national and local level at the same time, and the two layers add up to an effective combined rate of roughly 30 to 34 percent for a typical Tokyo-based company. The stack has five components: national corporate tax, local corporate tax (charged as a percentage of the national tax, not of income directly), enterprise tax (事業税), a special local corporate tax layered on top of enterprise tax, and inhabitant tax (住民税), which itself has a flat per-capita component plus an income-based component.
Official source: NTA, Corporation Income Tax.
What Are Japan's Corporate Income Tax Rates and Filing Deadlines?
For fiscal years starting April 2024 onward, a company with capital above JPY 100 million pays the standard national corporate tax rate of 23.2 percent on taxable income. A company with capital of JPY 100 million or below (an SME under the tax code) pays a reduced 15 percent rate on the first JPY 8 million of income, with the standard rate applying above that threshold. A 10 percent surtax on the corporate tax liability can apply to large corporations depending on capital and structure.
Filing follows the company's own fiscal year, which can be any 12-month period the company chooses; the corporate tax return is due 2 months after fiscal year-end, with a possible 1-month extension where the Articles of Incorporation (定款) require shareholder approval of the financial statements before filing. An interim payment is required partway through the year if the prior year's tax liability exceeded JPY 200,000.
How Does Japan's Consumption Tax (JCT) Work?
JCT works as a credit-invoice system: a company charges JCT on its sales (output tax), pays JCT on its own purchases (input tax), and remits the difference to the tax office. The mechanics look like this:
Supplier Your Company Customer
│ │ │
│ sells goods + 10% JCT │ sells goods + 10% JCT │
│──────────────────────────→│──────────────────────────→│
│ │ │
│ INPUT TAX (paid) │ OUTPUT TAX (collected) │
│ │ │
│ ┌──────┴──────┐ │
│ │ JCT RETURN │ │
│ │ │ │
│ │ Output JPY X│ │
│ │ - Input JPY Y│ │
│ │ = Pay JPY(X-Y)│ │
│ └─────────────┘ │
The standard rate is 10 percent; a reduced 8 percent rate applies to food and beverages (excluding alcohol and dining out) and to newspaper subscriptions. A business becomes liable for JCT once taxable sales in the base period (two years prior) exceed JPY 10 million; below that threshold a business is a tax-exempt enterprise (免税事業者) by default but can elect to become taxable. JCT is filed annually as a default, with quarterly or monthly filing available or required depending on election and turnover.
Official source: NTA, Consumption Tax.
What Is the Qualified Invoice System and Who Must Register?
Since October 2023, only an invoice issued by a registered Qualified Invoice Issuer (適格請求書発行事業者) supports the buyer's input tax credit claim; before the Qualified Invoice System (QIS), any invoice worked. A qualifying invoice must show:
(a) the issuer's name and a registration number in the format T plus a 13-digit corporate number; (b) the transaction date; (c) a description of the goods or services; (d) the total amount broken down by tax rate (8 percent and 10 percent shown separately); (e) the consumption tax amount for each rate category; and (f) the recipient's name.
The reform did not cut off unregistered issuers immediately. Credit for purchases from a non-registered business phases down on a fixed schedule: 80 percent of the JCT amount remains creditable from October 2023 through September 2026, dropping to 50 percent from October 2026 through September 2029, and to zero after September 2029. A large corporation should already be registered and integrating Peppol e-invoicing; a taxable SME should register and move to QIS-ready accounting software; a tax-exempt small business faces a real choice between registering (and becoming taxable) or risking loss of B2B customers who need the input credit; and a foreign company without a Japan entity registers by paper application to the NTA and, per the Tax Agent (納税管理人) guide, needs a Japan-resident Tax Agent to handle the filing.
Official source: NTA, Invoice System Outline (English PDF).
How Much Withholding Tax Applies to Cross-Border Payments From Japan?
Absent treaty relief, Japan withholds 20.42 percent at source on dividends, interest, royalties, and Japan-source service fees paid to a non-resident; dividends and interest paid to a Japan resident are also withheld at 20.42 percent as a default, with the amount creditable against the recipient's own tax liability. The 20.42 percent figure combines the base income tax rate with a surtax that has applied since the 2011 disaster-reconstruction tax measures.
Japan's network of more than 80 bilateral tax treaties can reduce or eliminate this withholding, but the reduced rate is never automatic: it depends on the specific treaty, the payment type, and often the recipient's shareholding percentage, and it must be confirmed against that treaty's actual text rather than assumed from a different treaty. Claiming the reduced rate also carries a documentation burden and an ongoing audit risk once the payment is made, covered in detail in the treaty withholding relief guide; a related but distinct scenario, cross-border withholding inside an M&A transaction itself, is covered separately in the M&A withholding tax guide. In every case, Japan law places the withholding obligation on the payer, not the payee: a payer that fails to withhold correctly is liable for the shortfall itself.
When Does Japan Require Transfer Pricing Documentation?
Any transaction between a Japan subsidiary and a related foreign parent or affiliate must be priced at arm's length (独立企業間価格) under Japan's transfer pricing rules, where "related party" generally means 50 percent or greater voting control or equivalent substantive control. The accepted pricing methods are the Comparable Uncontrolled Price method for commodity-type transactions, Resale Price for distribution companies, Cost Plus for manufacturers and service providers, the Transactional Net Margin Method (the most commonly used in practice), Profit Split for highly integrated operations, and, since 2019, a discounted cash flow approach for hard-to-value intangibles. A related area, the arm's-length review of intercompany service and royalty flows for a foreign-owned Japan subsidiary, is covered in the transfer pricing guide for foreign-owned subsidiaries.
Documentation obligations under the BEPS Action 13 framework scale with size: (a) a Master File covering the group's global structure and intangibles is required, filed with the annual tax return, once group consolidated revenue reaches JPY 100 billion or more; (b) a Local File analyzing the Japan entity's own related-party transactions is required, also with the annual return, once related-party transactions reach JPY 5 billion for goods or JPY 300 million for intangibles in the preceding fiscal year; and (c) a Country-by-Country Report is required, filed within 12 months of fiscal year-end, at the same JPY 100 billion consolidated-revenue threshold as the Master File. Below these mandatory thresholds, the NTA can still request contemporaneous documentation during an audit, and not having it shifts the burden of proof onto the taxpayer. Advance Pricing Agreements, unilateral or bilateral, run 3 to 5 years typically (with possible rollback to earlier years) and trade upfront negotiation time for methodology certainty and protection against double taxation; Japan runs one of the more active APA programs globally.
Official source: NTA, International Taxation.
What Digital Filing Systems Does a Japan Company Need to Use?
Corporate tax and JCT returns both file through e-Tax (電子申告), Japan's electronic filing system, which has been mandatory for large corporations since 2020 and has supported smartphone-based authentication for Android since January 2025. Alongside e-Tax, Peppol-format e-invoicing (managed by the Digital Agency, デジタル庁) has been mandatory for connected entities since May 2025, using the PINT v1.1.1 format; common Japan accounting platforms (Money Forward, freee, Yayoi) support it natively and use it to automate Qualified Invoice System compliance.
What Should a Foreign Company Do First?
Key points:
(a) Immediate: register as a Qualified Invoice Issuer before any B2B sale in Japan that needs to carry input tax credit, and, if the company has no Japan entity, appoint a Tax Agent (納税管理人) to handle the registration and ongoing national-tax matters. (b) Within 3 months: review transfer pricing documentation for arm's-length compliance, and confirm the withholding tax treaty position on every recurring cross-border payment rather than assuming a rate from a prior deal. (c) Ongoing: maintain contemporaneous transfer pricing documentation even below the mandatory filing thresholds, and file corporate tax and JCT returns on time to avoid the surcharge and interest exposure that compounds on late or under-reported tax.
Frequently Asked Questions
Does a small foreign-owned Japan subsidiary have to register for the Qualified Invoice System?
Not automatically. A business with taxable sales below JPY 10 million in the base period two years prior is a tax-exempt enterprise (免税事業者) by default and is not required to register. Many small foreign-owned subsidiaries register anyway because their Japan B2B customers need a Qualified Invoice to claim their own input tax credit, and an unregistered supplier becomes a harder sell.
Who is actually liable if a Japan company under-withholds tax on a payment to its foreign parent?
The Japan payer, not the foreign recipient, carries the liability for a withholding shortfall. If the NTA later determines that a reduced treaty rate did not apply, or that a required 20.42 percent statutory rate was under-withheld, the Japan entity that made the payment is assessed for the difference plus applicable surcharges.
Does every foreign-owned Japan company need transfer pricing documentation?
No. The Master File and Country-by-Country Report only become mandatory at JPY 100 billion in group consolidated revenue, and the Local File only at JPY 5 billion in related-party goods transactions (or JPY 300 million for intangibles) in the prior fiscal year. Below those thresholds documentation is not mandatory, but the NTA can still request it during an audit, and a company with nothing prepared bears the burden of proving its pricing was at arm's length.
Conclusion
Japan's tax stack is layered rather than complicated: national and local corporate tax, JCT with its Qualified Invoice registration requirement, withholding on cross-border payments, and transfer pricing documentation once a company crosses set size thresholds. The compliance discipline that actually protects a foreign-owned company is the same across all four: register on time, document the position before the NTA asks for it, and confirm every cross-border rate against its own governing rule rather than a prior deal's assumption. For the contract side of running a Japan-facing entity, see Aplash's Japan legal and tax consulting service.
Official References
NTA English portal: nta.go.jp/english. NTA Report 2025: nta.go.jp. NTA Invoice System outline: nta.go.jp. Special Taxation Measures Act (English): japaneselawtranslation.go.jp. Corporation Tax Act (English): japaneselawtranslation.go.jp. EU-Japan Centre on the Qualified Invoice System: eu-japan.eu.
This article is informational only and does not constitute legal, tax, or regulatory advice. Consult a qualified advisor before acting on the content. Last updated: August 2026.