1. Taxes Imposed On Taxable Income
A corporation in Japan pays 6 kinds of taxes that are, directly or indirectly, imposed on its annual taxable income.
Corporation Tax = Ａ% x Taxable Income
Local Corporation Tax = Ｂ% x Corporation Tax
Prefectural Inhabitant Tax = Ｃ% x Corporation Tax
Municipal Inhabitant Tax
= Ｄ% x Corporation
Tax
Business Tax = Ｅ% x Taxable Income
Local Corporation Special Tax = Ｆ%
x
Business Tax(*)
(*) Although the tax base of local corporation special
tax is business tax, it is, in most cases, different from the actual amount of business
tax levied. Please refer to the paragraphs “5. Business Tax” and “6. Local Corporation Special Tax” for the details.
2. How Effective Tax Rate Is Calculated
The formula for calculating the effective tax rate is:
Effective Tax Rate = ( A x ( 1 + B + C + D ) + E + Es x F) / ( 1 + E + Es x F )
Es: standard rates of business tax defined
by the Local Tax Act. Please refer to the paragraphs
“5. Business Tax” and “6. Local Corporation
Special Tax” for the details.
The formula is
not a simple addition of the rates, because business tax and local corporation
special tax are treated as taxable expenses/incomes when they are actually paid/refunded.
3. Individual Tax Rates Are :
(1) Corporation Tax
A% is 23.2%. No revision is scheduled currently.
For a small and
medium-sized corporation that fulfills certain conditions set by the tax laws,
A% is 15% for the taxable income up to 8 million yen and 23.2 % for the taxable
income over 8 million yen.
(2)
Local Corporation Tax
B% is 4.4%. It will be 10.3% for the fiscal year that will start on
or after October 1, 2019.
(3)
Prefectural Inhabitant Tax
Prefectural inhabitant tax is composed of two different taxes. One
is per corporation tax levy and the other is per capita levy. The C% above is the
one applied for the per corporation tax levy.
C% is determined
by each prefecture. The Local Tax Act defines the standard rate as 3.2%, while allowing each prefecture
to determine and impose higher tax rates up to 4.2% (the maximum applicable
rate).
The standard rate
will be 1.0% and the maximum applicable rate will be 2.0% for the fiscal year that
will start on or after October 1, 2019.
(4)
Municipal Inhabitant Tax
Municipal inhabitant tax is composed of two different taxes. One is
per corporation tax levy and the other is per capita levy. The D% above is the
one applied for the per corporation tax levy.
D% is determined
by each Municipality. The Local Tax Act defines the standard rate as 9.7%, while allowing each municipality
to determine and impose higher tax rates up to 12.1% (the maximum applicable
rate).
The standard rate
will be 6.0% and the maximum applicable rate will be 8.4% for the fiscal year that
will start on or after October 1, 2019.
(5)
Business Tax
Business tax is composed of two different taxes. One is per taxable
income levy and the other is per size levy. The E% above is the one applied for
the per taxable income levy.
E% is determined
by each prefecture. The standard rates and the maximum applicable rates are
defined by the Local Tax Act as below:
- for a company whose capital amount is over 100 million yen -
The standard rates are 0.3%(0.4%) for the taxable income up
to first 4 million yen, 0.5%(0.7%) for the income over 4 million yen and up to
8 million yen, and 0.7%(1.0%) for the income over 8 million yen. The Act
allows each prefecture to determine and impose higher tax rates up to 2.0(1.7)
times as much as the standard rates.
- for a company whose capital amount is 100 million yen or less -
The standard rates are 3.4%(3.5%)
for the taxable income up to first 4 million yen, 5.1%(5.3%) for the income
over 4 million yen and up to 8 million yen, and 6.7%(7.0%) for the income over
8 million yen. The Act allows each prefecture to determine and impose higher
tax rates up to 1.2(1.2) times as much as the standard rates.
bracketed figures "()" will be applied for
the fiscal year starting on or after October 1, 2019.
The tax rates for the smaller size category is much higher than those for
the larger size category. The reason behind this is that the per size levy
is only imposed on the larger size category and the difference is made up by it.
(6)
Local Corporation Special Tax
The tax base of local corporation special tax is the amount of business
tax calculated with the standard rates described in the previous paragraph,
that is, in most cases, different from the actual amount of business tax
imposed.
F % is 414.2% for a company whose
capital amount is over 100 million yen and 43.2% for a company whose capital
amount is 100 million yen or less.
(Note: This blog is written on July 1, 2019 based on the information
available then.)
written by YAMAMOTO CPA OFFICE https://www.accounting-solutions-japan.tokyo/en-home
written by YAMAMOTO CPA OFFICE https://www.accounting-solutions-japan.tokyo/en-home
