Business taxes in Japan
In addition to paying these payroll taxes for the social benefits of their employees, corporations will face a gauntlet of other taxes, including corporate income tax and a value-added tax.
There are three types of corporate income taxes - an enterprise tax, a corporate tax and an inhabitant or local tax.
The tax rate varies with a company's capitalization and location, but a company located in Tokyo can expect to pay the following in corporate income taxes :
First, an enterprise tax of 12% of the firm's pre-tax income is levied.
Then, after netting out this enterprise tax, a company must pay a corporate tax of 37.5% on the remaining balance.
Then the firm must pay a local or inhabitant's tax of 21% of the corporate tax.
All in all, a company will be lucky to keep half of its pre-tax profits after paying these three forms of corporate income tax.
Also, if the company pays out dividends, it must pay a withholding tax of 20% of the dividends.
In addition to corporate income taxes, companies must collect a so-called consumption tax, which is really a value-added tax, of three percent. This consumption tax was initiated in 1989 when corporate and personal income tax rates decreased.
This consumption tax applies to the sale or lease of assets and the supply of services. It applies to imported goods, but not exported goods. Very small companies are exempt from collecting the tax, and smaller firms have simplified collection procedures. Certain items such as medical treatment and school tuition are exempt from the tax.
Also, sales of land and transfers of securities are exempt from the consumption tax.
Although sales of securities used to be free of a capital gains tax, after the tax reform of 1989, gains realized from the sale of stock became taxable. Gains from the sale of government bonds, however, are not taxed.