Corporate income tax, individual income tax

Any income you earn in Japan is subject either to corporation tax (for companies) or income tax (for individuals). The complex Japanese tax system is hard to understand, even for Japanese people themselves. Since English is not widely spoken in Japan, the tax system can seem particularly daunting and confusing for foreigners. At Yoshimoto Tax Services, we can help you with any of your tax issues and concerns—in English!

PE (Permanent Establishment)

For non-residents and foreign corporations, only income from Japanese sources is taxable. However, if you have a Permanent Establishment (PE), income is treated as Japan-sourced and is taxed by the Japanese authorities.

A PE is defined as: (1) A fixed place of business in Japan where a non-resident, etc., conducts business, such as a branch, office, factory, or workshop; (2) A location where construction, installation, or related supervisory services are carried out for more than one year; (3) A specific location, defined as, for instance, an agent of the non-resident who has the authority to repeatedly conclude contracts in relation to the non-resident’s business or who repeatedly plays a principal role leading to the conclusion of such contracts.

Changes to tax law in 2019 led to stricter taxation of permanent establishments. Many non-residents wrongly believe that because they do not have a company in Japan or do not have employees in Japan, they do not have a PE. This is a misconception—one that may result in a situation the authorities deem to be tax evasion. Needless to say, tax evasion is punished severely and the cost is high, so it is crucial make sure you are getting the right advice regarding your PE-or-not-PE status to ensure you don’t end up having to pay avoidable penalties.

Consumption tax

Consumption tax arises in both corporation tax and personal income tax. It is an indirect tax, so a company is liable to pay consumption tax even when running at a loss. This can put pressure on your company’s finances. It is therefore vital that you keep your accounts up to date on a monthly basis, and plan for any tax payments you need to make.
If your business is in exporting, doing your tax return monthly or every three months will help ensure your cash flows are stable and consistent.

Cross border suppliers of services

When you provide services online, is the transaction subject to Japanese consumption tax? That depends on whether or not those services constitute transactions conducted in Japan.

For Japanese consumption tax purposes, the distinction between a local and foreign transaction is based on whether the address of the person receiving the service (i.e., the customer) is in Japan or overseas.

Examples of online services include:

• Services for downloading e-books, music, games, etc., via the internet
• Services providing access to cloud-based software or databases
• Cloud-based data storage services
• Distribution and placement of online advertisements
• Providing access to online shopping or auction sites
• Providing a platform to sell game software or other products on the internet
• Online accommodation and restaurant reservation sites
• Language education classes conducted online

Even if you are located abroad, if the customer’s address is in Japan, you are liable for Japanese consumption tax.

Inheritance tax, gift tax

In matters of inheritance or donations in Japan, if you inherit an estate or receive a bequest, you are liable to pay inheritance tax or gift tax. The extent of the tax liability will depend on whether the decedent and heir are in Japan or abroad, and on whether the estate in question is in Japan or overseas. It is a highly complex issue, but we can help you—in English!

US tax returns

For United States tax purposes, you must file a worldwide inheritance disclosure even if you are living in Japan. At Yoshimoto Tax Services, we are able to refer you to tax accountants in the US if you require, and can work in close cooperation to assist with your US tax returns.

Accountancy services, book-keeping

We can translate financial statements and forms into English and provide accounts processing services using English software if you require. Businesses are required to keep a ledger in Japanese, but we can reproduce the necessary forms in English for your reference.