Japan corporate tax rate, filing deadline, tax incentives, and exemptions explained

Why expand to Japan?

Most global businesses want a foothold in Japan. Not only does Japan lead in advanced technology and research and development, but its proximity to markets like China and South Korea gives it a clear geographic edge over others.

For companies that value trust, honesty, loyalty, and punctuality, there is no place better than Japan. Its unique culture sets it apart from any other country while its aging population presents a rare opportunity for foreign enterprises engaged in healthcare, eldercare, robotics, and other relevant sectors.

While Japan's 35th rank (among 38 countries) in the 2025 International Tax Competitive Index in the corporate tax category is underwhelming, its consistent efforts to attract foreign investment and highly-skilled foreign professionals are hard to ignore.²

Japan corporate tax

Japan's corporate tax regime comprises a national corporate income tax and local taxes such as a national local corporate tax, enterprise tax, special business corporate tax, and inhabitants tax. Also, a special corporation tax to strengthen defence capabilities will come into play for tax years starting on or after April 1, 2026.

A domestic company is taxed on its worldwide income and a foreign company on its Japan-sourced income. A foreign enterprise with a permanent establishment in Japan is taxed on income attributable to the PE at the same rates as a domestic company.

Japan's corporate tax system is designed to promote innovation and growth in specific sectors. Small businesses may be eligible for preferential tax rates.

All corporate taxes, even local ones, are administered by the National Tax Agency (NTA).³ 

Tax rates and structures in Japan

The standard corporate income tax rate in Japan is 23.2% for businesses with more than JPY 100 million in paid-in capital.

Small and medium-sized enterprises (paid-in capital not exceeding JPY 100 million) can avail of a reduced corporate income tax rate of 15% on their first JPY 8 million of annual income. Small businesses with taxable income above JPY 1 billion receive a preferential rate of 17% on their first JPY 8 million of income. Anything above is taxed at the standard 23.2%.

Over and above the corporate income tax, a national local corporate tax is also levied at 10.3% of corporate tax liability.

An enterprise tax, too, is imposed by the prefecture where a company has its office or facilities. The enterprise tax has three components – income-based tax, value-added tax (on rent, personnel expenses, etc), and capital-based tax (on capital, capital reserves and capital surpluses). Enterprise tax rates depend on business size. Large establishments must pay all three components while small businesses are only subject to the income-based tax.

An additional special corporate business tax is levied at 37% of the enterprise tax amount for small businesses and 260% for larger enterprises.

Companies must also pay an inhabitants tax on income allocated to a prefecture or municipal area. This tax has two components – a corporate tax levy and per capita levy. Tax rates depend on the number of employees, business size, and prefecture.

Then there is the special defence surtax at 4% of corporate tax liability with a basic deduction of JPY 5 million.

When these local taxes are combined to the 23.2% corporate income tax, the effective tax rate goes up to around 31% for large companies and 35% for small businesses.

What is considered taxable income in Japan?

To calculate corporate income tax, companies must determine taxable income, which is income from various sources minus expenses incurred in earning profit.

Deductible expenses include:

• Start-up expenses
• Rent and utilities
• Staff expenses, including salary
• Repairs and maintenance
• Enterprise tax and business premises tax
• Interest charges on borrowings
• Depreciation and amortisation costs
• Entertainment expenses (only for SMEs)
• Charitable contributions (limited)
• Directors' remuneration (conditional).

The following expenses are non-deductible in the calculation of taxable income:

• Corporation tax and inhabitants tax
• Fines and penalties
• Most entertainment expenses
• Donations to foreign affiliates
• Reserves
• Capital expenditures.

Historical corproate tax rates and recent reforms in Japan

Japan's current corporate tax rate is the lowest it's ever been, having steadily declined from a high of 52.40% in 1994. The effective rate of 31% (after adding local taxes) has been in effect since 2019. However, the special defence surtax will effect an increase in the overall corporate tax rate in 2026.

Apart from this surtax, Japan will execute major tax reforms this year, starting with full implementation of the global minimum tax, aimed at large multinational enterprises with consolidated annual revenues over €750 million. This tax allows Japan to levy a domestic top-up tax on low-taxed profits within its borders.

Tax incentives and exemptions

Japan offers several tax incentives and exemptions with an eye on foreign investment, such as:

• A foreign tax credit against corporation tax and inhabitants tax paid on foreign income, capped at 35% of foreign taxes paid.
• Companies developing AI-related patents and copyrights in Japan can claim 30% of 'qualified income' from use of that technology as deductible expenses for the period from April 1, 2025, to March 31, 2032, under an incentive titled 'Innovation Box'.
• Tax credits against R&D expenditures if the resultant intellectual property is Japanese-owned. The tax credit is limited to 20% of corporate tax liability, with the possibility of an additional 10% for open innovation.
• Salary increase tax credits for corporations filing 'blue form' returns, which signify an increase in salaries and other employee-related expenses. The tax credit rates are 10% and 35%, with an upper ceiling of 20% of corporate tax liability. These are available up to 2027.
• Other tax credits, including for domestic production in encouraged sectors (electric vehicles, green cement, etc), for expansion of operations in local non-city areas, and for donations to regional revitalisation projects.

When to file corporate tax returns in Japan

Companies in Japan must file their annual corporate tax returns within two months after the tax year ends, with the possibility of a one-month extension. The return must include all the corporate tax components, including the national and local corporate taxes, enterprise tax, and inhabitants tax.

Note that a foreign company's Japan branch must adopt the same tax year as that of the parent company in its home country.

Companies have the option of filing a blue form return in exchange for various tax credits and incentives. They must follow strict accounting practices to qualify for such a filing.

Corporate tax payments must be completed before the filing deadline, or within the extension period. However, corporations with a tax period longer than six months must make a provisional tax payment, computed at half of the previous year's tax liability, and due within two months of the end of the six-month period. This tax amount can be reduced by filing interim tax returns reflecting semi-annual results.

Tax returns may be filed electronically or in paper. However, large enterprises with capital exceeding JPY 10 million at the start of the tax year are required to make e-filings.

All taxes must be paid in JPY. 

Reducing tax burden with double taxation agreements

Japan has double taxation agreements with 87 countries. These treaties are aimed at preventing income from being taxed twice and checking tax evasion. Under a DTA, businesses from the contracting states can also avail of reduced tax rates, tax exemptions, and foreign tax credits.

Singapore has a comprehensive double taxation agreement with Japan since 1994. Under its provisions, a Singapore company enjoys reduced tax rates on income from dividends, interest, and royalties. For instance, if the Japanese withholding tax rate on such income in 20%, rates under the treaty are 5% or 15% for dividends and 10% for interest and royalties.

Tax treatment of dividends

Japan levies withholding tax on income from dividends, interest, and royalties, with rates depending on tax residency and tax treaty provisions, if applicable. For resident companies, the withholding tax rate is 20% on dividends, 20% on interest, and 0% on royalties. For non-resident companies, the tax rates are 15%, 20%, and 20%, respectively.⁴

Other taxes in Japan

Apart from corporate income tax and its various local components, Japan imposes the following business taxes:

Consumption tax

The value added tax (VAT) in Japan is called a consumption tax, levied at a standard rate of 10% on most goods and services – except for food (not served in restaurants), beverages (not alcoholic), and certain newspaper subscriptions, which are taxed at 8%.

Companies can claim a credit or refund on consumption tax by filing a consumption tax return.

Business premises tax

This tax applies to businesses based in Japanese cities with a population of more than 300,000 and occupying area in excess of 1,000 square metres and/or employing more than 100 people. Tax rates are based on the physical area occupied (JPY 600 per square metre) and/or gross payroll (0.25%).

Customs duties

Apart from a 10% consumption tax, most imports in Japan invite customs duty ranging from 0% to 700% (rice).

Excise taxes

This is imposed on gasoline, aviation fuel, tobacco, and liquor.

Fixed asset tax

Fixed asset tax is imposed on real property (at 1.7% of the appraised value) and depreciable fixed assets (at 1.4% of the cost) used for conducting business, and collected by local tax authorities.

Registration and licence tax

This comes into play when certain property is registered. It is levied either as a percentage of the taxable basis or as a fixed amount up to JPY 60,000.

Family corporation tax

If a shareholder and their family members own more than 50% of the total issued shares or voting rights of a Japanese company, the latter is treated as a family corporation (unless it has paid-in capital not more than JPY 100 million) and is subject to a family corporation tax.

Tax compliance and registration

Tax compliance in Japan can be challenging for those unfamiliar with the various corporate taxes and regulations. Follow these best practices to stay compliant:

• Upon incorporation, businesses in Japan receive a 13-digit corporate number from the National Tax Agency. After obtaining this number, companies must submit notifications to tax authorities at the national and prefectural levels within a stipulated period.
• Companies intending to file blue form returns are required to submit an application for approval for this as well.
• Next, get familiar with the national and local corporate income taxes as well as consumption tax, if applicable.
• Remember the tax filing deadline, which is within two months from the end of the tax year. Japan accepts both electronic and manual tax returns, but e-filing is mandatory for certain large corporations.
• As for paying taxes, some companies are subject to provisional tax payments, so keep an eye out for that due date too.  
• Keep proper records to avoid trouble while making claims and during audits.
• Pay taxes and file returns on time to avoid penalties. The late filing fine is 15%-20% of the tax due while late payment of taxes leads to an interest charge of 2.4% per annum for the first two months and 8.7% per annum thereafter.

How Aspire can help your expansion to Japan

Running a successful business in Japan is guaranteed to be easier with Aspire's range of financial tools, which are designed to take the complexity out of cross-border transactions.

• Every new business needs a corporate account to start trading and paying taxes. Aspire's multi-currency business account supports transactions in 30+ currencies across 130 countries. With transparent and low pricing and competitive FX rates, we ensure your suppliers, contractors, and clients are paid in the currency of their choice, without hassle, wherever they may be located.
• Our accounting integrations and automated workflows make book-keeping quick, simple, and accurate. You can find all your invoices and records within easy reach, ensuring you are always audit-ready.

FAQs

How much is the corporate tax rate in Japan?

The standard corporate tax rate in Japan is 23.2%, with preferential rates of 15% and 17% for small and medium-sized enterprises. However, the addition of a range of local taxes takes the effective corporate tax rate much higher.

What is the corporate tax rate change in Japan 2025?

While the corporate income tax remained unchanged at 23.2%, Japan in 2025 introduced a special tax to strengthen defence capabilities at 4% of corporate tax liability with a basic deduction of JPY 5 million. This increases the effective corporate tax rate.

What is the 8% tax in Japan?

It is the reduced consumption tax rate for food and beverages excluding alcoholic drinks and food served in restaurants.

Are dividends taxable in Japan?

Yes, dividends are taxable in Japan. The withholding tax rate on dividends is 20%, which might be lower under a tax treaty. An additional income surtax of 2.1% might also apply.

Do foreign companies have to pay tax in Japan?

Yes, foreign companies are required to pay tax in Japan, albeit only on their Japan sourced income.

What is the 10% tax in Japan?

The consumption tax in Japan is 10%, applicable to most goods and services. However, a reduced rate of 8% applies to most food and beverages.