Investing in Japan
How to Set Up Business in Japan
Laws & Regulations on Setting Up Business in Japan
Section 3. Taxes in Japan
3.4 Overview of withholding income tax
Income tax takes two forms: self-assessed income tax and withholding income tax. In contrast to self-assessed income tax, which is levied on the income of individuals, withholding income tax is assessed against payments of certain taxable income, whether made by an individual or a corporation. Income subject to withholding income tax is determined in accordance with the tax classification of the recipient of that income.
3.4.1 Withholding at source and payment procedures
Persons who pay income subject to withholding at source must pay the taxation office the amount of tax withheld at source no later than the 10th day of the month following that in which the income was paid. However, when a payer with a domicile or business office in Japan pays income to a non-resident or a foreign corporation in another country, the withholding income tax may be paid by the last day of the month following that in which the income was paid. Regarding withholding tax paid on residents' salaries, a special exemption is provided for small businesses with fewer than 10 persons on the payroll that allows them to elect to pay withholding income tax in six-month installments twice a year (up to July 10 and up to January 10, or January 20 if a business opts for the special exemption).
3.4.2 Withholding tax on residents
Payments made in Japan of the following income to residents are subject to withholding at source:
- Interest (including profit on redemption on specified discount bonds)
- Dividends
- Salary, wages, bonuses and similar compensation
- Retirement allowances
- Certain compensation, fees, etc., to persons other than employees
3.4.3 Withholding tax on domestic corporations
Payments made in Japan of the following income to domestic corporations are subject to withholding at source:
- Interest (including profit on redemption on specified discount bonds)
- Dividends
- Horse racing prizes received by horse owners
- Distribution of profits in accordance with a Tokumei Kumiai contract
3.4.4 Withholding tax on non-residents and foreign corporations
Payments made in Japan of the income described in 3.2. 1)-16) and 19) above ("Domestic-sourced income") to a non-resident or a foreign corporation, or such payments made overseas by payers with a domicile or business office, etc. in Japan, will be subject to withholding income tax. Of these payments, payments of certain categories of income as prescribed for non-residents and for foreign corporations to a non-resident or a foreign corporation with a permanent establishment within Japan are exempt from withholding taxation, provided that a certificate from the taxation office is presented to the payer attesting that the income will be attributed to that permanent establishment and will be added to and counted as business income subject to self-assessment for tax purposes.
