Accounting and tax for new Japanese subsidiaries

Is this you?

We work best with Japan entities that look like this:

• Incorporated in Japan within the last three years, or about to incorporate
• Between zero and ten employees in Japan
• No accountant or finance staff in the Japan entity
• Required to report to HQ monthly, quarterly or annually
• Currently working with a Japanese accountant who cannot communicate in English, or with a large firm whose hourly fees are hard to justify at your size

If most of these apply, we would be glad to hear from you. We also work with larger Japan entities, especially on group reporting and tax provisions.

Your first months in Japan: tax filings checklist

Incorporating the company is only the start. Several notifications must be filed with the tax authorities within weeks or months of incorporation. Some are required; others are optional but can save you tax or administrative work, and cannot be backdated if you miss the deadline.

The table below shows the main filings for a company (KK or GK) set up in Japan. We check which of these apply to you, prepare the forms and file them.

Extending the filing deadline

Corporation tax and local tax returns are due within 2 months after the fiscal year-end. If your shareholders' meeting to approve the accounts is held later, for example to fit your group's audit timetable, you can apply to extend the filing deadline, normally by 1 month. The Japanese consumption tax filing deadline can then be extended by 1 month as well. The extension applies to filing only: the tax is still due within 2 months after the year-end, so we estimate it and arrange payment by then. Any amount paid later carries interest.

Withholding tax on salaries

If you pay salaries, you must withhold income tax each month and pay it to the tax office by the 10th of the following month. With fewer than 10 employees, you can apply to pay twice a year instead (by July 10 and January 20), which reduces the monthly workload considerably.

Directors' pay

In Japan, directors' pay is generally deductible only if the same amount is paid every month. Changes are normally allowed only within three months of the start of the fiscal year. We recommend deciding directors' pay before the first payment and planning changes around the start of each fiscal year.

Official sources: NTA: Guidelines for notifications on establishing a corporation / NTA: Blue-form tax return application (PDF) / NTA: Salary payment office notification (PDF) / NTA: Semi-annual payment of withholding tax (PDF) / NTA: Foreign ordinary corporation notification (PDF) / NTA: Extension of the filing deadline (Japanese) / NTA: Extension of the Japanese consumption tax filing deadline (Japanese) / NTA: Directors' pay (Japanese) / Tokyo Metropolitan Government: Local tax filing extension form (PDF) / Tokyo Metropolitan Government: Local tax notification (Japanese)

The NTA's English guidelines are reference translations; where they differ from current Japanese law, the Japanese text applies.

Japanese consumption tax in your first years

Japanese consumption tax is a sales-based tax on supplies of goods and services in Japan, similar in nature to European VAT and Australian GST. A newly established company is in principle exempt in its first two fiscal years. However, depending on the size of your parent group, the amount of stated capital at incorporation and whether you register as a tax-qualified invoice issuer, a new subsidiary may not be able to use this exemption. Whether you are exempt affects your pricing, your invoicing and your cash flow, so it is worth checking before your first sale.

The general rule

Whether a business is a taxable person, that is, required to file a Japanese consumption tax return, depends on its taxable sales in the past. Taxable sales means domestic taxable sales (excluding reverse charge sales) and export exempt sales.

• Base period: generally the fiscal year two years before the current fiscal year. Where the base period is not one year, the taxable sales are annualised.
• Specified period: generally the first six months of the previous fiscal year. Japanese businesses may use salary payments in place of taxable sales for this test, but for foreign businesses, from 1 October 2024, the test is based on taxable sales only.

A newly established company has no base period in its first two fiscal years, so in principle it is not a taxable person in those years.

When a new company is a taxable person from the start

Even without a base period, a new company is a taxable person if any of the following applies:

If a new company that is a taxable person because of its stated capital or its group acquires specified fixed assets (such as buildings, machinery or equipment costing JPY 1 million or more per unit, excluding Japanese consumption tax) in a fiscal year with no base period, it must remain a taxable person for three years from that fiscal year.

Tax-qualified invoice issuer registration

Since October 2023, Japanese business customers can generally deduct Japanese consumption tax only on invoices from registered tax-qualified invoice issuers. If your customers in Japan are businesses, they may ask you to register. Registration makes you a taxable person even if you would otherwise be exempt, so the decision needs to weigh your customers' needs against the extra tax and administration.

We review your capital, group structure and customers, tell you whether you are a taxable person, and recommend whether to register as a tax-qualified invoice issuer.

Official sources: NTA: Japanese consumption tax / NTA: Japan Invoice System (PDF) / NTA: Japanese consumption tax for newly established businesses (Japanese) / NTA: Tax-qualified invoice issuer registration for foreign businesses (Japanese)

Your monthly routine with us

Your HQ needs Japan's numbers by a fixed date every month. We plan backwards from that date.

Example: if your HQ needs figures by the 7th business day, we agree the timetable with you so that documents are in by the 3rd business day and the report is ready on the 6th.

Year-end and group reporting

A Japanese company's corporation tax, local tax and Japanese consumption tax returns are generally due within two months after the end of its fiscal year, and the tax must be paid by the same date. Many subsidiaries choose the same fiscal year-end as their parent, which means the Japanese tax filing and the group's year-end reporting fall in the same busy period.

We manage both together:

• A year-end projection 3–4 months before the fiscal year ends, so HQ knows the expected result and tax
• The reporting package in HQ's format, with current and deferred tax (tax provision)
• Japanese tax returns filed electronically, with an English tax computation sheet and the payment deadlines
• Answers to your group auditors' questions, in English

Payments to your parent company

Payments from the Japan entity to its parent or other group companies, such as royalties, interest or service fees, may be subject to Japanese withholding tax. Royalties paid to a foreign company, for example, are subject to withholding tax at 20.42% under Japanese domestic law.

A tax treaty between Japan and your parent's country may reduce this rate or remove the tax altogether. To claim the treaty rate at the time of payment, the recipient must file a Tax Treaty Notification Form (租税条約に関する届出書) through the Japan entity before the payment date. If the form is filed late, the full domestic rate is withheld and the difference has to be reclaimed through a refund application.

We check each intra-group agreement for withholding tax, prepare the treaty forms and make sure they are filed before the first payment.

Official sources: NTA: Submitting the Application Form for Income Tax Convention / NTA: Tax treaty application forms / NTA: Withholding tax rates for non-residents and foreign corporations (Japanese)

How we communicate

We work in English in writing, by email and chat tools such as Slack and Chatwork. This has real advantages for a subsidiary reporting to a foreign HQ:

• Everything is on record. Questions, answers and decisions are in writing and easy to share with HQ.
• Time zones do not matter. Your HQ can send questions at the end of their day and find our answers the next morning.
• Reports in English. Monthly reports, tax summaries and answers to your auditors are written in English.

Please note that meetings and phone calls are available in Japanese only. If someone in your Japan team speaks Japanese, we are happy to hold online meetings with them.

Typical fees for a new subsidiary

Our fees assume that we work in English, so there is no surcharge for English communication or reports. All amounts are in Japanese yen and exclude Japanese consumption tax.

For Pattern C, preparing and filing a Japanese consumption tax return is from JPY 150,000; other tax returns are quoted individually. Payroll, year-end adjustment, reporting packages and tax provisions are quoted separately, depending on your requirements. If you only need year-end filing without a monthly plan, fees start from JPY 600,000. See our Fees page for details.

Getting started

FAQ

We have not incorporated yet. Is it too early to contact you?

Not at all. The best time to contact us is before incorporation, because choices such as share capital and fiscal year-end affect your Japanese consumption tax status and your reporting timetable. Company registration itself is handled by our partner judicial scriveners, whom we brief in Japanese.

We already have a Japanese accountant. Can we switch in the middle of the year?

Yes. We take over the accounting data and the records of past filings from your current accountant, and continue from the month of the switch.

Do you work with branches as well as subsidiaries?

Yes. The filings and some tax rules differ between branches and subsidiaries, and we check them for your structure.

Can you prepare our reporting package in our HQ's format?

Yes. Send us the template and your HQ's timetable, and we will prepare the Japan entity's package, including current and deferred tax.