Tax returns and withholding of tax

Self Assessment and Payment

Enterprises engaged in domestic transactions (excluding enterprises that are exempt from consumption tax) and parties engaged in import transactions must file and pay consumption tax on their taxable bases by the methods and procedures respectively provided for them. If the amount of consumption tax on the taxable base of an enterprise is less than the amount of consumption tax on purchases (calculated as being deductible by the prescribed method), the shortfall is refunded by filing.

To ensure that double taxation does not occur at the production and distribution stages, a scheme has been adopted allowing the deduction of consumption tax on purchasing from consumption tax on sales. Consumption tax on purchasing may be deducted from consumption tax on the taxable base when calculating the amount of consumption tax to be paid. See JETRO’s Tax Guide for more information.

JETRO, Taxes in Japan: Overview of Consumption Tax, 2013

Filing Returns

Corporations may freely select their business term (accounting period). The accounting period may be changed at mid-term with justifiable reason but tax returns must be filed within 2 months of the end of business term. When a corporation cannot submit a final tax return because the accounting auditor has not completed the audit because accounts remain unsettled for other unavoidable reasons, an extension of the deadline may be requested with approval from the director of the taxation office. [1] Notably, no extension is possible for Consumption Tax returns. [2]

[1] JETRO, Taxes in Japan: Overview of Consumption Tax, 2013
[2] JETRO, Taxes in Japan: Overview of Consumption Tax, 2013

 

Corporations can select either the blue or white form return. Use of the blue form return provides favorable tax treatment; however, it requires that accounting ledgers are kept.

Approval must be given by the tax office to file a blue form tax return. In order to receive this, a corporation must submit an Application for Approval . The primary conditions of blue form returns are as follows:

Submission

Corporation

Application for Approval due date

Within 3 months of establishment or by the last day of the business year, whichever comes first

Loss carried forward

9 years

Application of loss carried back

Possible for SMEs (with certain conditions)

Special tax deduction

None

Source: JETRO, Taxes in Japan: Overview of Consumption Tax, 2013

  

Tax withholding system

 Japan is using a withholding system for the payment of many taxes. The most important regarding SMEs is the Individual income tax. Any company, which is employing people in Japan, has to withhold the Individual income tax on the wages of its employees and repay it to the local tax office.

 Withholding taxes can also apply between companies. Such situation will be, for example, payment of dividends, payment of interests on savings or loans or payment of royalties. In this situation, the payer will have to withhold a tax (usually around 15 or 20%) and repay it to the tax administration. In such situation, it is recommended to appoint a tax accountant to be fully advised.

 Please also note that double taxation avoidance treaties may significantly modify the scope of the withholding tax system applicable on the taxation of a foreign company. Under tax treaties, there are potential reductions of tax rates and tax exemptions. To receive tax relief measures, those who receive payment are required to submit notification concerning the tax treaties to the relevant tax office through those who are paying the tax.  (A long list of relevant forms for this can be found on the NTA website .  Notifications relating to tax treaties and international tax matters are numbered between 276-321. While page itself is in Japanese clicking thru will give you the form in both languages with explanation. )

 The Consumption tax is pretty similar to the VAT in the EU. Even if it is not exactly a withholding system, it works the same way. The seller or service provider will have to collect the Consumption tax on the price and repay it to the tax administration.

 

Tax returns and payment of Consumption tax

 

The Consumption tax declared in a tax return is calculated on the Consumption tax received on domestic sales transactions for the taxable period (output tax) minus the Consumption tax suffered on domestic taxable purchase transactions or import taxable transactions for the same taxable period (input tax).

 When the creditable input tax suffered in a taxable period exceeds the output tax in the same period, a refund of the difference will be made.

 A simplified calculation method is applicable to companies where the annualised value of taxable sales for the base period was JPY 50 million or less. The company must submit an appropriate report to its local tax office in order to use this method. Once applied, this method must be used for at least 2 years.

 Under the simplified calculation method, the tax payable is calculated by using the following formula:

Domestic taxable sales x Assumed profit margin x Consumption tax rate

 

The assumed profit margin differs depending on the company’s business:

Business type

Assumed profit margin

Wholesale

10%

Retail

20%

Manufacturing, construction, mining, agriculture and fishing

30%

Service, transportation, communication and real estate

50%

Other than above

40%

 

The taxable period is the respective fiscal year for a company taxpayer. However, if preferred, the taxable period may be on a quarterly basis rather than on an annual basis (i.e. every 3 months starting from the commencement date of the respective fiscal year). A monthly taxable period is also available if preferred.

 A taxpayer is required to file its final Consumption tax return and pay tax due within 2 months after the end of the taxable period.

 A taxpayer who has not elected for a quarterly or monthly taxable period may be however required to make interim payments depending on the amount of the Consumption tax payable for the previous taxable period (the annualised value if the previous taxable period is shorter than 1 year) described as follows within 2 months after the end of each interim period:

 

Amount of the Consumption tax payable for the previous taxable period

Period of interim returns due

Interim payments over JPY 60 951 600

Monthly basis

over JPY 5 079 200 but JPY 60 951 600 or less

Quarterly basis

over JPY 609 400 but JPY 5 079 200 or less

Semi-annual basis

 

Like Corporation tax, many ways to pay the Consumption tax is offered to companies:

  • Over-the-counter payment at a tax office, a financial institution, a post office, or in a convenience store,
  • Bank transfer,
  • Pay-easy system by ATM (requires a registration at the tax office),
  • Online payment (requires a registration online or at a tax office).