In Japan, companies are required to pay corporate income tax and consumption tax. This obligation applies regardless of whether the shareholders are domestic or foreign investors.

A key issue for foreign companies concerns the scope of taxation. In some countries, corporate tax is imposed only on domestic-source income and not on income generated overseas. In contrast, Japan generally taxes resident companies on their worldwide income, regardless of whether it is earned in Japan or abroad.

If a foreign company conducts business in Japan without incorporating a Japanese subsidiary (for example, by operating through a branch under the Companies Act), it is subject to Japanese tax only on income attributable to its Japanese operations. Specifically, income derived from a branch or factory in Japan that constitutes a permanent establishment is subject to Japanese taxation.

In addition, where the investor’s home country has concluded a tax treaty with Japan, certain taxes may be reduced or exempted. To benefit from such treaty relief, the required procedures prescribed under the applicable treaty must be completed in advance.