Important Tax regulation of Corporation
Today I would like to explain you about important tax regulation for foreigner who intend to set up company in Japan.
【Notification of commencement business】
You have to submit the following 4 kinds of document
1.Notification of Corporation Establishment To National Tax Office
2.Notification of Corporation Establishment To Local Tax Office
3.Application Form for Approval of Filling Blue Return To National Tax Office
4.Application for Approval Made in Relation to the Special Provision
for Due Dates for Withholding Income Tax
Blue return filling give you much benefits so do not forget to submit it within 3months from the date of establishment.
Benefit of Blue return ; You can carry forward the loss until 10 year after, etc.
Director Salary not deductible ！！Because Director can control their own salaries
Director will use their salaries for tax evasion
To be deductible expense !!
Directors salary has to be periodically and fixed amount.
If You need to change the amount you can do only within 3month from the beginning of the business term.
It has to be reported the amount and schedule to the tax office before business term start and it has to be paid precisely as you report.
To save your tax expense!!
Estimate the annual income from your business early of the term,
Please find out the most tax-saving effective amount of director salary comparing the tax rate of corporate tax with rate of personal income tax considering income deduction.
【Tax rate of corporate and individual】
Effective corporate income tax rate is 36.81%
For individual you have to paid Employment income tax rate(table bellow) and 10% of Individual resident tax but you can deduct some amount from amount of salary.
Entertainment not deductible！！
But special measures law give you the limit of deductible amount.
It is up to you to decide which of two way.
One: You can deduct it till 8M\ Another: You can deduct till 50%
of total expense amount for business year.
You have to withhold tax from the salaries at every months
and have to pay to government 10th of July and 20th of January.
But if salary is paid to non-resident you have to take 20.42%
income tax and pay to government next month.
The penalty of missing the deadline is expensive , which is 5-10% of withholding tax itself.
【Year End Adjustment】
Withheld income tax is tentative so it is different from final annual income tax.
So salary payer is required to make an adjustment of income tax at the last salary calculation of the year, i.e. in December.
It is called Nenmatsu-chosei.
After the adjustment, the salary payer has to issues a certificate of income and withholding tax (Gensen-choshu-hyo) to each employee/director