Things to consider when starting a company in Japan
There are two main types of taxes, one that is applicable to the profit of a corporation, and the other that is applicable to the transactions conducted by a corporation.
Corporate tax is the main tax applicable to the profit of a corporation, whereas consumption tax is a main example of tax applicable to the transactions conducted by a corporation.
The principle followed when deciding whether corporate tax should be paid is “No PE, No Tax”, with some exceptions.
PE stands for Permanent Establishment, and it is the basis by which business is conducted in Japan. The existence or not of PE in Japan plays a deciding factor in being taxed for corporate tax.
Types of PE
There are several forms of business under Japanese law. Below are common examples.
- Kabushiki kaisha “KK”
- Godo Kaisha “GK”
- Japan branch
KK, GK, and Japan branch are classified as PE. A Partnership is not classified as a PE; therefore no corporate tax will be imposed.
Please be advised that taxation on Japan branch is very complex and the burden of tax is relatively heavy, therefore this form of business is unpopular