Comprehensive Handbook of Japanese Taxes 2006

Transcription

1 The Comprehensive Handbook of Japanese Taxes is an outline of the Japanese tax system in accordance with relevant laws and regulations as of April The Handbook is not a law/regulation itself, nor official translation. Only the original Japanese texts of laws and regulations have legal effect. The Handbook is used solely as reference material to aid in the understanding of Japanese laws and regulations. The Government of Japan shall not be responsible for the accuracy, reliability or currency of the legislative material provided in this Website, nor for any consequence resulting from use of the information in this Website. For all purposes of interpreting and applying law to any legal issue or dispute, users should consult the original Japanese texts published in the Official Gazette. Other detailed information is available on

2 Comprehensive Handbook of Japanese Taxes 2006 TAX BUREAU, MINISTRY OF FINANCE

3 NOTE TO READERS Comprehensive Handbook of Japanese Taxes is published annually with the authorization of the Tax Bureau (Shuzei-Kyoku) of the Japanese Ministry of Finance. No rights may be derived from this book. The authors are not liable for any errors or omissions. Enquiries Research Division, Tax Bureau, Ministry of Finance

4 CONTENTS Introduction Chapter I Introduction to the Japanese Tax System Taxes on Income Chapter II Income Tax (Individual Income Tax)

5

6 Chapter III Corporation Tax (Corporate Income Tax)

7 Taxes on Property, etc. Chapter IV Inheritance Tax and Gift Tax

8 Chapter V Land Value Tax Chapter VI Registration and License Tax Chapter VII Stamp Tax

9 General Consumption Taxes Chapter VIII Consumption Tax

10 Excise Taxes Chapter IX Liquor Tax Chapter X Tobacco Tax Chapter XI Special Tobacco Tax Chapter XII Gasoline Tax Chapter XIII Liquefied Petroleum Gas Tax

11 Chapter XIV Aviation Fuel Tax Chapter XV Petroleum And Coal Tax Chapter XVI Local Road Tax Chapter XVII Motor Vehicle Tonnage Tax Chapter XVIII Promotion of Power-Resources Development Tax

12 Payment, Penalties, and Tax Disputes Chapter XIX Payment of National Taxes Chapter XX Penalties on National Taxes Chapter XXI Collection of National Taxes

13 Chapter XXII Tax Disputes Local Taxes Chapter XXIII Local Taxes

14 International Taxation Chapter XXIV Taxation of Nonresidents and Foreign Corporations

15 Administration Chapter XXV Organization of the National Tax Agency

16 Appendix

17 PREFACE

18 CHAPTER I INTRODUCTION TO THE JAPANESE TAX SYSTEM Historical Background Tax System Before the End of World War II Prior to the Beginning of World War II

19

20 Tax System during World War II A. Direct Tax System a. b. c. d. e. B. Indirect Tax System a. b. C. Increased Role of Direct Taxation Tax System After World War II

21 First Period - Economic Chaos after the War ( ) A. Introduction of Anti-inflationary Tax Measures B. Introduction of the Self-assessment System on a Current Basis

22 C. Trial Introduction of the Turnover Tax D. Local Tax System E. Establishment of National Tax Agency Second Period - Economic Stabilization and Restoration ( )

23 A. Main Features of the Reform of 1950 based on the Shoup Recommendations a. National Taxes

24 \ b. Local Taxes B. Modifying Shoup s Taxation System a. b.

25

26 C. Natural Increase in Revenue and the Adjustment of the Tax Burden a. b. Third Period - Economic Progress ( ) A. Pursuit of Tax Reduction Policies and Refinement of the Taxation System a.

27 b. c. B. Long-range Plan for Taxation a. b.

28 c. d. C. Tax System Pursuant to Deficit Financing Policies and the Issue of Government Bonds a.

29 b.

30 Fourth Period - Improvement in National Welfare (1970 to the pre-sent) A. Growing Role of the Public Sector B. Restoration of the Fiscal Balance \ \ \ \

31 Recent Tax Reforms A. Drastic Tax Reform of 1987 to 1988 a. b.

32 B. Tax reform from 1989 a.

33 b. c.

34 d. C. Recent counter - cyclical policies and permanent tax reduction \ D. Tax reform toward the construction of a desirable tax system

35 Present Tax System Taxes on Income:

36 Taxes on Property, etc. : Taxes on Consumption:

37 Revenue Estimates by Tax Items (FY 2005 )

38 National Taxes Tax Laws and Regulations a. b. c. d.

39 National Tax Laws and Regulations

40 National Tax Laws and Regulations (Continued)

41 National Tax Laws and Regulations (Continued) National Tax Laws and Regulations (Continued)

42 f.

43 Local Taxes

44 CHAPTER II INCOME TAX (INDIVIDUAL INCOME TAX) Characteristics of Japan s Income Tax General a. b. c. d. e. f.

45 g. Taxpayers Taxpayers and Taxable Income a. Resident Taxpayer

46 b. Nonresident Taxpayer c. Corporation *

47 2. Rules for Income Attribution a. Principle of Attribution of Income to an Actual Beneficiary * b. Attribution of Profits from Trust Property

48 Calculation of the Tax Base Principles of Taxable Income Calculation a. b. c. d. e. f. g.

49 Categories of Income and Method of Calculation

50 Categories of Income and Method of Calculation (Continued) \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

51 Categories of Income and Method of Calculation (Continued) \ \

52 Categories of Income and Method of Calculation (Continued) \ \ \ \ \ \ \\ \ \

53 Calculation of Business Income a. Calculation of Gross Receipts b. Calculation of Necessary Expenses \

54 \ \ \\

55

56 c. Special Deduction for Filing a Blue Return \ \ d. Separate Taxation of Business Income and the like regarding Land and other Holdings of Real Estate Dealers and the like.

57 Special Tax Treatment of Employment Income Deduction for employees specific expenses 5. Special Tax Treatment of Timber Income a. Estimated Deduction from Timber Income b. Special Deduction for Timber Income from Forest Programs

58 Special Tax Treatment of Capital Gains a. Acquisition Cost b. Recognition of Capital Gains Based on Market Value c. Exchange of Land, Buildings, etc.

59 Special Tax Treatment of Capital Gains from the Transfer of Land, Building or Right to Use Land (d. - k.) d. Special Tax Treatment of Capital Gains Derived from Transfer of Land, Buildings, or Right to Use Land: Principle \ \ \\ \ \ \\ e. Special Tax Treatment of Capital Gains Derived from Expropriated Property etc.

60 \ \ \ f. Special Tax Treatment of Capital Gains for Specific Public Projects \ \

61 \ g. Special Tax Treatment for Capital Gains on Residential Property \

62 h. Special Tax Treatment for the Replacement of Business Asset

63 i. Special Tax Treatment for Replacement of Lands used for the Construction of Mid-rise and High-rise Fireproof Buildings j. Special Tax Treatment for the Acquisition of Land through an Exchange Arranged by the Agriculture and Residence Association k. Special Tax Treatment for Exchange of Land in Large-scale Housing and Land Development Projects l. Special Tax Treatment of Capital Gains Derived from the Transfer of Securities

64 \ m. Other Forms of Special Tax Treatment Special Tax Treatment of Miscellaneous Income, etc.

65 Nontaxable Income [Items to apply to single parent households, and the physically handicapped.] \ \ \

66 \

67 Aggregation of Income and Treatment of Profits and Losses

68 Carryover of Losses a. Taxpayers Filing a White Return

69 b. Taxpayers Filing a Blue Return \ Carryback of Net Losses

70 Income Deductions 1. Deduction for Casualty Losses \ Deduction for Medical Expenses \ \ Deduction for Social Insurance Premiums Deduction for Small-scale Enterprise Mutual Aid Premiums, etc.

71 Deduction for Life Insurance Premiums \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Deduction for Casualty Insurance Premiums \ \ \

72 \ \ \ \ \ \ \ \ \ \ \ \ Deduction for Contributions or Donations \ Exemption for the Handicapped \ \ Exemption for Widows, Widowers, or Working Students \ \ \\ \

73 Exemption for Spouses \ a. \ b. \ \ Special Exemption for Spouses \ \ \ \ \ \ \\\ Exemption for Dependents

74 a. \ b. \ c. \ \ Basic Exemption \ Calculation of Tax Amounts Tax Rates Individual Income Tax Rates \ \ \ \ \ \ \ \ \ \ \\\\ \

75 \ \ \ \ \ Individual Income Tax Rates (From FY 2007) \ \ \ \ \ \ \ \ \ \ \ \\\\ Taxation on Timber Income Averaging Taxation on Fluctuating and Extraordinary Income

76 Tax Credits a. Credit for Dividends \ \ \ \ b. Credit for Foreign Taxes

77 c. Credit for Housing Loans

78 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

79 Proportional Tax Credit \ \\ Payment of Income Tax General Keeping Proper Records \

80 Estimated Payment \ Final Returns

81 \ \ \\ Assessment in the Event of Failure to File Correct Returns

82 General Blue Returns Approval by the Director of the Tax Office Privileges a. b. c. d. \

83 e. f. g. \ General Withholding Income Tax at the Source * Interest and Dividend Income

84 Income from Original Issue Discounts on Debentures Employment Income a. Ordinary Salaries

85 Excerpts from Monthly Tables (Column A) \ \

86 \ \ b. Bonuses \ \ \ Excerpts from Rate Tables (Column A)

87 \ \\ c. Year-end Adjustment Retirement Income Miscellaneous Income from Public Annuities \

88 \ \ \ Remunerations, Fees, etc. a. \

89 b. \ \ \ \ \ \ \

90 Quasi-Financial Products Others a. b. Inquiries and Examinations for Taxpayers and Information Returns Inquiries and Examinations Payment Records

91 a. Payment Records for Interest \ \\ \ b. Payment Records for Dividends \\ \ c. Notice of Receipt

92 d. Records for Withholding \ e. Payment Records for Remunerations, Fees, etc.

93 CHAPTER III CORPORATION TAX (CORPORATE INCOME TAX) General Characteristics of the Japanese Corporation Tax a. b. c. d.

94 e. \ \ f.

95 g. h. Special Taxation Measures \

96 Tax Measures Concerning Corporate Reorganization Including Corporate Division, Consolidation, etc. <Outline> 1. Taxation on Corporations 2. Taxation on Shareholders

97 3. Handling of Reserves, etc. 4. Preventive Measures against Tax Avoidance 5. Others

98 \

99

100 \ \

101

102 Trial Calculation of Loss in Revenue as an Effect of Special Taxation Measures for Corporation

103 1. Scope of Taxpayers Taxpayers a. Taxable Corporation ˉ ˉ

104

105 b. Nontaxable Corporation Rules for Income Attribution a. Principle of Attribution of Income to an Actual Beneficiary b. Taxation of a Trust

106 Taxable Income Principle of Calculation of Taxable Income Items Excluded from Gross Revenue or Gross Expenses in Calculation of Taxable Income a. Items to be Excluded from Revenue for Tax Purposes :

107 b. Items to be Excluded from Expenses for Tax Purposes

108 Valuation of Inventories a. Selection of the Method of Valuation b. Report of Valuation Method \ \

109 c. Acquisition Cost of Inventories Depreciation Allowance a. Calculation of Depreciation Allowance \ \ \\ b. Methods for Calculating Depreciation (excluding deferred assets)

110 c. Report on Depreciation Methods (excluding deferred assets) d. Statutory Useful Life and its Adjustment Measure

111 e. Residual Value (as an Allowable Limit for Depreciation) f. Treatment of Thin or Excessive Depreciation

112 Sample of Statutory Useful Lives of depreciation Assets

113 g. Acquisition Cost of Fixed Assets Advanced Depreciation Tax-Free Reserves a. Reserve for Bad Debts

114 b. Reserve for Loss on Returned Goods Profit or Loss from the Transfer of Securities and their Term-end Assessment a. Profit or Loss from the transfer of securities b. Term-end assessment of securities and their appraised profit and loss

115 c. Profit or loss from derivatives transactions d. Profit or loss on effecting hedges e. Conversion of foreign-denominated transactions

116 Special Rule for the Recognition of Specific Profits and Expenses a. Special Accounting Methods Regarding Profits and Expenses of Long Term Installment Sales, etc. b. Special Accounting Methods Regarding Profits and Expenses of Long-term and Large-scale Construction. - 3/4 Calculation of Tax Amounts Methods of Tax Calculation a. Corporation Tax on Income for Each Accounting Period

117 b. Corporation Tax on Liquidation Income Tax Rates a. Tax Rates for Ordinary Income \ \ \ \ b. Tax Rate for Retirement Pension Funds c. Tax Rates for Liquidation Income d. Reduced Rate Applicable to Special Medical Corporations Tax Credits a. Income Tax Credits

118 b. Credit for Foreign Taxes

119

120

121

122 Carryover and Carryback of Losses Taxation of Retention Money on Family Corporations \ \ \\\ \

123 Special Additional Tax on Retirement Pension Funds of Trust Companies, Life Insurance Companies, etc. Returns Payment, and Refunds of Corporation Tax Final Returns

124 Interim Returns \ Refunds

125 The Blue Return System Blue Returns Privileges for Corporations Filing a Blue Return a. b. c. d. e. f. Approval by the Director of the Tax Office

126 Correction and Determination Assessment in the Event of Failure to File Correct Returns Credit of Corporate Tax Brought by Correction in Case of Overpayment to Disguised Accounting Act of Family Corporation etc. and Denial of Calculation Special Taxation Measures Special tax credit and income deduction a.

127 b. c. d.

128 e. f. g.

129 h. i. Special Measures for Depreciation a. In General

130 b. Increased Initial Depreciations

131

132 c. Additional Depreciations

133 Reserves a. Reserve for Overseas Investment Loss

134 b. Reserve for Prevention of Mineral Pollution in Metal Mining, etc. c. Reserve for Prevention of Certain Disasters d. Reserve for Large-scale repair of Shinkansen railways e. Reserve for Loss in Buying Back Computers f. Reserve for Reprocessing Used Fuels g. Reserve for the Removal and Disposal of Atomic Power Generation h. Reserve for Extraordinary Casualties

135 i. Reserve for Kansai International Airport Adjustment or Reserve for Central Japan International Airport Adjustment j. Special Reserve for Repairs k. Reserve for the contribution to society and community l. Reserve for Locating New Mineral Beds in Japan and Abroad

136 m. Reserve for Utilization and Accumulation of Farmland Other Special Taxation Measures a. Special Additional Tax on Capital Gains from Sale or Transfer of Land, etc. b. Special Rule for Replacement of Business Assets (Tax Deferral)

137 c. Special Taxation of Capital Gains from Expropriated Properties d. Other Special Deductions for Capital Gains from Land \ \ \ e. CFC Tax Measure

138

139 f. Transfer-Pricing Taxation a. b.

140

141

142 c.

143 g. Thin Capitalization Rules

144

145 Income Examination General Investigation Procedures 2. Corporations under the Jurisdiction of the Examination Department \ \

146 CHAPTER IV INHERITANCE TAX AND GIFT TAX General Revenue from the Inheritance Tax and Gift Tax

147 Taxpayers a. b. c. Inheritance Tax Tax Base a. b. c. \ d. \ Basic Exemption \\

148 Calculation of Tax Amounts a. b. a. c. b. d.

149 \ \\ Tax Rates Inheritance Tax Rates \ \ \ \ \ \ \ \ \ \ \ Example of inheritance tax calculation \

150 \ \ \ Calculation of tax amounts \\\ \\\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Special Rules for Calculation of the Tax Base with Respect to Small Sites, etc.

151 Special Tax Treatment for Calculation of Taxable Value for Special Business Assets a. \ b. Special Tax Treatment for Farmland Gift Tax (Calendar-Year Taxation) Tax Base a.

152 b. c. d. e. f. g. \ Basic Exemption \ Exemption for Spouses \ Tax Rates Gift Tax Rates(Calendar-Year Taxation) \ \ \ \ \ \ \ \ \ \ \

153 Outline Taxation System for Settlement at the Time of Inheritance Taxpayers covered by this taxation system (His/her age is the age as of January 1 of the year when donation takes place.) Special deduction (range of tax-exemption) \ Tax amount calculation \

154 Application procedures Special cases (applicable till 2007) for acquisition of residence under the taxation system for settlement at the time of inheritance \ \ Returns Returns and Tax Payment a. Inheritance Tax b. Gift Tax Tax Payment a. b. \

155 c.

156 CHAPTER V LAND VALUE TAX General Taxpayers Tax Base Basic Deductions and Exemptions,etc. Basic Deductions \\ \ \ \\\ \ \ Exemptions,etc.

157 a. b. c. d. \ e. f. g. h. i. Tax Rate Returns and Tax Payment

158 CHAPTER VI REGISTRATION AND LICENSE TAX Taxpayers Taxable Registration and Licenses Tax Base

159 Tax Rates Registration of Real Estate \ Registration of Ships Registration of Personal Property

160 Registration of Aircraft \ Registration of Copyrights or Rights of Patent \\ \ Registration of Commercial Companies \ \ \ \ Registration of Lawyers, Doctors, Certified Public Accountants, or Appraisers of Real Property Licensing of Banking Business, etc. \ \ \ Licensing of Manufacture and Sale of Liquor \ \

161 \ Permission for Construction Activities \

162 CHAPTER VII STAMP TAX Taxpayers Tax Rates Stamp Tax Rates \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

163 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

164 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

165 Tax Payment

166 CHAPTER VIII CONSUMPTION TAX General Taxable Items General

167 Transactions subject to Consumption Tax

168

169 Criteria for Classification of Domestic and Overseas Transactions a.

170

171 b.

172 c. Non-taxable Transactions a.

173 b. c. d. e. f. g. h. i. j.

174 k. l. m. n. o. p. q. Tax Exemption for Exports, etc. a.

175

176 b. c. d.

177 e. Import Transactions a.

178 b. Taxpayers General

179 \ \ \ \ Base Period a. b. Election of Non-Exemption from Tax Liability

180 \ Special Rules in Cases of Inheritance, Corporate Mergers, and Corporate Division, etc. a. \ \ \ \ b.

181 \ \ \ \ \ \ \ c.

182 \

183 \ \ \ \ \

184 \ \ \ \ Place of Tax Payment a.

185 b. Attribution of Asset Transfers, etc. a. b. Time of Asset Transfers, etc. General Rules a. b.

186 c. d. Exceptions for Time of Asset Transfers for Installment Sales b. Exception for Time of Asset Transfers for Construction Work

187 b. c. Tax Base and Tax Rate Tax Base a.

188

189 b. Tax Rate

190 Tax Credit for Consumption Tax on Purchases, etc. Tax Credit for Consumption Tax on Purchases a. b. c.

191 d.

192

193 e. Adjustment of Tax Deductions on Purchases

194 b.

195 Simplified Tax System \\ a. \ b. \ c.

196 d. Other Deductions Tax Deduction for Refunds of Sale Prices Tax Deduction for Losses from Bad Debts

197 Self Assessment and Payment Domestic Transactions a. b. c. \ \\

198 \\ \ d. Import Transactions

199 b. Special Provisions Concerning Government and Entities Special Provisions Concerning National and Local Governments a. b. Special Provisions Concerning Deductions on Purchases

200 Special Provisions Concerning Due Date for Tax Returns Obligation to Show Gross Price (reference) Local Consumption Tax a. b. c. d. e.

201

202 CHAPTER IX LIQUOR TAX Method of Taxation on Liquor General Characteristics of Liquor Tax Administration a. License for Manufacturing or Sale of Liquors \ \

203 Taxable Quantity and Revenue from Liquor Tax ōū ōū ōcū b. Inspection and Supervision c. Administration of the Law Concerning Liquor Business Associations and Measures for Securing Revenue from the Liquor Tax

204 Taxpayers Tax Base and Tax Rates Liquor Tax Rates (Example) \ \ \ \ \ \ \

205 \ \ \ \ \ \ \ \ \ \ \ Tax Exemption a. Suspension of Tax b. Tax Exemption for Exports Assessment and Payment

206 CHAPTER X TOBACCO TAX General Taxpayers Tax Base Tax Rates Tobacco Tax Rates \

207 Tax Payment Others

208 CHAPTER XI SPECIAL TOBACCO TAX General Taxpayers Tax Base Tax Rates \ Tax Payment Others

209 CHAPTER XII GASOLINE TAX General Taxpayers Tax Base Tax Rate \ Tax Payment

210

211 CHAPTER XIII LIQUEFIED PETROLEUM GAS TAX General Taxpayers Tax Base Tax Rate \ Tax Payment

212 Others

213 CHAPTER XIV AVIATION FUEL TAX General Taxpayers Tax Base Tax Rate \

214 Tax Payment

215 CHAPTER XV PETROLEUM AND COAL TAX General Taxpayers Tax Base

216 Tax Rates \ \ \ \ \ \ \ \ Tax Payment

217 Others

218 CHAPTER XVI LOCAL ROAD TAX General Taxpayers Tax Base Tax Rate \ Tax Payment

219 CHAPTER XVII MOTOR VEHICLE TONNAGE TAX General Taxpayers Tax Rates ** \ \

220 \ \ \ \ \ \ \ \ \ \ \ \ \ \

221 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

222 \ \ Tax Payment Tax Exemption Other

223 CHAPTER XVIII PROMOTION OF POWER-RESOURCES DEVELOPMENT TAX General Taxpayers Tax Base Tax Rate \ \ Tax Payment

224

225 CHAPTER XIX PAYMENT OF NATIONAL TAXES General

226 National Taxes and Their Respective Collection System Agencies Collecting National Taxes

227 Budgetary Procedures for Receipt of National Taxes

228 CHAPTER XX PENALTIES ON NATIONAL TAXES General Supplementary Taxes Delinquent Tax Additional Tax a. b.

229 c. d. e. a.d. c. National Tax Violation Control Law

230 CHAPTER XXI COLLECTION OF NATIONAL TAXES General Procedure for Collection of National Taxes Demand * Attachment

231 Request for Share Distribution Sale of Properties Distribution of Proceeds, etc. Investigation of a Delinquent Taxpayer s Properties Other Measures to Secure Collection of National Taxes

232 Priority of National Tax Claims Extension of Liability for Tax Payment a. Succession of Liability for Tax Payment * b. Joint and Several Tax Obligations c. Joint Tax liability d. Secondary Tax Liability

233 Advance Collection * Provisional Attachment Provisional Security Protection of Taxpayers and Other Persons Concerned Measures for Mitigation a. Grace of Tax Payment

234 b. Suspension of Execution of Disposition Properties Not Subject to Attachment Protection of Third Party Rights Remedy for Violation of Private Rights

235 General Time Limits on Assessment and Collection Time Limit on Assessment a. Ordinary Limit on Assessment b. Special Rule for Limits on Assessment

236 Extinctive Prescription of Collection Extinctive Prescription of Refunds Miscellaneous Refund * Penalty \

237 \ Interest Tax *

238 CHAPTER XXII TAX DISPUTES General Number of Cases of Reinvestigation, Reconsideration and Litigation

239 Number of Cases of Reinvestigation, Reconsideration and Litigation (Continued)

240 Number of Cases of Reinvestigation, Reconsideration and Litigation (Continued) Tax Disputes in the Executive Branch

241

242 Tax Dispute in the Judicial Branch

243 CHAPTER XXIII LOCAL TAXES Legal Foundation Local Public Entity Kinds of Local Organizations Prefectures

244 Municipalities

245 Local Public Finance System Local Revenue Structure Local Taxes

246 Local Transfer Tax \ \

247 \ \ Special Local Allocation

248 Local Allocation Tax \ \ \\ \ \ National Subsidies

249 Local Public Bonds Miscellaneous Revenues, etc. Prefectural Taxes Prefectural Inhabitants Tax a. Taxpayers b. Tax Base and Tax Rates \ \

250 \ \ \ \ \ \ \ \ \ \ \ \ \ c. Time of Payment and Collection

251 Enterprise Tax * a. Taxpayers b. Tax Base and Tax Rates

252 \ \\ \ \ \ \ \

253 \ \ \\ \ \ \ \ \ \ \ \

254 \ c. Payment

255 Local Consumption Tax a. General b. Taxpayer c. Tax Base d. Tax Rate e. Assessment and Payment

256 Real Property Acquisition Tax a. Taxpayers b. Tax Base and Tax Rates \ \ \ \ \ c. Payment

257 Tobacco Tax a. Taxpayer b. Tax Base c. Tax Rates \ \ d. Payment Golf Course Utilization Tax a. Taxpayers b. Tax Base and Tax Rates \\ c. Payment Automobile Tax a. Taxpayers b. Tax Base and Tax Rates \ \ \ \ \ \ \ \

258 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ c. Payment Automobile Acquisition Tax a. Taxpayers

259 b. Tax Base and Tax Rate \ c. Payment Mine-lot Tax a. Taxpayers b. Tax Base and Tax Rates \ \ \ \ c. Payment

260 Hunting Tax a. Taxpayers b. Tax rate \\\ c. Payment Light-Oil Delivery Tax a. Taxpayers b. Tax Base and Tax Rate \\ c. Payment Other Taxes

261 Municipal Taxes Municipal Inhabitants Tax a. Taxpayers b. Tax Base and Tax Rate

262 \ \ \ \ \ \\ \ \ \ \ \ \ \ \\ \ \ \

263 \ \ \ \ \ \ \ \ \\ \ \ \ \ \\ \ \ \ \ \ \\ \ \\

264 \ \ \ \ \ \ \ \ \ \ \ The standard tax rates mentioned below apply to taxable income. \ \ \ \ \ \

265 \

266 \ \ \ \ \ \ \ \ \ \ \

267 \

268

269 \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ c. Payment

270 Property Tax a. Taxpayers b. Tax Base c. Tax Rate d. Exemptions

271 \ \ \ e. Payment Light Vehicle Tax a. Taxpayers b. Tax Base and Tax Rates \ \ \ \ \ \ \

272 \ \ \ \ c. Payment Tobacco Tax Mineral Product Tax a. Taxpayers b. Tax Base and Tax Rates \ Special Landholding Tax a. Taxpayers

273 b. Tax Base and Tax Rates c. Exemptions d. Non-taxable Cases e. Taxation on Idle Land f. Payment

274 Bathing Tax a. Taxpayers and Tax Amount \ b. Payment Urban Planning Tax Business Office Tax a. Taxing Entities b. Tax Base and Tax Rates \ c. Taxpayers

275 d. Tax Exemption e. Payment Other Taxes

276 CHAPTER XXIV TAXATION OF NONRESIDENTS AND FOREIGN CORPORATIONS Taxation of Nonresidents Classification of Taxpayers and Their Tax Liabilities a. b. c. Income from Sources within Japan a. General Description

277

278 b. Income from Business Conducted in Japan ( income in a. above)

279 c. Income from the Use, Holding, Sale, or Disposal of an Asset Situated in Japan ( income in a. above)

280 Classification of Nonresident Taxpayers and Respective Taxable Income a.

281 b.

282 Principle of Tax Calculation a. b. Special Taxation Measures Applicable to a Nonresident Taxpayer

283 Withholding Income Tax at the Source a. b. c.

284 Special Rules for Filing a Return and Paying Tax a. b. Jurisdiction over Taxation Matters for Nonresidents

285 Taxation of Foreign Corporations Tax Liabilities-General Rule Income from Sources within Japan a.

286 b. Classification of Foreign Corporations and Assessment of Corporation Tax and/or Income Tax on Foreign Corporations a.

287 b.

288 Principle of Tax Calculation a.

289 b. c. \ \ d. Withholding Income Tax at the Source a. b.

290 c. Special Rules for Accounting Periods Filing of Returns

291 Jurisdiction over Taxation Matters of Foreign Corporations Tax Treaties Japan s tax treaties Tax Treaties of Japan

292 Tax Treaties of Japan (Continued)

293 Tax Treaties of Japan (Continued)

294 Tax Treaties of Japan (Continued)

295 Tax Treaties of Japan (Continued)

296 Tax Treaties of Japan (Continued)

297 Tax Treaties of Japan (Continued)

298 Tax Treaties of Japan (Continued)

299 Tax Treaties of Japan (Continued)

300 Tax Treaties of Japan (Continued)

301 Tax Treaties of Japan (Continued)

302 2. Contents of Treaties a. Taxation of Business Profits b. Taxation of Investment Income (Dividends, Interest, and Royalties)

303 Taxation of Investment Income

304

305

306

307

308

309

310

311

312

313

314

315

316 c. Taxation of Personal Services d. Taxation of Income from International Transportation

317

318 e. Relief from Double Taxation f. Inquiry and inspection rights for exchange of information

319 CHAPTER XXV ORGANIZATION OF THE NATIONAL TAX AGENCY General Tax Bureau of the Ministry of Finance (Shuzei-kyoku)

320 The Co-ordination Division The Research Division The Income Tax and Property Tax Policy Division The Consumption Tax Policy Division The Corporation Tax Policy Division is The International Tax Policy Division National Tax Agency (Kokuzei-cho) General Organization

321 a. The Commissioner s Secretariat b. The Taxation Department

322 c. The Revenue Management and Collection Department d. The Examination and Criminal Investigation Department Affiliated Organs. The National Tax College

323 b The National Tax Tribunal c. The National Tax Council

324 Regional Taxation Bureaus( Kokuzei-kyoku) The Management and Co-ordination Department The First Taxation Department The Second Taxation Department

325 The Revenue Management and Collection Department The Examination and Criminal Investigation Department \

326 Tax Office (Zeimusho)

327 Standard Organization of Tax Offices (Zeimusho)

328

329 Appendix I Trends in Tax

330 Reform, etc. in Recent Years

331 Appendix I Trends in Tax

332 Reform, etc. in Recent Years (Continued)

333 Appendix I-1 A Points of the Drastic Tax Reform (December 1988, etc.) 1. Reduction and rationalization of income tax burdens \\ \ \ \\ \\ \\\\ \\ 2. Measures for more equitable distribution of tax burdens

334 \ 3. Reduction of the inheritance tax \\ \\ \\ 4. Fundamental reform of indirect taxes

335 \ \ \

336 5. Reduction of corporation tax \ \

337 \\ 6. Distribution of Consumption tax revenue to local governments

338 Appendix I-2 B I Points of the Land Taxes Reform, etc. (FY1991, etc.) Re-examining the Land Taxation System 1. Introduction of land value tax a. b. c. d. e. f. a. b.

339 \ a.\ \ \ b. \ \ \ \

340 2. Taxation on capital gains a. \ \ b. c. a.

341 b. c. a. b. \ \

342 3. Revision of inheritance tax II. Re-Examining Consumption Tax 1. Expanding nontaxable objects 2. Changes of Special Measures for Small and Medium Enterprises \ \

343 \ \

344 Appendix I-3 C Points of Tax Reform (November 1994, etc.) I. The tax burden for individual income tax and individual inhabitant tax was decreased. 1. Reformation of Tax Rate Structures

345 2. Basic Exemptions 3. Deduction for Employment Income 4. Reducing Burdens of Inheritance Tax \ \ \ \ \ \ \ \ \ \ \ \ \

346 \ \ \ \ \ \ \ \ \ \ \ \ 5. Temporary Tax Reduction \ \ II. Reformation of Consumption Tax 1. Increasing the Tax Rate

347 2. Special Rules for Small Businesses \ \\ 3. Tax Credit for Consumption Tax on Purchases 4. Re-examination clause III. Increasing Local Tax Revenue

348 Appendix I-4 Confirmation of the Consumption Tax Rate (25 June 1996) (NOTE1) Review Clause (NOTE2) Outline of the Tax Reform Act of 1994 \ \ \ \

349

350 Appendix I-5 D Points of Corporate Taxes Reform, etc. (FY 1998, etc.) 1. Temporary Income Taxes Reduction in FY Corporate Income Taxation

351 3. Land Taxation

352

353 Appendix I-6 E Points of Permanent Tax Reduction, etc. (FY 1999, etc.) 1. Permanent Tax Reductions, etc. \ \ \ \ a. \ b. \ a. \ \ b. \ \

354 2. Housing-and Land-related Tax Measures 3. Tax Measures Related to Financial Markets

355

356 Appendix I-7 FY 2002 Tax Reform (Main Points) \ Consolidated taxation system

357 SMEs \\\ \

358 Financial/stock markets \\

359 Coping with socioeconomic changes Land and housing Environment/welfare Okinawa

360 Others Other Special Taxation Measures

361 \ \

362 Appendix I-8

363

364

365

366 Appendix I-9

367

368

369 Appendix I-10 FY2005 Tax Reform (Main Points) Ministry of Finance 20 December With a view to establishing a desirable tax system that will contribute to sustainable invigoration of the economy and society, while taking into account the current economic and fiscal environment and having a vision for anticipated review of individual income taxation at national and local levels in the FY2006 tax reform, the FY2005 tax reform will reduce the benefits of the proportional across-the-board tax credit and take measures in taxation of housing, financial assets and stocks, international transactions and SMEs. Individual income taxation (national and local) FY2005 reform: Based on directions given in the Outline of FY2004 Tax Reform of the ruling coalition (Dec 2003), half of the benefits of the across-the-board tax credit will be reduced (Income Tax) Applicable from 2006 The rate of tax credit will be reduced from 20% to 10% The ceiling on the tax credit will be reduced from 250,000 to 125,000 (Local Inhabitants Tax) Applicable from 2006 The rate of tax credit will be reduced from 15% to 7.5% The ceiling on the tax credit will be reduced from 40,000 to 20,000 Housing The scope of old houses qualifying for special tax treatments (such as tax credit for residential mortgages) will be expanded to include certain old houses that satisfy anti-earthquake safety standards, irrespective of the limitation on the number of years from construction (ie. 20 years for non-fire proof housing and 25 years for fire-proof housing). Taxation of financial assets and stocks Stocks held outside of security corporations may be deposited in a new type of special account system by election (applicable for stocks the actual purchase price of which is available). A new measure will be introduced to treat the book value of stocks deposited in the new type of special account system as capital loss where the economic value of such stocks becomes nil. International Taxation Deductible period for dividends from foreign subsidiaries whose retained earnings were taxed under the anti-deferral rules for controlled foreign corporations (CFC rules) will be extended from 5 years to 10 years. Overseas companies, which mainly operate in a resident country and are effectively managed there, will be allowed to deduct 10% of their direct personnel expenses from the taxable retained earnings under the CFC rules. Procedural requirement for interest tax exemption for non-resident holders of the Japanese Government Bond (JGB) will be streamlined. Capital gains derived from the sale of stocks or other comparable rights in a company which derives at least 50% of its value directly or indirectly from real property in Japan will be taxed in Japan. Capital gains derived by a partnership from the sale of stocks or other comparable rights in a company will be taxed in Japan, if that partnership holds 25% or more of the entire share capital of the company and if it alienates 5% or more of the entire share capital during the year. Allocable income to a non-resident partner, which is earned through partnership activities in Japan, will be withheld at 20% tax rate on a net profit every year.

370 Decentralization As part of the three-part-reform (reforms of subsidies, local allocation tax and transfer of tax revenue sources from national to local governments), the carry out full-fledged transfer of tax revenue sources from Income Tax (national) to Local Inhabitance Tax. As a temporary measure, transfer 1,115.9 billion as local transfer of income tax to local governments. (3/5 shall belong to prefectural governments and 2/5 shall belong to townships and villages. Each local government shall receive the transfer in accordance with its population). (Human Investment tax credit) A new tax credit (25% of the increased amount of expenditure of corporations for training employees) will be introduced. For small corporations, larger benefits will be given. (Deduction for social insurance premiums) For the purpose of applying deductions for social insurance premiums, it will be made obligatory to attach a copy of national pension premium receipts when filing tax returns. SMEs and Entrepreneurships Application of special tax treatment (tax on capital gain will be reduced by half) for qualified sale of stocks of qualified ventures will be extended until FY2006 ( Angel taxation). Others (Promoting activities of non-profit making organizations) The scope for qualified NPOs will be relaxed Apply public support through the averaging of donations/subsidies received in the past two years (currently the condition must be met in each taxable year). Simplify documentation for applying the status as qualified NPOs and information reporting obligations. Increase the limitation of deductions for donation under income tax (25% of taxable income to 30% of the same). (Reference)* * * * FY2005 Tax Reform Tentative estimation of revenue changes implemented by the reform in FY 2005 (National) (Billion Yen) Reduction of the across-the-board tax credit Housing - 3 Other discretionary measures - Corporations Individuals and others - 1 Subtotal +171 Local Transfer of income tax Total *Rounded figures and provisional estimation. (Restructuring of corporations) When liquidation of a corporation under the Civil Rehabilitation Law or certain private arrangements are conducted, the following special treatments will be given to the debtor corporation: (i) appraisal gain/loss of the corporation shall be taxed/deducted and (ii) carry-over of loss of the corporation arising from taxable years prior to the past 7 taxable years (i.e. limitation for carry forward of loss) may be deducted against the taxable gains of the corporation from forgiveness of debts by its creditors.

371 Appendix I-11

372

373 Appendix II Summary of \ \ \\ \ \ \ \ \ \ \ \\ \ \ \ \ \ \ \ \ \\

374 the National Tax System \ \ \ \ \ \ \ \ \ \ \ \ \ \

375 Appendix II Summary of \ \\ \ \\\ \ \\ \\ \ \\ \\ \\ \ \ \ \ \ \ \ \ \ \ \ \

376 the National Tax System

377 Appendix II Summary of

378 the National Tax System \ \ \ \

379 Appendix II Summary of \ \

380 the National Tax System \ \ \ \ \ \ \ \ \ \ \ \

381 Appendix II Summary of \ \ \

382 the National Tax System \ \ \ \ \ \ \ \ \

383 Appendix II Summary of

384 the National Tax System \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

385 Appendix II Summary of

386 the National Tax System \ \ \ \ \ \

387 Appendix II Summary of

388 the National Tax System \ \ \ \ \ \ \ \ \ \ \

389 \ Appendix III Summary of \ \ \ \ \ \ \ \ \ \ \ \ \

390 the Local Tax System \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

391 Appendix III Summary of \

392 the Local Tax System \ \ \ \ \ \ \ \ \ \ \ \ \ \

393 Appendix III Summary of \ \ \ \ \ \

394 the Local Tax System

395 Appendix III Summary of

396 the Local Tax System \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

397 Appendix III Summary of \

398 the Local Tax System \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \

399 Appendix III Summary of \ \ \

400 the Local Tax System \ \ \ \ \ \ \ \ \ \

401 Appendix III Summary of

402 the Local Tax System \ \ \\\ \ \ \ \ \

403 Appendix III Summary of

404 Appendix IV INCOME TAX BURDEN Income Tax Revenue Burden of Income Tax and Local Inhabitants Taxes

405 Income Tax threshold

406 Number of Taxpayers and Income for Various Classes of Income (2004) Wage Earners

407 Appendix V CORPORATION TAX BURDEN Shares of Corporation Tax and Income Tax in Total National Tax Revenue

408 Stratification of Corporations by Capitalization (2004)

409 Appendix VI INHERITANCE TAX BURDEN \\ \\ \\ \ \\ \ \\ \ \\ \\ \\ \\

410 Appendix VII Revenue from National Taxes; FY

411 REVENUE

412 Revenue from Local Taxes ; FY

413 Appendix VIII ORGANISATIONAL CHART FOR THE MINISTRY OF FINANCE Internal Subdivisions, Ministry of Finance Minister's Secretariat Budget Bureau Tax Bureau Director-General of the Tax Bureau Co-ordination Division Research Division Income Tax and Property Tax Policy Division Indirect Tax Policy Division Corporation Tax Policy Division Director of International Tax Policy Division Customs and Tariff Bureau Director-General of the Customs and Tariff Bureau Co-ordination Division Personnel Division Tariff Policy and Legal Division Enforcement Division Customs Clearance Division Post-Entry Examination and Customs Area Division Financial Bureau International Bureau

414 Appendix IX ORGANISATIONAL CHART FOR Organization Chart of the NTA

415 NATIONAL TAX AGENCY (in FY 2005) Organization Chart of Regional Taxation Bureau (except Okinawa) Organization Chart of Tax Office