Slide 0 of 26 - WKO.at · Slide 0 of 26. Japan Tax Seminar. Wirtschaftskammer Österreich...

Japan Tax SeminarWirtschaftskammer ÖsterreichAußenwirtschaftsCenter Tokio9 May 2018


Corporate taxation 2

Today’s agenda

01

Indirect taxation and trade issues 1102

Individual income taxation 1603

Inheritance and gift taxation 2104

Questions and answers 2305

Corporate taxation

Indirect taxation and trade issues

Individual income taxation

Inheritance and gift taxation

Questions and answers

Contact information

Contact information 2406


Corporate taxation

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Despite reductions, Japan retakes the top spot for highest ETREffective tax rate (ETR) of national corporate and local income tax

Rates at 31 December 2017 unless otherwise stated

39,5

30,9 30,6

27,2 26,525,0 25,0

19,017,0

10

15

20

25

30

35

40

45

US Japan Japan* Korea US** Austria China UK Singapore

% t

ax r

ate

* For tax years beginning on or after 1 April 2018** Federal rate is 21% from 1 January 2018 and the State rates vary depending on the State

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Higher ETR for SMEs vs. large companies as well as Tokyo vs. non-metropolitan areas

ETR of national corporate and local income tax

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[Unit %] SME

Tokyo

Non-metropolitan

area

Large enterprise

34.81 34.59

Current Starting1 April 2018

33.80 33.59


30.86 30.62


29.97 29.74



Loss making large enterprises might face taxFactor-based enterprise tax

Income factor Value-added factor Capital factor

Tax baseTaxable income for corporation tax

with some adjustments

Total of• Taxable income for the year,• Employee compensation,• Net interest expenses, and• Net lease payments

Larger of(a) stated capital plus capital

surplus for accounting purposes, or

(b) capital for tax purposes

Tax rate(Tokyo*)

Income < JPY4M

0.395%

1.26% 0.525%JPY4M < Income < JPY8M

0.635%

Income > JPY8M

0.88%

* Corporations with offices in three or more prefectures are not eligible for reduced rates for income not exceeding JPY8M

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At a glanceCorporate taxation

Residence

A company that has its principal or main office in Japan is considered to be a resident corporation. Local management is not required.

Tax basis

A resident corporation is taxed on worldwide income; a foreign corporation generally is taxed only on certain Japan-source income unless a foreign corporation has a permanent establishment (PE) in Japan in which case any income attributable to this PE is taxable. The corporate tax rate for a branch is the same as for a subsidiary.

Tax year

A corporation selects its fiscal year (FY) when it begins operations in Japan. The accounting period must not exceed 12 months. A branch’s tax year generally is the same as the tax year of its head office.

Taxable income

The taxable income of a corporation in each accounting period is the excess of gross taxable revenue over total deductible business expenses. No gain or loss generally is recognized for certain assets transferred between 100% subsidiaries.

Capital gains

Capital gains are taxable as ordinary income; capital losses generally are deductible.

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At a glance (cont‘d.)Corporate taxation

Losses

Only 55% (50% for FYs starting on or after 1 April 2018) of a company’s taxable income may be offset by net operating losses (NOLs). A small or medium-sized enterprise (SME) with share capital of no more than JPY100M is exempt from the NOL restriction, unless the SME is owned by a large corporation. The NOL carryforward period is nine years (10 for NOLs incurred during FYs starting on or after 1 April 2018). SMEs may carry back losses for one year.

NOL carryforwards may be further restricted in certain situations, including a change of ownership of more than 50% in connection with a discontinuance of an old business and commencement of a new business.

Non-deductible items

In general, entertainment expenses, director‘s bonus, corporate tax payments are (permanently) not deductible for Japanese corporate income tax purposes.

Interest limitaton rules

Deduction of interest expense (including certain guarantee fees) related to its foreign controlling shareholder (or certain third parties) is subject to limitation under Japan’s thin capitalization rule and the earnings stripping rule.

Incentives

Various tax credits are available, including an R&D credit. There are tax incentives available for increasing wages and salaries which may be taken in the same FY if certain adjustments are made. Special tax incentives have been introduced for qualified companies doing business in designated regions/zones.

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Summary of major revisions related to corporate taxation2018 Tax Reform

Reform Detail

Disallowance of R&D and other incentives

For large companies that do not satisfy certain conditions (see details on following slide), the application of the R&D credit and certain other tax incentives that are otherwise available to the company will be disallowed.

Revision of wage increase incentives

The tax credits for wage increases applicable to fiscal years beginning on or before 31 March 2018 which were set to expire will be revised and extended by three years. Under revised rules, a tax credit will be available to companies which raise wages and capital investment, and an additional credit will be available to companies which increase training costs.

Introduction of information collaboration incentives

If a company obtains certification under a Productivity Improvement Act for an innovative data utilization plan and develops or enhances software according to that plan, the assets acquired and used for information collaboration will be eligible for either special depreciation or a tax credit.

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Disallowance of R&D and other tax incentives – bringing out the stick to increase wages and investment

2018 Tax Reform

The company is a large company

Profit increased from the previous

fiscal year

Average Wage Payments ≦Comparative Average Wage

Payments

Domestic Capital Investment ≦ Total

Depreciation Cost x 10%

Following tax incentives will be disallowed

• R&D tax credits

• Promoting future investment in local economies incentives

• Proposedinformation collaboration incentives

Tax incentives continue to be applicable

No No

Yes

Yes

Yes

Yes

No No

Revisions applicable to fiscal years beginning from 1 April 2018 to 31 March 2021

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Entry into force on….New Austria-Japan tax treaty – highlights for corporates

• Dividends: 10% (50%/12 mos.), or 20%

• Interest: 10%• Royalties: 10%

Reduction in WHT rates

• Capital gains from certain share sales (25/5), and real estate taxable in other state

Capital gains & real estate rich company concept

• Profits attributable to PEImplementation of AOA

• N/ABEPS driven anti-avoidance clauses

Old New• Dividends: Exempted

(10%/6 mos.), or 10%• Interest: Exempted• Royalties: Exempted

• Capital gains generally not taxable in other state (except real estate rich company)

• Recognition of internal dealings between head office and PE

• Transparency concept• Silent partnerships• Limitation on benefits• Principal purpose test

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At a glanceJapanese Consumption Tax (JCT)

Taxable transactions

JCT, similar to a European-style VAT, is levied on the supply of goods and services in Japan; the sale or lease of certain assets in Japan; the import of goods; and certain digital services provided in Japan by nonresidents.

Rates

The current rate is 8% (combined national and local tax rate) for taxable transactions and 0% in certain circumstances (e.g., export transactions). As of 1 October 2019, increase to 10% and introduction of multiple rates - will add complexity to accounting and tax compliance.

Registration

An existing company may elect to be a JCT payer if taxable sales for JCT purposes do not exceed JPY10M in the “base period” (two years before the current year, or the first six months of the prior year), subject to certain other conditions. In principle, a new company with share capital of less than JPY10M should be automatically exempt from filing JCT returns until taxable sales exceed JPY10M in the base period or a timely JCT payer election is filed. The election is binding for at least two taxable years. Other than this election, there is a registration requirement for “automatically” becoming a JCT taxpayer.

Filing and payment

A company must file a JCT return and remit the applicable tax to the tax authorities if the company is a JCT payer (see above). The frequency of remittances depends on the total JCT collected. The amount of creditable input JCT generally depends on total sales, the taxable sales ratio and the method to determine input JCT. Other thresholds/tests also may be applicable. Introduction of EU VAT-type invoicing system from October 2023.

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Small-enterprise exemptionJCT (cont‘d.)

Example scenario

• A Co. is an Austrian resident company that exports good to Japan and sells them to customers in Japan (transfer of title in Japan).

• A Co. has JCT taxable sales in FY16 thru FY19 as follows:

− FY16: JPY 3M

− FY17: JPY 16M (8M in first half, 8M in second half)

− FY18: JPY 18M

FY16 FY17 FY18 FY19JPY 3M JPY 8M JPY 8M JPY 18M

Base Period for FY18

Specified Period for

FY18

Current Year

Exempt Exempt Exempt JCT Taxpayer

Base Period for FY19

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Entry into force after ratification by EU Parliament and member states, along with Japan's Diet, expected in 2019

Japan-EU Economic Partnership Agreement (Japan-EU EPA)

On 8 December 2017, the EU and Japan finalized their free trade deal, which was agreed in principle back in July 2017.

Signatory countries

• The EU member states (28 countries, as of May 2018) and Japan – as a consequence of Brexit the UK may not benefit from the EPA

Impact of the agreement

• The EU will abolish about 97% of its tariffs, and Japan will do away with over 90%, including those on agricultural products, manufacturing-sector goods, medical devices and pharmaceuticals.

• This means that this EPA will have a very positive economic impact. Especially, as the applied duty rates of wine, pasta, chocolate, shoes and leather products are relatively high in Japan, this EPA will give EU manufacturers opportunities of duty saving.

• For instance, Japan agreed to abolish its custom duties on processed pork meat (currently 8.5%) and to significantly reduce its tariffs on fresh pork meat imports (average 4.3%). Tariffs on beef and hard cheese will be reduced from 38.5% to 9% and from up to 29.8% to 0% respectively over 15 years.

• Existing obtacles to financial services, telecommunications, transport and to procurement in the railway sector will be removed.

Current status

The European Commission proposed to the Council to approve the Japan-EU EPA (April 2018).

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“The world’s largest free, advanced, industrialized economic zone.”Prime Minister Shinzo Abe

Further key elements

• Non-tariff measures (mitigating import regulatory restrictions)

• Rules of origin (rules to qualify a good as Japanese or European)

• Services (including movement of people)

• Corporate governance

• Procurement

• Intellectual property rights

• Geographical Indications (e.g., Gailtaler Speck or Marchfeldspargel)

• Competition, subsidies, state owned enterprises

• SMEs

• Customs and trade facilitation

• State to state dispute settlement mechanism

• Sanitary and phytosanitary measures

• Trade and sustainable development (commitment to fight climate change)

A progressive agreement that goes beyond trade issues onlyJapan-EU EPA (cont‘d.)

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At a glanceIndividual income taxation

Basis

In general, an individual who is domiciled or who has a residence in Japan for one year or more is a resident. A non-Japanese national who has spent five years or less in Japan in the preceding 10-year period is regarded as a nonpermanent resident.

Residence

Permanent residents are taxed on their worldwide income. Nonpermanent residents are taxed on all income except foreign source income that is not paid in or remitted into Japan. Nonresidents are taxed on their Japanese-source income.

Filing status

Joint filing is not permitted. Additionally, the tax rates are uniform and are not dependent on marital or other status.

Annual filing and payment

Tax year is calendar year. Employment income and investment income generally are withheld at source. Self-employment business income is calculated in a similar manner as for corporations, and must be self-reported.

Penalties

Japan imposes various penalties on taxpayers who underreport their total tax due and who fail to timely submit tax payments and tax returns

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At a glance (cont‘d.)Individual income taxation

Taxable income

Taxable income is decided based on residential status of the individual. Generally it includes employment income and investment income. Specified deductions, allowances and credits are available to reduce tax.

Capital gains

Individuals are taxed on gains from the sale of shares at 20%. Long-term gains of individuals from the sale of real property are taxed at 20%, and short-term gains are taxed at 39%.

Deductions and allowances

Subject to certain restrictions, deductions are granted for social insurance premiums paid under Japanese government plans, life insurance premiums, earthquake insurance premiums, charitable contributions, qualified medical expenses, etc. Personal deductions are allowed for the individual, a dependent spouse and children aged 16 or older. Exemptions exist for the disabled and the elderly.

Rates

Progressive rates up to 55% apply (combined national and local inhabitants tax). A surtax of 2.1% applies to national tax due, to help pay for recovery following the 2011 earthquake.

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The trend of targeting high earning individuals continues2018 Tax Reform

Deduction item Revisions

Employment income deduction Reduced by JPY100,000

Employment income deduction for high-income earners over JPY8.5M* Reduced by up to JPY250,000

Public pension income deductions Reduced by JPY100,000 – JPY200,000

Basic exemption of JPY380,000 Increased by JPY100,000

Basic exemption for total income of over JPY24M Phased out and not applicable for total income of over JPY25M

Blue form tax return deductions of JPY650,000 with non-electronic / regular recordkeeping Reduced by JPY100,000

Blue form tax return deductions with electronic recordkeeping / e-tax Remain unchanged

Revisions applicable from 2020 onward for individual tax, and 2021 onward for inhabitants tax

*Deductions for income adjustment will be applicable under certain conditions

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In line with the aims of the OECD BEPS initiatives with regards to anti-avoidance and transparency

New Austria-Japan tax treaty – highlights for individuals

• Part of a specific diplomatic note exchangeResidence

• Information exchange in normal course of administration for carrying out the convention

Exchange-of-information

• N/AAssistance-in-collection

• Generally applicable from the tax year following the year the treaty enters into force

• With respect to information collection, applicable from date the treaty enters into force

Entry into force

Old New• Permanent home• Centre of vital interests• Nationality• Mutual agreement

• Information exchange if foreseeably relevant for carrying out the convention

• Even if information not of interest for providing state

• Increased scope of taxes subject to collection

• Japanese inheritance and gift taxes are included

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Five year tail removed for foreign nationalsInheritance and gift taxation

Recipient/Heir

Donor/Decedent

Domicile in Japan No domicile in Japan

Temporary stay with certain visa*1

Japanese nationalityNo Japanese nationality

Domicile in Japan within 10 years

No domicile in Japan within 10 years

Domicile in Japan Temporary stay with

certain visa*1

No domicile in Japan

Domicile in Japan within 10 years

Foreign national*2 2018 revision

Temporary stay*3

No domicile in Japan within 10 years

*1: Recipient/Heir or Donor/Decedent who temporarily stays in Japan (i.e., 10 years or less out of last 15 years at the time of gift or death) with certain visa

*2: A foreign national Donor/Decedent who stays in Japan for more than 10 out of last 15 years at the time of losing domicile in Japan, excluding where Donor gifts foreign property within two years after losing Japan domicile and regains Japan domicile within the two years

*3: A foreign national Donor/Decedent who temporarily stays in Japan (i.e., 10 years or less out of last 15 years at time of gift or death)

Worldwide property taxable Only Japan property taxable

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Business Tax Services

Lars Dahlen, MSc.Tax Senior Manager

Deloitte Tohmatsu Tax Co., Tokyo

+81 90 6565 7404

[email protected]

Global Employer Services

Ken Kohlhase, BSc.Tax Associate

Deloitte Tohmatsu Tax Co., Tokyo

+81 80 4127 6683

[email protected]

Organised and hosted by:

Dr. Ingomar LochschmidtDer österreichische Wirtschaftsdelegierte in Tokio

AußenwirtschaftsCenter Tokio, [email protected]

3-13-3 Motoazabu, Minato-ku, 106-0046 Tokyo

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