Taxes and financial reports for companies in Japan
Taxes and financial reports are a requisite to any company, but knowing how to properly report your company’s financial performance can be exceedingly difficult, especially if you’re not accustomed to Japanese Generally Accepted Accounting Principles (in addition to the International Financial Reporting Standards). This article aims to help you better understand taxes and financial reports for companies in Japan.
The Companies Act
Under article 435 of the Companies Act, stock companies shall prepare financial statements in their entirety:
- Balance sheets, profit and loss statements, statement of changes in shareholders’ equity/net assets, notes to non-consolidated financial statements, business reports for each business year, and supplementary schedules.
In addition, stock companies (kabushiki-kaisha) are required to retain their financial financial reports and supplementary schedules for ten years from the time of preparation of the financial statements. To learn more about the different types of company entities in Japan, please read our in-depth article on this topic by clicking here.
Companies with auditors are required to have their financial reports and business reports audited by company auditors in accordance with the Ordinance of the Ministry of Justice.
For companies with accounting auditors, the following items must be submitted for audit:
- Financial reports: auditors (or audit committees for companies with committees) and accounting auditors
- Business reports: auditors (or audit committees for companies with committees)
For more information, we strongly recommend reading the official English translation of the Companies Act by clicking here.
In the case of large companies with a capitalization of 500 million JPY or more, and/or with liabilities that are 20,000 million JPY or more at the end of the fiscal year, special regulations apply. For instance, financial reports and supporting schedules are required to be audited by both the company auditors/audit committee in addition to an independent certified public accountant, or a professional audit corporation. Furthermore, both the balance sheet and the statement of income must be published in newspapers or on a website to be in compliance with the Companies Act.
Corporate Income Taxes
When a Japanese corporation is newly established in Japan, “tax notifications pertaining to start-up must be submitted to the tax authorities within a prescribed period after establishment.” (Source: Japan External Trade Organization (JETRO))
The taxes that must be paid-for on income-generating activities of a corporation include the following:
- National tax
- Corporate tax
- Local corporate tax
- Special local corporate tax
- Local tax
- Corporate inhabitant tax
- Enterprise tax
Please take a look at a detailed summary of effective tax rates and sample tax calculations by visiting the Japan External Trade Organization’s (JETRO) website here.
As corporate income taxes as a whole are a very complicated subject, it is strongly recommended to reach out to an English-speaking lawyer for a professional consultation — we’ve posted the contact details of lawyers that can help in this area at the end of this article.
Corporate taxes: Filing of tax return
When paying and filing taxes, corporations are expected to file a final tax return for all of the taxes above within two months from the day after the final day of each taxable year. However, in cases where a final tax return cannot be filed within two months (e.g. due to a delay in the annual shareholders’ meeting), an extension is possible by getting approval from the director of the taxation office.
There are two types of tax return forms for corporations: white forms and blue forms. Blue forms for tax returns typically provide better tax benefits than white forms; however, submitting an application and having it be approved by the national tax office is required in order to receive such benefits. For newly-formed companies/foreign corporations, the application for the blue form tax return must be submitted no later than three months after the date the corporation was established, or three months after the corporation’s initial taxable year after establishment (whichever comes first).
This page is intended to be used for informational purposes only and should not be a substitute for obtaining professional legal advice.