What are the key tax considerations for operating a business in Japan?

Japan has long been a popular destination for Taiwanese travelers, and many even consider relocating there permanently. However, Japan is not an immigration country, and it is difficult for individuals to obtain residency through what is commonly referred to as “investment immigration.” For clients who wish to settle in Japan, the most commonly used visa is the Business Manager Visa. This article will introduce the relevant tax matters associated with the Business Manager Visa.

Business Manager Visa

The Business Manager Visa is issued to foreigners who establish a company in Japan and are actively involved in its operation and management. Among all Japanese visa categories, the Business Manager Visa is the one most closely aligned with the concept of investment immigration, making it especially attractive to those seeking long-term residency in Japan. However, obtaining this visa is not as simple as registering a company. The application requirements are strict, and the screening process is rigorous—very much in line with Japanese standards. Furthermore, even holding a Business Manager Visa does not guarantee future eligibility for permanent residency in Japan.

Corporate Taxation in Japan

For Taiwanese entrepreneurs setting up businesses in Japan, the most common corporate structures are the Kabushiki Kaisha (KK) and the Godo Kaisha (GK). Both are recognized as separate legal entities under Japanese tax law and are required to file tax returns and pay taxes to both the national and local governments.

Once a company is established in Japan, it becomes a Japanese tax resident and is subject to corporate tax on its worldwide income. This means that even income earned abroad may be taxed in Japan if it is under the control of the Japanese entity. At the same time, the company might also have tax obligations in Taiwan, making the proper application of the Double Taxation Avoidance Agreement between Japan and Taiwan a key aspect of tax planning.

One of the main types of taxes for companies operating in Japan is the corporate income tax. The current national corporate tax rate is approximately 23.2%, and when combined with local taxes (such as corporate inhabitant tax and enterprise tax), the total effective tax rate can reach around 30%. These local tax rates vary depending on the company’s location—Tokyo, for example, generally has a higher tax burden. Therefore, the choice of where to establish the company can significantly affect the overall tax cost.

In addition to income taxes, companies are also subject to consumption tax, which currently stands at 10%, similar to Taiwan’s VAT. If a company’s annual revenue exceeds JPY 10 million, it becomes a taxable entity for consumption tax purposes. Newly established companies may enjoy a tax exemption period, but generally must start filing from their third year. For foreign investors in Japan, popular industries often include food and beverage, hospitality, and retail (e.g., drugstores). These sectors typically involve significant input and output tax calculations, making it essential to pay close attention to proper consumption tax reporting and deductions.

Personal Taxation in Japan

Japan’s individual income tax system distinguishes between residents and non-residents. A resident is someone who either has a domicile in Japan or has resided in the country for more than one year. Those who do not meet either condition are classified as non-residents. Residents are required to report their worldwide income to the Japanese National Tax Agency.

However, there is a special category called a non-permanent resident, defined as an individual who:

• Does not have Japanese nationality, and

• Has not maintained a domicile or residence in Japan for more than five of the past ten years.

Non-permanent residents are treated as residents, but are only taxed on income sourced in Japan and on foreign income remitted to Japan.

If an individual does not meet the above criteria, they are considered a non-resident, who is only taxed on income sourced from Japan through withholding at source.

In most cases, if a person relocates to Japan under a Business Manager Visa and lives there long-term while managing their company, they are likely to be treated as a resident for tax purposes, even if most of their income is from overseas. This means they may be required to file tax returns for both domestic and international income.

Conclusion

When starting a business in Japan, tax planning must go beyond the corporate level—personal taxation is equally important. Whether it involves salaries, cross-border income, capital gains, or social insurance and residency status, all are directly tied to your personal tax obligations.

It is highly recommended that investors consult with a professional tax advisor to ensure proper planning for both personal and corporate taxation, in order to achieve legally optimized tax efficiency across both Taiwan and Japan.