*Combined rate: 45% national top marginal rate plus a 2.1% reconstruction surtax on the tax amount and an approximately 10% flat local inhabitant tax.
Japan taxes permanent residents on worldwide income (non-permanent residents - broadly, those without Japanese nationality who have lived in Japan for 5 years or less of the past 10 - are taxed only on Japan-source income plus foreign income actually remitted to Japan). Japan operates a self-assessment system (kakutei shinkoku), adopted in 1947 per IMF research, for taxpayers required to file - but most salaried employees with a single employer never file at all, since their full income tax liability is settled through the employer-administered year-end adjustment (nenmatsu chosei), a form of final withholding that eliminates the need for self-assessment for that population.
Japan's corporate tax year generally follows the company's own fiscal year (many Japanese companies use 1 April - 31 March, though this is a corporate choice, not a mandatory national fiscal year). The individual tax year is the calendar year, with the main individual filing deadline in mid-March of the following year.
The national corporate tax rate is 23.2% for standard corporations (15% on the first JPY 8 million of taxable income for SMEs with paid-in capital of JPY 100 million or less). This national rate is not the full picture: combined with local enterprise tax, special corporate business tax, and corporate inhabitant tax, the effective total corporate tax burden is approximately 30-31.5% for most companies in Tokyo, varying by municipality and company size. A new defense-capabilities surtax of 4% on the base national corporate tax amount applies for fiscal years beginning on or after April 1, 2026, adding roughly one further percentage point to the effective rate.
The national income tax top marginal rate is 45%, plus a 2.1% reconstruction surtax levied on the national income tax amount itself (not an additional 2.1 percentage points on income). On top of this, a flat local inhabitant tax of approximately 10% (split between prefectural and municipal components) applies to residents regardless of income level, bringing the combined effective top marginal rate to approximately 55%.
The standard VAT/GST (or equivalent consumption tax) rate is 10% (consumption tax).
An individual is a Japanese tax resident if they have a domicile (jusho) in Japan or have maintained a temporary place of abode (kyosho) in Japan for one year or more. Resident taxpayers are further split: a "non-permanent resident" (a non-Japanese national resident for five years or less within the preceding ten years) is taxed on Japan-source income plus foreign-source income actually paid in or remitted to Japan, while a "permanent resident" (Japanese nationals, or foreign nationals resident more than five of the preceding ten years) is taxed on worldwide income. Non-residents are taxed only on Japan-source income, generally at a flat 20.42% rate.
A non-Japanese entity has a Japanese permanent establishment through a fixed place of business, a dependent agent habitually concluding contracts in Japan on the entity's behalf, or a construction project exceeding a specified duration, following the OECD Model Treaty definition as applied under Japanese domestic law and any applicable tax treaty.
Japan's CFC regime applies to a foreign related corporation (FRC) that is more than 50% owned (by vote or value) by Japanese residents and corporations, or otherwise under de facto Japanese control. Undistributed profits of an FRC are included in the Japanese parent's taxable income where the FRC's effective tax rate falls below a trigger rate: 30% for "paper" or "cash box" companies (reduced to 27% for parent tax years beginning on or after April 1, 2024, reflecting Pillar Two considerations) or 20% for other passive-income cases. Active-business income generally falls outside CFC attribution under an economic activity exemption.
Japan applies two separate interest-limitation regimes. The thin capitalization safe harbor denies deduction of interest paid to a foreign controlling shareholder once average debt from that shareholder exceeds three times (3:1) the shareholder's equity interest. Separately, the earnings stripping rules cap deductible net interest expense (to both related and, in some cases, third parties) at 20% of adjusted taxable income - tightened from 50% under the 2019/2020 reform implementing BEPS Action 4. Where both rules could apply, the more restrictive disallowance governs.
Japan does not use an elective check-the-box classification system; entity classification generally follows a facts-and-circumstances comparison against recognized Japanese entity types (a body of case law, including notable Delaware LLC classification disputes, has developed around this question specifically). Japan has implemented OECD BEPS Action 2-aligned anti-hybrid rules denying deductions for payments producing a hybrid mismatch outcome.
A Japanese resident holding foreign assets with a total value exceeding JPY 50 million as of 31 December must file an annual Statement of Overseas Assets (国外財産調書) with the tax authority, covering foreign bank accounts, foreign securities, and other foreign property. A separate, broader Statement of Assets and Liabilities applies to high-net-worth residents regardless of the foreign-asset threshold. Penalties for non-filing or under-reporting can include enhanced tax rates on any related unreported income, though voluntary, accurate filing can reduce penalties on unrelated matters. This is Japan's own domestic foreign-asset reporting regime, distinct from Japan's separate participation in CRS automatic exchange described under Treaty Network below.
Japan provides a foreign dividend exemption (rather than a full participation exemption in the European sense): 95% of dividends received by a Japanese company from a foreign subsidiary in which it holds at least 25% of shares for a continuous minimum 6-month period are excluded from Japanese taxable income, reducing (though not fully eliminating) double taxation on repatriated foreign profits.
Japan has a real foreign tax credit regime for resident individuals and companies, allowing foreign income tax to be credited against Japanese national income tax and local inhabitant's tax liabilities (subject to limitations), where the foreign-source income is also taxed in Japan. Non-resident taxpayers cannot claim the credit on their Japan income tax return unless they maintain a permanent establishment in Japan.
As of May 1, 2026, Japan has 90 tax conventions in force covering 157 jurisdictions, since some older treaties (such as the former USSR treaty) apply across multiple successor states. Japan has also concluded standalone tax information exchange agreements with 11 further jurisdictions. The full, current treaty list is maintained by Japan's Ministry of Finance.