Disclaimer :
This presentation is intended to provide a general high-level overview of the tax system in Japan mainly focusing on business related taxes.
It is provided for informational purposes only and does not encompass all aspects of the Japanese tax law or its application to specific situations.
📋 Presentation Summary
Speaker: Masato Sakai (Japanese CPA at Rimto Accounting)
Topic: What Foreign Startups Need to Know When Doing Business in Japan
Speaker Background:
Japanese CPA working with both Japanese and foreign companies on tax, finance, and accounting matters
🎯 Four Key Areas Covered
This is a practical high-level roadmap designed to help foreign startups avoid surprises and prepare for success in Japan.
💰 1. Japan's Tax Landscape
Three Main Taxes:
Corporate Tax (approximately 30%)
- Combination of national corporate tax and local taxes
- Includes inhabitant tax paid to city and prefecture
- Example: 10 million yen profit results in approximately 3 million yen in total taxes across different government levels
Consumption Tax (10%)
- Japan’s version of VAT
- Applied to most sales of goods and services
Individual Income Tax
- Progressive rates reaching up to approximately 50% for very high incomes
- Combines both national and local taxes
Social Security Contributions:
- Both employers and employees contribute to health insurance, pensions, and unemployment insurance
- Adds approximately 15% extra cost on top of salaries for employers
Key Insight:
Japan is not low-tax, but it is stable and predictable.
🏢 2. Company Entity Options
Three Main Choices:
Kabushiki Kaisha (KK) – Corporation
- Classic corporation structure
- Highest credibility with banks, partners, and clients
- Best choice for raising funds or appearing serious in Japan
- Offers prestige
Godo Kaisha (GK) – Similar to LLC
- Cheaper and simpler to run
- Increasingly respected (for example, Apple Japan uses this structure)
- Offers flexibility and lower cost
Branch Office
- Extension of your foreign company
- Quicker to set up
- Often seen as less credible
Recommendation:
- Most startups choose KK or GK
🧾 3. Consumption Tax & New Invoice Rules
How It Works:
- Businesses add 10% to sales and pass it to the government
- Example: Sell for 1,000 yen → charge 1,100 yen
Traditional Exemption (Before October 2023):
- If sales are under approximately 10 million yen in the first two years, no registration or payment was required
- Some startups collected the 10% and kept it as a cash flow benefit
New Qualified Invoice System (Since October 2023):
- Only registered companies can issue invoices that allow clients to reclaim the 10% consumption tax
- If you stay unregistered, B2B clients cannot get their tax credit
- This effectively makes your service 10% more expensive
Practical Advice:
- While the exemption technically still exists, it is not practical for B2B startups
- Safe route: register early, issue proper invoices, and keep clients satisfied
👥 4. True Cost of Hiring Employees
Beyond Base Salary:
Employers must:
- Withhold income tax from employee pay and remit it to the tax office
- Enroll employees in social security (health insurance, pension, unemployment)
Hidden Cost:
- Adds approximately 15% extra on top of salary
Example:
- Hire someone for 5 million yen per year
- True cost to the company: approximately 5.75 million yen
Important:
This 15% extra cost often surprises foreign startups, so budgeting correctly is essential.
✅ Four Essentials to Remember
- Plan for approximately 30% corporate tax on profits
- Choose KK or GK for company setup (both are solid choices)
- Register for consumption tax if B2B (the old exemption is less useful after the new invoice rules)
- Budget an additional 15% for hiring costs on top of salaries
💡 Final Takeaway
Japan’s system may look heavy at first, but it is:
- Clear
- Rule-based
- Predictable
- Well-structured
This structure helps startups build credibility and long-term trust. Carefully plan and
