Japan Startup Tax Basics: A Tax Guide Every Entrepreneur in Japan Should Know (Latest for 2025)

Starting a company in Japan, the biggest headache is not finding an office or getting your visa. It is taxes.

You may already have obtained your Business Manager Visa, completed your company registration, and even opened a bank account. Then you realize there is corporate tax, resident tax, enterprise tax, consumption tax, income tax, and more. Each comes with its own rate, filing deadline, and calculation method.

Do not panic. This article is here to help you understand the full picture of taxes for running a business in Japan from start to finish. I am not giving specific tax advice, because that is the job of a licensed tax accountant (税理士, zeirishi). What I will do is help you understand the system, where the money goes, and what needs to be done and when.

What Taxes Does an Entrepreneur in Japan Need to Pay? The Big Picture

When you run a company in Japan, you face tax obligations on two levels: the corporate level and the personal level. Many first-time founders mix the two together, so let us start with a full overview.

Taxes at the Company Level

Your company, whether a Kabushiki Kaisha or Godo Kaisha, may need to pay the following taxes:

Tax	Japanese	Paid to	Simple explanation
Corporate tax	法人税 (hojinzei)	National Tax Agency	The company’s version of income tax
Corporate inhabitant tax	法人住民税	Prefecture + municipality	A location-based tax for companies; part of it applies even if you run at a loss
Corporate enterprise tax	法人事業税	Prefecture	A tax on business activities
Consumption tax	消費税 (shohizei)	National Tax Agency	Japan’s VAT; only applies once certain conditions are met

Taxes at the Personal Level

As the business owner, if you receive director compensation (役員報酬, yakuin hoshu) from the company, that income is taxed personally:

Tax	Japanese	Simple explanation
Income tax	所得税 (shotokuzei)	Progressive rates based on income, from 5% to 45%
Resident tax	住民税 (juminzei)	Roughly 10%, based on the previous year’s income
Special reconstruction income tax	復興特別所得税	2.1% of your income tax amount, scheduled to continue through 2037

Social insurance (社会保険, shakai hoken) is technically not a tax, but it is mandatory, and the cost is significant. In many cases it comes to roughly 30% of salary in total, split about half and half between the company and the individual. I will cover that in detail later.

In one sentence: your company pays corporate taxes on its profits, you pay income tax on the salary you take from the company, you pay consumption tax on taxable sales when applicable, and you pay social insurance simply because you are operating in Japan. Japan’s tax collection system is thorough.

Corporate Tax (法人税) Explained

Corporate tax is the core tax on company profits. You can think of it as the corporate version of income tax.

Tax Rates

Corporate tax rates currently in effect for 2025:

Condition	Tax rate
Small or medium-sized corporation with capital of JPY 100 million or less, on the portion of annual taxable income up to JPY 8 million	15%
Small or medium-sized corporation with capital of JPY 100 million or less, on the portion of annual taxable income above JPY 8 million	23.2%
Large corporation with capital above JPY 100 million	23.2%

For most Chinese entrepreneurs starting a business in Japan, company capital will likely fall somewhere between JPY 5 million and JPY 30 million. Since the new visa standard from October 2025 raised the threshold to JPY 30 million, see the visa requirements for details. That generally places you in the small or medium-sized corporation category, where the 15% preferential rate applies to the first JPY 8 million of annual taxable income.

Effective Tax Burden: It Is Not Just Corporate Tax

This is a common point of confusion: the corporate tax rate may be 15% or 23.2%, but your real tax burden is higher because corporate inhabitant tax and corporate enterprise tax are added on top.

The effective tax rate for the combined burden of corporate tax, inhabitant tax, and enterprise tax is approximately:

Up to JPY 4 million in annual taxable income: about 22% to 25%
JPY 4 million to JPY 8 million: about 25% to 27%
Above JPY 8 million: about 34% to 36%

The exact rate varies slightly by location. Tokyo tends to be a bit higher.

How It Is Calculated

Corporate tax is calculated based on taxable income, not gross revenue.

Taxable income = revenue - deductible expenses
Corporate tax = taxable income x tax rate

The key issue is what qualifies as a deductible expense. Office rent, employee salaries, office supplies, transportation costs, and certain entertainment expenses within the applicable limits may all be deductible. That is also the foundation of later tax-planning strategies.

A Tax You Owe Even If You Are in the Red: Per Capita Levy

This catches many first-time founders by surprise: even if your company makes no money or operates at a loss, you still owe the per capita portion of corporate inhabitant tax.

This fixed levy, called kintowari (均等割), is assessed based on the company’s capital and number of employees. It does not depend on profit.

For a very small company with capital under JPY 10 million and fewer than 50 employees:

Prefectural per capita levy: about JPY 20,000 per year
Municipal per capita levy: about JPY 50,000 per year

That means at least JPY 70,000 per year, simply because the company exists. Tokyo’s 23 wards handle the structure somewhat differently, but the total is broadly similar.

Fiscal Year-End and Filing Deadlines

The filing deadline for corporate tax is within two months after the end of the fiscal year.

For example, if your fiscal year ends on March 31, which is the most common choice in Japan, the filing deadline is the end of May. If your fiscal year ends on December 31, the deadline is the end of February.

💡 Tip: You are free to choose your fiscal year-end. It does not have to be March. I will explain how to choose it in the section on closing the books and tax filing.

Consumption Tax (消費税)

Consumption tax is one of the taxes entrepreneurs are most likely to overlook and also one of the easiest to mishandle.

Basic Rates

Consumption tax rates currently in effect for 2025:

Standard rate: 10% (7.8% national tax and 2.2% local consumption tax)
Reduced rate: 8% (for food and newspapers, consisting of 6.24% national tax and 1.76% local tax)

If you run a restaurant or food-related business, the distinction matters a lot. Takeout food is generally taxed at 8%, while dine-in is taxed at 10%, which is a common practical headache.

Tax-Exempt Business Operator vs. Taxable Business Operator

This is the core concept in Japan’s consumption tax system.

Tax-exempt business operator (免税事業者, menzei jigyosha): a business that does not need to pay consumption tax. Taxable business operator (課税事業者, kazei jigyosha): a business that does need to pay consumption tax.

The main test is whether taxable sales during the base period exceed JPY 10 million.

The base period means the fiscal year from two years earlier. For example, the base period for fiscal year 2025 is fiscal year 2023
If taxable sales in the base period are JPY 10 million or less, you are generally tax-exempt
If they exceed JPY 10 million, you are generally a taxable business operator

There is also the specified period rule: if taxable sales or total payroll payments during the first six months of the previous fiscal year exceed JPY 10 million, you also become a taxable business operator.

Special rule for newly established corporations:

A newly established corporation with capital of JPY 10 million or more is a taxable business operator from its first fiscal year
A newly established corporation with capital below JPY 10 million is generally tax-exempt for its first two fiscal years

This is one reason many founders set initial capital below JPY 10 million, for example JPY 9.99 million or JPY 5 million, because it can preserve the two-year consumption tax exemption.

The Invoice System (インボイス制度)

The qualified invoice retention system, known as the invoice system (インボイス制度), came into effect in October 2023 and has had a major impact on many small businesses.

In simple terms, if you are a tax-exempt business operator, the invoices you issue do not include a registered invoice number. As a result, your clients, if they are taxable business operators, cannot fully claim input tax credits based on your invoices. In practice, this means many B2B clients may prefer not to work with tax-exempt suppliers.

So even if your sales are below JPY 10 million, you may still need to voluntarily register as a taxable business operator and obtain invoice registration. That is a decision that needs careful weighing:

If most of your clients are businesses (B2B), not registering may cost you customers
If most of your clients are individual consumers (B2C), the impact is smaller because consumers do not claim input tax credits

As of 2025, there is still a 20% special measure available as a transitional simplified taxation rule for businesses that were previously tax-exempt but became taxable due to invoice registration. Under this measure, the tax payable can be calculated as 20% of output consumption tax, which means an effective burden of roughly 2%. It applies through taxable periods that include September 30, 2026.

Personal Income Tax and Resident Tax

Your company is a legal entity. You are an individual. The compensation you receive from the company as director compensation (役員報酬) is your personal income, so you need to pay personal income tax and resident tax on it.

Tax Treatment of Director Compensation

Director compensation has one crucial tax rule: fixed regular compensation (teiki dogaku kyuyo, 定期同額給与).

In practice, this means the amount you take from the company each month must be fixed. You cannot take JPY 500,000 one month and JPY 200,000 the next. If the amount is not fixed, the excess portion may not be treated as a deductible expense for the company. In other words, both the company and the individual can end up being taxed on the same money.

Timing for revision: as a rule, compensation can only be changed within three months after the start of each fiscal year. For example, if your company’s fiscal year starts in April, you can generally adjust compensation only between April and June.

Progressive Income Tax Rates

Japan’s personal income tax rates for 2025:

Taxable income	Tax rate	Deduction
Up to JPY 1.95 million	5%	0
JPY 1.95 million to JPY 3.3 million	10%	97,500
JPY 3.3 million to JPY 6.95 million	20%	427,500
JPY 6.95 million to JPY 9 million	23%	636,000
JPY 9 million to JPY 18 million	33%	1,536,000
JPY 18 million to JPY 40 million	40%	2,796,000
Above JPY 40 million	45%	4,796,000

On top of that, you also pay the 2.1% special reconstruction income tax and resident tax of about 10%. So if you set your own salary high, the personal tax burden rises quickly. That is why balancing corporate tax and personal tax is so important.

Kakutei Shinkoku (確定申告, Annual Tax Return)

If you only receive one source of director compensation from your company and the company has already completed year-end adjustment (年末調整, nenmatsu chosei), you generally do not need to file a separate annual tax return (kakutei shinkoku).

However, you must file one in situations such as:

Annual income exceeds JPY 20 million
You have two or more sources of income
Side income exceeds JPY 200,000
You have overseas income or overseas assets
You want to claim deductions such as the medical expense deduction on your own return

The filing period for kakutei shinkoku is February 16 to March 15 each year, covering the previous calendar year from January through December.

Resident Tax

Resident tax, usually around 10%, is effectively paid one year later. It is calculated based on the previous year’s income and is generally paid in installments from June of the following year through May of the year after that.

For example, resident tax generated by your 2025 income will generally start being collected in June 2026.

If you are paid through your company, resident tax is usually withheld and remitted by the company under the special collection system (tokubetsu choshu). That is generally the easiest and safest arrangement.

Common Deductions

Here are some of the personal income tax deductions entrepreneurs commonly use:

Basic deduction: JPY 480,000 if income is JPY 24 million or less
Spousal deduction / special spousal deduction: up to JPY 380,000, subject to the spouse’s income
Dependent deduction: JPY 380,000 to JPY 630,000 per dependent age 16 or older
Social insurance premium deduction: fully deductible for the premiums you paid
Life insurance premium deduction: up to JPY 120,000
Small-scale enterprise mutual aid contribution deduction: fully deductible, discussed later in the tax-planning section
Medical expense deduction: for annual medical expenses above JPY 100,000

Taken together, these deductions can significantly reduce your taxable income.

Many founders think about taxes and overlook social insurance. In practice, social insurance can hurt even more.

Companies Must Enroll

In Japan, corporations such as KKs and GKs must enroll in social insurance. This is not optional. Even if your company consists of only one person and you are the sole director, if you receive compensation from the company, you are required to enroll in employees’ pension insurance (厚生年金, kosei nenkin) and health insurance (健康保険, kenko hoken).

Approximate 2025 rates, using Tokyo’s Kyokai Kenpo as a reference:

Item	Total rate	Company share	Individual share
Health insurance, including nursing care insurance for those age 40 and over	About 11.6%	About 5.8%	About 5.8%
Health insurance for those under 40	About 10.0%	About 5.0%	About 5.0%
Employees’ pension insurance	18.3%	9.15%	9.15%

Total: roughly 15% each for the company and the individual.

This means that if you set your monthly salary at JPY 500,000:

Individual share: about JPY 75,000 per month, withheld from salary
Company share: about JPY 75,000 per month, paid separately by the company
Total monthly social insurance cost: about JPY 150,000

And if you are a sole-owner president, the company’s share is ultimately your money too. So the real economic burden is close to 30%.

As the representative director (代表取締役), you are generally enrolled in employees’ pension and company health insurance or an equivalent health plan, not the national pension and national health insurance systems.

Advantages:

Future pension benefits under employees’ pension are much higher than under the national pension system
You may be eligible for sickness and injury allowance (傷病手当金)
You may be eligible for maternity allowance (出産手当金)

Disadvantages:

Premiums are high, and because you bear both the company and individual sides economically, the real burden is heavy

⚠️ Visa-related warning: your social insurance payment record is an important part of Immigration’s review for visa renewal and permanent residence applications. Unpaid social insurance can directly lead to a visa renewal denial. Make sure premiums are paid in full and on time.

Basic Tax-Planning Strategies

Let us be clear first: lawful tax planning (節税, setsuzei) and tax evasion (脱税, datsuzei) are completely different things. Tax planning means arranging things reasonably within the law. Tax evasion is illegal and can lead to penalties, additional tax, and even criminal consequences.

Here are several basic tax-planning ideas.

How to Set Director Compensation Strategically

This is the most important tax-planning lever for founders. Corporate tax rates and personal income tax rates follow different structures. By adjusting the balance between company profit and your own compensation, you can find a point where the overall burden is lower.

Basic logic:

The effective corporate tax burden is roughly 25% to 35%
Personal income tax plus resident tax is roughly 20% when taxable income is below JPY 3.3 million, and 33% or more once it rises above JPY 6.95 million
If your personal tax rate is lower than the corporate rate, taking more salary may be more efficient; if it is higher, taking less may be better

But remember that social insurance is tied to salary. The higher the compensation, the more social insurance costs increase. You need to consider tax and social insurance together.

The optimal amount varies from case to case. It is worth asking a tax accountant to run the numbers for you.

Using Business Expenses Properly

Legitimate business expenses reduce taxable income. Common deductible expenses include:

Office rent. If you use part of your home as an office, a reasonable portion may be allocated, as discussed in the rental guide
Communication costs, such as mobile phone and internet charges for the business-use portion
Transportation costs
Entertainment expenses. For small and medium-sized corporations, up to JPY 8 million per year may generally be fully deductible under the applicable rules
Business travel expenses. Certain travel allowances may be non-taxable
Training and books
Vehicle costs, with depreciation for the business-use portion where applicable

⚠️ Important: expenses must be real business-related expenditures, and you need to keep receipts and supporting documents. Treating personal spending as a business expense is one of the most common violations, and it will be discovered if you face a tax audit (税務調査, zeimu chosa).

Small-Scale Enterprise Mutual Aid (小規模企業共済)

The Small-Scale Enterprise Mutual Aid program (小規模企業共済, shokibo kigyo kyosai) is run by the Organization for Small & Medium Enterprises and Regional Innovation. It functions like a retirement savings system for sole proprietors and small business owners.

Monthly contribution: JPY 1,000 to JPY 70,000, adjustable in JPY 500 increments
Fully deductible from personal income
Maximum annual deduction: JPY 840,000

This is one of the most effective lawful tax-saving tools available. If you have not looked into it yet, you should.

iDeCo (Individual-Type Defined Contribution Pension)

Contributions to iDeCo are also fully deductible from personal income. For a company owner who is insured as Category 2, the monthly cap is typically JPY 23,000, or JPY 276,000 per year. The amount is not large, but it still helps.

⚠️ How Over-Aggressive Tax Planning Can Hurt Visa Renewal

This is a trap that is particularly relevant to foreign entrepreneurs in Japan, and many tax accountants will not mention it proactively.

When Immigration reviews a Business Manager Visa renewal, it looks at your company’s business condition. If you push profit down too far through aggressive tax planning or show a loss on paper, you may reduce taxes, but Immigration may conclude that the company is not operating stably or sustainably, which can lead to renewal denial.

You need to balance tax planning and visa renewal. Do not create a paper loss just to save a relatively small amount of tax. The best approach is usually to consult both a tax accountant and an administrative scrivener. For required renewal documents, see the visa renewal document checklist.

Closing the Books and Filing Taxes

Choosing Your Fiscal Year-End

Japanese corporations are free to choose their fiscal year (事業年度). Unlike in China, it does not have to end on December 31. Common options include:

March year-end: the most common in Japan because it aligns with the government fiscal year, but tax accountants are busiest from March through May, and fees may be higher
December year-end: easier to understand because it matches the personal tax year
Other months: such as September or June, which can help you avoid the busiest season

Practical suggestions:

Avoid March unless there is a specific reason, because accountants may have more time and provide more careful support outside the peak season
Consider the seasonality of your business and place year-end during a slower period, when preparing documents is easier
Consider how to maximize the consumption tax exemption period. If your company is formed mid-year and the first fiscal period is shorter than 12 months, choosing the right closing month can extend the exemption window

Annual Timeline

Assume your company has a December year-end and runs from January through December:

Time	What happens
January to December	Ongoing bookkeeping and monthly withholding tax filings where required
December 31	Fiscal year-end
January	Organize books and prepare year-end accounting materials
January 31	Statutory reports and depreciable asset filings
February 16 to March 15	Personal income tax return filing period for you as an individual
February 28	Deadline to file and pay corporate tax, corporate inhabitant tax, corporate enterprise tax, and consumption tax

If your company has a March year-end, the corporate tax filing deadline moves to the end of May, which separates it from the personal filing season and can make scheduling easier.

The Role and Cost of a Tax Accountant

To be blunt, running a company in Japan without a tax accountant is extremely difficult.

A licensed tax accountant, or zeirishi (税理士), is Japan’s tax specialist. Their work typically includes:

Bookkeeping support (kicho daiko)
Monthly and annual closing support
Preparation and filing of corporate tax returns
Personal income tax returns
Representation and support during tax audits

Typical fees in 2025:

Service	Monthly / annual fee
Retainer / advisory fee	JPY 20,000 to JPY 50,000 per month
Bookkeeping support	JPY 5,000 to JPY 15,000 per month
Annual closing and corporate tax filing	JPY 100,000 to JPY 200,000 per year
Personal tax return	JPY 30,000 to JPY 50,000 per year
Tax audit support	Separate fee

For a one-person company, the annual cost of a tax accountant is often around JPY 300,000 to JPY 800,000, depending on complexity and bookkeeping volume.

💡 Suggestion: look for a tax accountant’s office with experience serving Chinese clients in Japan. Smooth communication matters, but the more important point is that they understand the specific issues Business Manager Visa holders face, including the balance between tax planning and visa renewal.

Frequently Asked Questions

Q1: My company has just been formed and has no revenue yet. Do I still need to pay tax?

Yes. You still need to pay the fixed per capita portion of corporate inhabitant tax, which is about JPY 70,000 per year. That applies simply because the company exists, regardless of income. Other taxes such as corporate tax and consumption tax do not arise until there is profit or the relevant threshold is met.

Q2: Can I avoid paying myself a salary to save tax?

Technically yes. Director compensation can be set at zero. But there are two problems. First, you still need a way to live, and Immigration may question the arrangement. Second, if you take zero compensation, you may avoid social insurance, but a corporate representative not paying social insurance is a negative factor in visa review. It is generally not recommended.

Q3: When do I have to start paying consumption tax?

The most common trigger is when taxable sales during the base period, meaning two years earlier, exceed JPY 10 million. If a newly established corporation has capital below JPY 10 million, it is generally exempt for the first two fiscal years. However, if you register under the invoice system, you become a taxable business operator from the registration date.

Q4: Do I need to keep the books myself?

Legally, no rule says you must hire a tax accountant. You can do it yourself. In practice, however, Japanese corporate tax returns are extremely complex. The attachment schedules alone can run into dozens of forms. Without professional knowledge, most people cannot realistically prepare them correctly. At minimum, it is strongly advisable to hire a tax accountant for the year-end closing and tax filing. For daily bookkeeping, cloud accounting software such as freee or Money Forward can help reduce costs.

Q5: If my company has a loss, can it offset future profits?

Yes. Net operating losses can generally be carried forward for up to 10 years. But you must file on time each year to preserve that right. Even in a loss year, make sure the corporate tax return is filed on time.

Q6: I still have income in China. Do I need to report it in Japan?

If you are a resident of Japan for tax purposes, meaning you have a domicile in Japan or have lived there for at least one year, your worldwide income generally needs to be reported in Japan. Japan and China have a tax treaty to prevent double taxation, and tax already paid in China may often be credited in Japan through the foreign tax credit system. The details are complicated, so professional advice is important.

Q7: Will I be selected for a tax audit?

In principle, any corporation can be audited. Small and medium-sized companies may be selected every few years, or they may never be audited. If your bookkeeping and filings are proper and you keep all supporting documents, including invoices, receipts, and contracts, there is no reason to panic. If you are notified of an audit, have your tax accountant handle it with you.

Q8: Are there any special tax rules for Business Manager Visa holders?

There is no special tax rate or special category of tax for Chinese nationals or for Business Manager Visa holders. Tax law applies the same way. But when you renew your visa, Immigration reviews your tax payment certificates (納税証明書, nozei shomeisho) and your social insurance payment record. Non-payment or late payment works against you. This matters even more if you eventually plan to apply for permanent residence, because your tax and social insurance record over the previous five years generally needs to be clean.

Q9: What is the tax difference between a corporation and a sole proprietorship?

The main difference is that corporate tax rates are relatively fixed at 15% or 23.2%, while personal income tax is progressive from 5% to 45%. Once income becomes substantial, operating through a corporation often provides a tax advantage. A corporation may also offer advantages in credibility, deductible expense scope, and social insurance structure. For Business Manager Visa holders, forming a corporation is usually necessary. See the visa requirements for more detail.

This site does not make specific tax accountant recommendations. Common ways to find one include Chinese community groups in Japan, professional matching services such as zeiri4.com, and referrals from your administrative scrivener. Focus on whether they have experience with foreign-owned companies, whether they understand the specific needs of Business Manager Visa holders, and whether communication is smooth.

Final Thoughts

Japan’s tax system is complex, but the core logic can be reduced to three lines:

Your company pays corporate tax on what it earns, and you pay income tax on what you take out
Consumption tax depends on whether your sales pass the threshold
Social insurance is tied to salary, and it is not optional

As an entrepreneur in Japan, you have one more layer to think about than an ordinary domestic founder: tax and visa status are connected. Your tax payment record affects renewals, and the amount of tax planning you do can affect how strong your company looks on paper. That balance is best managed with both a tax accountant and an administrative scrivener.

Leave tax work to professionals and focus your energy on building the business itself. Once the company is making money, tax headaches are at least the kind of headache that comes with progress.

Disclaimer: This article is based on the tax rules in effect during 2025 and is for reference only. It does not constitute tax advice. Rates and systems may change from year to year. For advice specific to your situation, consult a qualified Japanese tax accountant.