Japan’s 2018 tax reform package, most of which came into effect on April 1, 2018, introduced, amongst other things, a number of amendments to the country’s corporate tax regime. This blog highlights the most important changes.
The definition of a permanent establishment (PE) has been amended, largely in line with Article 5 of the OECD Model Tax Treaty (November 2017 version) and following the recommendations by the OECD in Action 7 of the BEPS final report. For fiscal years beginning on or after January 1, 2019, the three types of PEs provided for are:
Tax credit for increasing wages
For fiscal years beginning on or after April 1, 2018 and ending on or before March 31, 2021, the tax credit introduced in 2015 for companies that increase their employees’ wages takes effect where wages are increased by:
Six to 14 percent of research and development expenses (12 to 17 percent for small and medium-sized companies) can be credited to corporate tax liability – up to a maximum of 25 percent of the total liability. However, until March 31, 2019, the credit for the portion exceeding 10 percent (12 percent for small and medium-sized companies) is limited and the cap is temporarily increased from 25 percent to 35 percent.
The effective corporate tax rates for fiscal years beginning on or after April 1, 2018 are:
Further coverage of the corporate tax regime in Japan is provided in the Bloomberg Tax Country Guides.
By Stephen Hetherington, Technical Editor, Bloomberg Tax
To access the Country Guides, and more in-depth analysis and expertise, request a free trial of Bloomberg Tax.
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