Japan Extends Special Tax Rates for Small/Medium Companies

As the proposed Tax Reform Bill submitted to the Japanese Diet was not passed in its original form, the Amended Tax Reform Bill which includes Corporate Tax rates was approved and became effective on June 30, 2011.

The main changes under the amended Tax Reform Bill are:

• The expiration dates of the Special Tax Measures Law which had been extended by 3 months (i.e. from March 31 2011 to 30 June 2011) by the Stopgap Bill are further extended. Thus, reduced corporate tax rate (18%) for a small/medium-sized company (share capital less than or equal to JPY 100 million) will be extended.
• Tax credit for job creation - Companies filing blue tax returns and satisfying certain conditions can claim special tax credits of JPY 200,000 for the net increase in the number of each employee. The benefit will be applicable to the company for fiscal years commencing between April 1, 2011 and March 31, 2014.

The Tax Reform Bill also includes the following:

• Amendment to employment income deduction rules
• Amendment to taxation of retirement income
• Repealing allowances for adult dependents

International Tax

Foreign tax credit - the June Bill included the following amendments:

• Where the applicable tax rates vary depending on an agreement with local taxing authorities, any taxes in excess of the amount computed using the lowest applicable rate will be excluded for purposes of the foreign tax credit computation or the anti-tax haven rules. The amendment is effective after June 30, 2011.
• For purposes of computing the foreign tax credit limitation, income of a corporation which may be taxed in a foreign country in accordance with the tax treaty from Japan and that foreign country shall generally be deemed to be treated as foreign source income for fiscal years starting on or after April 1, 2011.

Corporate Tax

• Reduction of corporate income tax rate
• Review of the net operating loss carry-forward rule
• Amendment of the depreciation provisions
• Amendment of bad debt reserves

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Disclaimer :

Published: August 22, 2011. The information provided on this page is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Nair & Co.