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Frequently asked questions
1. Foreign corporation branches in Japan
Q
We are a U.S. based company, and we have just registered a branch office in Japan. The main function of the branch is to purchase Japanese electric parts and export them to the U.S. head office.
Do we have to file a corporate tax return in Japan? Can we claim the net consumption tax receivables?
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A
Yes, you must file a corporate income tax return in Japan.
You may claim a consumption tax refund, if you submit the necessary documentation.
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2. Payroll for foreign national employees
Q
| We employ staff members who are foreign nationals. Are we obliged to withhold income tax from their salaries?
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A
| You should first determine whether, for income tax purposes, each employee is a resident or non-resident of Japan. If an employee is considered a resident for tax purposes, you are required to withhold income tax from his/her salary at the same tax rate as a Japanese employee's. If the employee is considered a non-resident for tax purposes, you are obliged to withhold an income tax of 20%.
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3.Resident or non-resident
Q
| How can we determine if an employee is a resident or non-resident of Japan for tax purposes? |
A
| A person who has had domicile or residence in Japan for more than one year is considered to be a resident. |
4.Change of resident status
Q
| We employed a person who is foreign national. It was a one year contract employment, but the contract term was shortened to 6 months for a substantial reason. How should we calculate the amount of withholding income tax for the employee?
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A
| When you hired the employee, (s)he was intended to reside in Japan for one year, so you do not have to recalculate the withholding tax retroactively. |
5. Tax convention between Japan and the U.S. A.
Q
| We are a Japanese subsidiary of a U.S. based corporation. Some engineers of our U.S. head office will come to Japan for a 3-month training session. During the training period, their salaries will be paid by the head office. Are they obliged to pay income tax in Japan?
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A
| No, if they stay in Japan for less than 183 days, they do not have to pay income tax in Japan under the US-Japan tax treaty. |
6. Home leave allowance
Q
| When our employees who are transferred from a foreign post to a Japanese office visit their home country for summer/winter holidays, we cover their travel expenses. Is the home leave travel allowance taxable income for them? |
A
| No, if the amount of allowance is deemed to be reasonable, they do not have to include the allowance in their taxable income. |
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