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Where an individual taxpayer does not have an address and place of residence in Japan, or where a corporate taxpayer does not have a head office or principal office in Japan, they are required to appoint a tax agent who does have an address and place of residence in Japan to submit tax their returns or handle their matters concerning national taxes. When taxpayers appoint a tax agent, they are required to notify the district director of tax office of the appointment.

Tax losses of a corporation that files a blue tax return can be carried forward and will be able to offset against certain taxable income in the future financial years. However, a restriction may be applied in the case of a controlling interest acquisition, in a merger or group relief system.

Due to the prolonged Covid-19 pandemic, more and moreJapanese companies are selling off their headquarter buildings and other real estate holdings in order to secure cash reserves and drastically downsize their office space. Among the buyers are foreignfunds, foreign corporations, and wealthy foreign individuals. In thisbulleting, we will review the tax treatment of a foreign corporation and a non-resident individual that leases office space in Japan to a Japanese company or a Japanese resident.

Under the 2021 tax reform, a tax credit for new employee payroll expenses will be available for corporations that actively recruit human resources through new graduates and mid-career hires and invest in human resource development for fiscal years beginning between April 1, 2021 and March 31, 2023.

In order to achieve corporate transformation (digital transformation) using digital technology during and after the COVID era, it is essential to implement management and digital strategies in an integrated manner. The 2021 tax reform established a system that allows companies to receive support measures for digital-related investments using cloud technology necessary to realize DX after company wide approval has been granted by the competent minister.

The Act on Special Measures for Preservation of National Tax-Related Books and Documents Prepared Using Computers (hereinafter referred to as the "Act on Electronic Preservation System for Books/Documents") has been revised and it will take effect on January 1, 2022.

From October 1, 2023, the qualified invoice preservation method will be introduced as a way of the purchase tax credit of the consumption tax to correspond to the multiple consumption tax rates. Under the method, the preservation of "qualified invoices" issued by "qualified invoice issuers" will be a requirement for the purchase tax credit.

On 11 February 2020, as part of tax base erosion and profit shifting project, the OECD released final Transfer Pricing Guidance on financial transactions. The Guidance mainly addressed regarding the intra-group loans, cash pooling arrangements, financial guarantees, and captive insurance. This article aims to summarize the key chapters of the Guidance and the possible impact the Guidance may have on transfer pricing arrangements for financial transactions within a multinational enterprise group.

An individual taxpayer liable for income tax is classified as a resident or a non-resident. A resident is an individual who has a domicile or has had a residence continuously for one year or more in Japan. A non-resident is an individual who is not a resident.A non-permanent resident is a resident who does not have Japanese nationality and who has had a domicile or a residence in Japan for not more than five years in total within the past ten years. With respect to income generated from overseas assets (foreign sourced income), such as interests on overseas deposits or dividends of overseas shares, non-permanent residents are taxed when those are either paid in, or deemed to be remitted to Japan. Residents other than non-permanent residents are taxed on worldwide income.

Under Japan’s traditional employment practice represented by lifetime employment and seniority-based wage systems, employees’ wages increased at an accelerated speed during the later years of career.

Under the Corporation Tax Acts, where monetary claims such as account receivables, loan receivables etc. become uncollectible, losses on such monetary claims are tax deductible subject to certain conditions. Further, SME1 and certain other corporate taxpayers are allowed to make a tax-deductible provision for bad debt allowance subject to the deductible limitation.

On December 18, 2020, the OECD released a “Guidance on the transfer pricing implications of the COVID-19 pandemic”. The Guidance represents the consensus view of the 137 members of the Inclusive Framework on BEPS regarding the application of the arm’s length principle and the OECD Transfer Pricing Guidelines to issues that may arise or be exacerbated in the context of the COVID-19 pandemic. The Guidance is helpful both for taxpayers in reporting the financial periods affected by the pandemic and for tax administrations in evaluating the implementation of taxpayers’ transfer pricing policies.

The group tax relief system will be introduced for business years beginning after March 31, 2022, replacing the current consolidated tax return system. Corporate taxpayers that elect to file consolidated tax returns are deemed to elect for the group tax relief system automatically unless they notify the tax office otherwise.

1. Special tax measures for deferral of national tax payments 2. Additional tax measure for extension of the national tax filing deadlines 3. Special tax measures for carried-back losses 4. Special tax credit /special depreciation applicable to capital investment for remote work 5. Other tax measures

The tax deductibility of officer1 remuneration is limited under Japan tax law (Corporation Tax Law (“CTL”) 34①). Officer remuneration consists of amounts other than retirement payments and are only deductible for corporate income tax purposes if they fall under the following categories: (1) Salary paid in the same amount on a regular basis2 (CTL 34①(1)); (2) Salary for which the fixed payment amount has been notified in advance (CTL 34①(2)); or (3) Performance-linked salary3 (CTL 34①(3)).

Transactions such as export sales are consumption tax exempt as tax rate 0%. 1. Export tax exemption 2. Tax exemption at export shops