How corporate tax works in Japan
A corporation established in Japan is generally taxed in Japan on its worldwide income. A foreign corporation is usually taxed on Japanese-source income, with the precise corporate-tax, local-tax and permanent-establishment result depending on the business structure and the applicable treaty.
Japan's corporate tax stack includes national corporation tax, local corporation tax, corporate inhabitant tax, enterprise tax and special corporate enterprise tax. Corporate inhabitant tax can include an income-based component and a per-capita levy based on capital and employees.
The standard national corporation-tax rate is 23.2%. A qualifying company with paid-in capital of ¥100 million or less can generally use a 15% national rate on the first ¥8 million of annual taxable income, while the excess is normally taxed at 23.2%; group ownership and high-income exclusions matter.
For fiscal years beginning on or after April 1, 2026, the Defense Special Corporate Tax applies at 4% to the standard corporation-tax amount after a ¥5 million basic deduction. The 2026 effective-rate examples therefore need to be read alongside the ordinary local-tax stack and this new surcharge.
Japan has enacted OECD Pillar Two measures for qualifying multinational and large domestic groups with consolidated revenue of at least €750 million in at least two of the previous four years. The ordinary Japanese rate, local taxes, foreign tax credits and top-up-tax rules must be modelled together.
Tax rates at a glance
- Standard national corporation tax
- 23.2%Headline
- Qualifying SME first ¥8 million
- 15%
- Certain high-income SMEs first ¥8 million
- 17%
- Large-company effective rate
- 30.64%
- Qualifying SME effective bands
- 21.94% / 23.73% / 34.43%
- Pillar Two minimum
- 15%
Who benefits most
These profiles tend to benefit most when the rules match their real residence, payroll and business setup.
FoundersOperating companiesJapanese subsidiariesCross-border groupsR&D businesses
Watch out for
- The 23.2% rate is not Japan's combined company burden. Local corporate inhabitant tax, enterprise tax, special corporate enterprise tax, per-capita levies and payroll costs can be material even when taxable profit is low.
- The reduced SME rate is not available merely because a company is small in everyday language. Paid-in capital, parent-company ownership, group aggregation, income size and the fiscal-year start date must be checked.
- For a fiscal year beginning on or after April 1, 2026, the defense surcharge is calculated from the standard corporation-tax amount and has a ¥5 million basic deduction. It is not simply a flat extra 4% of accounting profit.
- A foreign company can create Japanese tax exposure through a permanent establishment, Japanese-source income, a dependent agent, real-estate activity or withholding obligations even without incorporating a Japanese subsidiary.
- Pillar Two is a separate compliance layer. Large groups need jurisdictional effective-tax-rate calculations, data, notifications and possible top-up tax rather than relying on the headline Japanese corporation-tax rate.
Frequently asked questions
What is Japan's corporate-tax rate?
The standard national corporation-tax rate is 23.2%. Qualifying companies with paid-in capital of ¥100 million or less can generally apply 15% to the first ¥8 million of annual taxable income, but local taxes and eligibility conditions change the combined result.
What is Japan's effective corporate-tax rate?
A standard-rate large-company example is about 29.74% before the April 2026 defense surcharge and about 30.64% when that surcharge applies. Actual rates vary by company size, income bands, local government, capital structure and incentives.
Does Japan apply Pillar Two?
Yes. Japan has enacted a 15% global minimum-tax framework for qualifying multinational and large domestic groups meeting the €750 million consolidated-revenue threshold and related statutory conditions.