A new local enterprise taxation system will be introduced in Japan for tax years after April 1 2004, where a corporation will be taxed based on the size of its businesses measured by the value added, its capital, and its income. Under the new taxation system, a corporation with a tax loss will have to pay local enterprise tax. The new system is briefly summarized as follows.
Only corporations with capital of ¥100 million ($832,000) or more will be taxed under the new system. Corporations with capital of less than ¥100 million and other specific enterprises shall be taxed as they have been, under the existing tax system.
The local enterprise tax is the total amount of value added tax, capital tax and income tax.
Value-added tax
The tax rate is 0.48%. The tax base is the total amount of wages, net interest (only positive amount), net rentals (only positive amount) and taxable income for the year before deducting tax loss carried from previous years. If there is a tax loss for the year, the tax loss can be deducted from the total amount of wages, net interest and net rentals.
If a domestic corporation carries out business outside Japan, a certain amount of the value-added items, which is deemed to correspond to the business outside Japan, would be deducted from the tax base.
There is a special measurement for a reduction of the tax base, which may prevent a corporation from cutting wages to reduce the value-added tax.
Capital tax
The tax rate is 0.2%. The tax base is the total amount of capital and capital reserve for tax purposes at the end of the tax year.
If a domestic corporation carries out business outside Japan, a certain amount of capital or capital reserve, which is deemed to correspond to the business outside Japan, would be deducted from the tax base.
For a shareholding company or a corporation with capital in excess of ¥100 billion, there is a special measurement for a reduction of the tax base.
Income tax
The tax base is taxable income. The standard tax rate will be decreased from 9.6% to 7.2% with reduced tax rates at 5.5% and 3.8% applied to lower brackets of taxable income.
Akio Takisaki (akio_takisaki@sney.com), Tokyo
