This is a translation of the Japanese original. The Japanese version is authoritative; figures follow Japanese tax law.
A company in the red does not get a tax bill of zero. The per-capita levy (均等割) of the corporate inhabitant tax is charged as an annual amount set by your capital and your number of employees, whatever your profit. For a company with one office in Tokyo's 23 wards, capital of 10 million yen or less and 50 employees or fewer, it is 70,000 yen a year. For a company in a municipality the standard is the same 70,000 yen, made up of 20,000 yen of prefectural inhabitant tax and 50,000 yen of municipal inhabitant tax. Go over 10 million yen of capital by a single yen and it becomes 180,000 yen; take on a 51st employee and it becomes 140,000 yen. The moment you cross a bracket, the amount jumps. This is the first fixed cost anyone thinking about a micro-corporation or about incorporating should know, so this article sorts out the amounts by bracket, the pro-rating by month in the year of incorporation, how the amount of capital etc. is decided, and what happens when there are several offices, using materials from the Tokyo Metropolitan Bureau of Taxation and the Ministry of Internal Affairs and Communications.
The short answer: the table of per-capita levies. 10 million yen or less and 50 people or fewer means 70,000 yen
| Amount of capital etc. | Number of employees | Tokyo's 23 wards (Tokyo metropolitan inhabitant tax, per year) | Company in a municipality (prefectural + municipal inhabitant tax, standard rates) |
|---|---|---|---|
| 10 million yen or less | 50 or fewer | 70,000 yen | 20,000 + 50,000 = 70,000 yen |
| More than 50 | 140,000 yen | 20,000 + 120,000 = 140,000 yen | |
| Over 10 million up to 100 million yen | 50 or fewer | 180,000 yen | 50,000 + 130,000 = 180,000 yen |
| More than 50 | 200,000 yen | 50,000 + 150,000 = 200,000 yen | |
| Over 100 million up to 1 billion yen | 50 or fewer | 290,000 yen | 130,000 + 160,000 = 290,000 yen |
| More than 50 | 530,000 yen | 130,000 + 400,000 = 530,000 yen | |
| Over 1 billion up to 5 billion yen | 50 or fewer | 950,000 yen | 540,000 + 410,000 = 950,000 yen |
| More than 50 | 2,290,000 yen | 540,000 + 1,750,000 = 2,290,000 yen | |
| Over 5 billion yen | 50 or fewer | 1,210,000 yen | 800,000 + 410,000 = 1,210,000 yen |
| More than 50 | 3,800,000 yen | 800,000 + 3,000,000 = 3,800,000 yen |
In the 23 wards the metropolitan government also charges the municipal part, so it comes as a single amount; in a municipality you file the prefectural and the municipal inhabitant tax separately[Tokyo Metropolitan Bureau of Taxation, rate table for the per-capita levy][Ministry of Internal Affairs and Communications]. The municipal inhabitant tax figures are standard rates, and some local governments raise them by up to 1.2 times by ordinance. The number of employees is the headcount on the last day of the business year, including part-timers, casual staff and directors.
Why it is charged even in the red: the per-capita levy is a membership fee for the area
The Tokyo Metropolitan Bureau of Taxation states plainly that "the per-capita levy is charged according to the amount of capital etc. and the number of employees, regardless of the state of your accounts"[Tokyo Metropolitan Bureau of Taxation, FAQ]. The Ministry of Internal Affairs and Communications explains it this way: the corporate-tax-based portion is paid only by companies in the black, while the per-capita levy has to be paid by loss-making companies too, because it has the character of a membership fee paid as a member of the local community.
Many people assume that a company in the red pays nothing. The accurate picture is the following.
| Tax | In the red | In the black |
|---|---|---|
| Corporate tax and local corporate tax | 0 yen | 15 to 23.2% of income, and so on |
| Corporate inhabitant tax, corporate-tax-based portion | 0 yen | About 7 to 10% of the corporate tax |
| Corporate inhabitant tax, per-capita levy | 70,000 yen and up (charged) | The same |
| Enterprise tax and special corporate enterprise tax (capital of 100 million yen or less) | 0 yen (the tax base is income) | Roughly 3.5 to 7% of income |
Even a dormant company with no sales is normally asked by the local government to file and pay the per-capita levy as long as an office is registered. How a suspension of business is treated differs between local governments, so if you are winding the business down, ask the metropolitan tax office or the city hall how they handle a notice of suspension. Filing one does not automatically bring the levy to zero.
The year of incorporation is pro-rated by month: incorporate in December with a December year-end and it is 5,800 yen
For a business year shorter than 12 months, the levy is "the annual amount x the number of months you had an office / 12". A fraction of less than a month is dropped, and so is any amount under 100 yen. If the whole period is less than one month, however, it counts as one month[Tokyo Metropolitan Bureau of Taxation].
Incorporated on 25 October: 2 months and 7 days, the fraction is dropped to 2 months, 70,000 yen x 2 / 12 = 11,666 yen, so 11,600 yen
Incorporated on 21 December: 11 days, and because the whole period is under a month it counts as 1 month, 70,000 yen x 1 / 12 = 5,833 yen, so 5,800 yen
Within 15 days of incorporation you file a notification of incorporation and establishment with the metropolitan tax office (the city office if you are in a municipality)
Put the other way round, incorporate at the end of a month and even a few days cost you a full month. If you can choose the date of incorporation, the combination with your year-end month changes the first year's per-capita levy by several thousand yen. The full cost of setting up is sorted out in the cost of setting up a company.
The 10 million yen wall: the "amount of capital etc." includes the capital reserve, and cutting capital will not get you under it
The "amount of capital etc." that decides your bracket is the total of (1) capital or contributions and (2) amounts paid in by shareholders that were not booked as capital, such as the capital reserve. On top of that, for business years starting on or after 1 April 2015 there is a floor rule: if that amount is lower than "capital + capital reserve", the figure used is "capital + capital reserve"[Tokyo Metropolitan Bureau of Taxation]. Cutting only the amount of capital etc. under the Corporation Tax Act through a capital reduction without consideration will not move you into a lower per-capita levy bracket.
- Capital of exactly 10 million yen counts as "10 million yen or less" and costs 70,000 yen. From 10,000,001 yen it is 180,000 yen.
- Capital of 5 million yen plus a capital reserve of 6 million yen totals 11 million yen, which is the 180,000 yen bracket.
- The test is the amount on the last day of the business year. Raise capital mid-year and the amount on that last day still decides the whole year.
- The number of employees is the headcount on that last day too, with no pro-rating. In a year when you reached 51 people it is 140,000 yen unless you are back to 50 or fewer on the last day.
Keeping capital under 10 million yen matters for the consumption tax exemption test as well as for the per-capita levy. How to decide it is explained in how much capital you should put in.
Several offices means a levy in each local government. A secondary office's ward costs 50,000 yen
The per-capita levy is charged by every local government where you have an office. With offices in two of the 23 wards, you pay 70,000 yen for the ward of the main office plus 50,000 yen for the ward of the secondary office (the special-ward portion only). With a branch in a city in another prefecture, 20,000 yen of prefectural inhabitant tax for that prefecture and 50,000 yen of municipal inhabitant tax for that city come on top.
If you work from home and have only the registration at a different address, that place is still taxable when it is genuinely used as an office. Conversely, leaving an office with no substance behind because you never moved the registered head office means paying the per-capita levy twice over, year after year.
The minimum cost of keeping a company alive is the 70,000 yen per-capita levy plus your accountant's fee, the employer's share of social insurance and registration costs. Work out how many hundreds of thousands of yen a year you would actually save compared with a sole proprietorship, social insurance premiums included, before you decide. You can run the numbers with the micro-corporation simulator, when to incorporate and whether a micro-corporation lowers your social insurance premiums.
Frequently asked questions
Does a company with no sales at all still pay the per-capita levy?
As a rule, yes, for as long as it has an office. The per-capita levy is set by capital and the number of employees, with no regard for income. If you are not going to carry on, either dissolve and liquidate the company or ask your local government how it treats a suspension of business. Whether a notice of suspension gets the levy waived is up to the local government, and some do not waive it.
If I am the only person in the company (just a director), am I in the 50-or-fewer bracket?
Yes. Even a company with only a director counts one employee, so it is the 50-or-fewer bracket at 70,000 yen (with capital of 10 million yen or less). With zero employees the per-capita levy still does not fall to zero.
When do I pay the per-capita levy?
On the same schedule as the corporate tax return: within two months of the end of the business year, filed and paid to the prefectural tax office and the municipality (in the 23 wards, to the metropolitan tax office only). A company whose business year is longer than six months pays half in advance with an interim return.
Is the per-capita levy a deductible expense?
Corporate inhabitant tax, like corporate tax itself, is not a deductible expense for corporate tax purposes (you book it as taxes and dues, but it is added back in the corporate tax calculation). Enterprise tax is deductible.
Reference links (sources)
This article is based on the materials below. Municipal inhabitant tax rates can differ by ordinance, so please check with the local government where your office is.
Note: this article is general information. The rates for the corporate-tax-based portion and for enterprise tax are approximate; for exact rates, please check your local government's rate table.
