This is a translation of the Japanese original. The Japanese version is authoritative; figures follow Japanese tax law.
For a small or medium-sized company, the corporate tax (法人税) rate is 15% on the first ¥8,000,000 of annual income and 23.2% on the part above it[NTA No.5759]. That is not the only tax a company pays on its profit. There are also the local corporate tax (地方法人税), the corporate inhabitant tax (法人住民税), the corporate enterprise tax (法人事業税) and the special corporate enterprise tax (特別法人事業税), and for fiscal years beginning on or after 1 April 2026 (Reiwa 8) the special corporate tax for defence (防衛特別法人税) has been added on top. For a company in the 23 wards of Tokyo with stated capital of ¥10,000,000, a profit of ¥4,000,000 comes to ¥965,600 in total, or 24.1% of income, and a profit of ¥15,000,000 comes to ¥4,536,092, or 30.2% (our own calculation). The "effective tax rate of 33.6%" you see everywhere is the rate on the part of income above ¥8,000,000, not the share the whole company pays. Even at a loss, the ¥70,000 per-capita levy still applies. This article takes the taxes on profit apart and shows the actual amounts at each level of profit.
The short answer: the total tax actually paid, by level of profit
| Profit for the year (taxable income) | Total tax | Share of income | Share excluding the per-capita levy |
|---|---|---|---|
| ¥4,000,000 | ¥965,600 | 24.1% | 22.4% |
| ¥8,000,000 | ¥1,959,840 | 24.5% | 23.6% |
| ¥15,000,000 | ¥4,536,092 | 30.2% | 29.8% |
| ¥0 (a loss) | ¥70,000 | - | - |
Our own calculation. The assumptions are one office in the 23 wards of Tokyo, stated capital of ¥10,000,000, 50 employees or fewer, and a fiscal year beginning on or after 1 April 2026. "Profit" is treated as taxable income, and the deduction of the previous year's enterprise tax, loss carry-forwards, tax credits, interim payments and rounding are all ignored.
Up to ¥8,000,000 the bill is roughly a quarter of profit; above that the rate steps up, so the share grows. The shape is the same as personal income tax, but with only two steps the climb is gentle.
Six taxes fall on profit
People say "corporate tax" as if it were one thing. In fact several taxes sit side by side, each paid to a different authority and each calculated on a different base.
| Tax | Rate for a small or medium-sized company | What it is charged on |
|---|---|---|
| Corporate tax (法人税) | 15% up to ¥8,000,000, 23.2% above[NTA] | Taxable income |
| Local corporate tax (地方法人税) | 10.3%[NTA] | The corporate tax amount |
| Special corporate tax for defence (防衛特別法人税) | 4% (with a ¥5,000,000 annual basic deduction)[NTA] | The corporate tax amount minus ¥5,000,000 |
| Corporate inhabitant tax, corporate tax levy (法人税割) | 7.0% (Tokyo, standard rate)[Tokyo] | The corporate tax amount |
| Corporate inhabitant tax, per-capita levy (均等割) | ¥70,000 a year (stated capital etc. of ¥10,000,000 or less, 50 employees or fewer)[MIC] | Stated capital etc. and headcount |
| Corporate enterprise tax, income levy (法人事業税) | 3.5% up to ¥4,000,000, 5.3% up to ¥8,000,000, 7.0% above[Tokyo] | Taxable income |
| Special corporate enterprise tax (特別法人事業税) | 37%[Tokyo] | The income levy of the enterprise tax at the standard rate |
The striking part is that three of these move with the corporate tax amount. Add ¥10,000 of corporate tax and about ¥1,700 follows automatically.
The rate in the law itself is 19%; the 15% on the first ¥8,000,000 is a special measure under the Act on Special Measures Concerning Taxation. It has been extended by two years, to fiscal years beginning on or before 31 March 2027 (Reiwa 9)[NTA]. A company whose average income over the previous three fiscal years exceeds ¥1.5 billion pays 19% even on the first ¥8,000,000, and a fiscal year with income above ¥1 billion is taxed at 17%[NTA No.5759].
The breakdown: the tax computation at ¥4,000,000, ¥8,000,000 and ¥15,000,000
| Tax | Income ¥4,000,000 | Income ¥8,000,000 | Income ¥15,000,000 |
|---|---|---|---|
| Corporate tax | ¥600,000 | ¥1,200,000 | ¥2,824,000 |
| Local corporate tax (10.3%) | ¥61,800 | ¥123,600 | ¥290,872 |
| Special corporate tax for defence (4%) | ¥0 | ¥0 | ¥0 |
| Corporate enterprise tax (income levy) | ¥140,000 | ¥352,000 | ¥842,000 |
| Special corporate enterprise tax (37%) | ¥51,800 | ¥130,240 | ¥311,540 |
| Corporate inhabitant tax, corporate tax levy (7.0%) | ¥42,000 | ¥84,000 | ¥197,680 |
| Corporate inhabitant tax, per-capita levy | ¥70,000 | ¥70,000 | ¥70,000 |
| Total | ¥965,600 | ¥1,959,840 | ¥4,536,092 |
The calculation at income of ¥15,000,000 (our own calculation)
- Corporate tax = ¥8,000,000 x 15% + ¥7,000,000 x 23.2% = ¥2,824,000
- Corporate enterprise tax = ¥4,000,000 x 3.5% + ¥4,000,000 x 5.3% + ¥7,000,000 x 7.0% = ¥842,000
- Special corporate enterprise tax = ¥842,000 x 37% / Local corporate tax = ¥2,824,000 x 10.3% / Corporate tax levy = the same x 7.0%
Note: the source for each rate is the table in the previous section. These are approximations that ignore rounding and the deduction of the previous year's enterprise tax.
The local taxes alone - enterprise tax, special corporate enterprise tax and inhabitant tax - make up around 30% of the total. Plan your cash flow around the corporate tax alone and you will come up short.
The special corporate tax for defence: zero for most small companies, but the return is still required
For fiscal years beginning on or after 1 April 2026, a return and payment for the special corporate tax for defence (防衛特別法人税) is required in addition to corporate tax and local corporate tax[NTA, payment procedures for the special corporate tax for defence].
| Item | Content |
|---|---|
| Tax amount | (base corporate tax amount - basic deduction) x 4% |
| Basic deduction | ¥5,000,000 a year (pro-rated by month if the fiscal year is shorter than 12 months) |
| Scope | Each fiscal year beginning on or after 1 April 2026 |
| Filing deadline | As a rule, within two months of the day after the end of the taxable fiscal year |
| When the tax is ¥0 | The filing obligation remains (a nil return is required) |
Source: National Tax Agency, "Outline of the Reiwa 7 revisions to corporate tax legislation"[NTA]
Because the basic deduction is ¥5,000,000 a year, a company with a corporate tax bill of ¥5,000,000 or less pays nothing. Working back from the rates for small and medium-sized companies, the burden only begins somewhere above roughly ¥24,000,000 of income (our own calculation). That is why every figure in the table above is zero.
Even at zero, the boxes on the return have to be filled in. That is one more job at the year end. The Ministry of Finance puts the effective corporate tax rate at 30.64% for companies that do fall within this tax[MOF].
There are three different numbers called the "effective tax rate"
Search and you will find 29.74%, 33.6% and 24% side by side. None of them is wrong. They simply use different definitions.
| Number | What it measures | Which companies it fits |
|---|---|---|
| 29.74% | The effective corporate tax rate the Ministry of Finance publishes for international comparison[MOF] | Companies with stated capital above ¥100,000,000 that are subject to pro-forma standard taxation. Their enterprise tax income levy is only 1.0%, which makes them a different animal from a small company |
| 30.64% | The same rate with the special corporate tax for defence on top[MOF] | The same companies, where the special corporate tax for defence applies |
| 33.6% | The effective rate for a small or medium-sized company calculated from the individual rates (allowing for the enterprise tax being deductible in the following year) | The part of income above ¥8,000,000 for a Tokyo company with stated capital of ¥10,000,000 (our own calculation) |
| 24-30% | Total tax paid that year divided by income | The calculation in this article: 24.1% at income of ¥4,000,000, 30.2% at ¥15,000,000 |
33.6% and 24-30% can both be true at once. 33.6% is the rate on the next yen of profit; 24-30% is the share of this year's income that goes out as tax. The part up to ¥8,000,000 is taxed at lower rates, so averaged over the whole the share falls.
Note also that the formula for the effective tax rate is not written into any statute[MOF]. Treat it as a guide and confirm what you owe on the return itself. For the wider picture, see taxes on companies.
If your company is not in Tokyo: the 7.0% corporate tax levy, the per-capita levy and the three enterprise tax bands are the standard rates used nationwide[MIC]. Some municipalities levy above the standard rate, so check the official site of your own city or ward. In Tokyo the higher 10.4% rate applies only to companies with stated capital above ¥100,000,000, or a corporate tax bill above ¥10,000,000 a year[Tokyo].
The ¥70,000 per-capita levy applies even at a loss
With no profit, the corporate tax, local corporate tax, special corporate tax for defence, corporate tax levy and enterprise tax all come to zero. The per-capita levy still applies. The Tokyo Metropolitan Bureau of Taxation states plainly that "the per-capita levy is charged according to the amount of stated capital etc. and the number of employees, regardless of the result of the accounts"[Tokyo]. With stated capital etc. of ¥10,000,000 or less and 50 employees or fewer, it is ¥20,000 to the prefecture plus ¥50,000 to the municipality, ¥70,000 a year[MIC]. It arises every year for as long as the company exists, dormant or not. For the detail, see the per-capita levy of the corporate inhabitant tax is ¥70,000 a year even at a loss.
Raise stated capital above ¥10,000,000 but not above ¥100,000,000 and the per-capita levy becomes ¥50,000 to the prefecture plus ¥130,000 to the municipality (50 employees or fewer), ¥180,000 a year[MIC]. Before you pile up capital for appearances, put the extra ¥110,000 of annual fixed cost into the calculation.
What happens to the tax if you pay the profit out as director's remuneration
Director's remuneration is deductible, so the company's income falls and all six taxes above fall with it. But the amount saved does not simply stay in your pocket.
What falls when remuneration rises
- Corporate tax (23.2% on the part above ¥8,000,000)
- Local corporate tax and the corporate tax levy of the inhabitant tax
- Corporate enterprise tax and special corporate enterprise tax
What rises when remuneration rises
- Your own income tax (the rate climbs as income climbs)
- Your own resident tax
- Health insurance and employees' pension premiums (the company's half rises by the same amount)
Social insurance premiums are split between the company and the individual, so raising remuneration raises the company's cost too. You can cut the corporate tax and still end up with less in the household. The best figure depends on the size of the income and on the family, so work it through with what to set director's remuneration at. The choice between staying a sole proprietor and incorporating runs on the same arithmetic; the rules of thumb are in when to incorporate.
Frequently asked questions
I hear the effective tax rate is 33.6%. Do I pay 33.6% of my profit?
No. 33.6% is the rate on the part of income above ¥8,000,000. Below ¥8,000,000 the corporate tax is 15% and the enterprise tax is only 3.5% or 5.3%, so averaged over the whole the share falls. For a Tokyo company with stated capital of ¥10,000,000 it is 24.1% at income of ¥4,000,000 and 30.2% at ¥15,000,000.
Does the special corporate tax for defence apply to my company?
If your corporate tax comes to ¥5,000,000 a year or less, the tax is ¥0, because the basic deduction is ¥5,000,000 a year. Even at ¥0 the filing obligation remains, so a nil return is required. It applies to fiscal years beginning on or after 1 April 2026.
If the company makes a loss, is the tax zero?
Not zero. The per-capita levy of the corporate inhabitant tax is charged regardless of the result of the accounts. With stated capital etc. of ¥10,000,000 or less and 50 employees or fewer it is ¥70,000 a year, and it arises every year even while the company is dormant.
Will a company outside Tokyo pay the same amount?
The 7.0% corporate tax levy, the per-capita levy and the three enterprise tax bands are the standard rates used nationwide, so a municipality on the standard rates gives the same result. Some municipalities levy above the standard rate, so check the actual rates on your own municipality's official site.
Reference links (sources)
- National Tax Agency, No.5759 Corporate tax rates (15%, 23.2% and the statutory 19%)
- National Tax Agency, notice on the revision of the local corporate tax rate (10.3%)
- National Tax Agency, payment procedures for the special corporate tax for defence (when it starts)
- National Tax Agency, Outline of the Reiwa 7 revisions to corporate tax legislation (the 4% rate and the ¥5,000,000 basic deduction)
- National Tax Agency, Outline of the Reiwa 7 revisions to the Act on Special Measures Concerning Taxation (the two-year extension of the 15% rate)
- Tokyo Metropolitan Bureau of Taxation, corporate enterprise tax and corporate inhabitant tax (rate tables for the corporate tax levy and the enterprise tax)
- Tokyo Metropolitan Bureau of Taxation, special corporate enterprise tax (37%)
- Tokyo Metropolitan Bureau of Taxation, frequently asked questions (the per-capita levy applies at a loss; the conditions for the reduced rate)
- Ministry of Internal Affairs and Communications, corporate inhabitant tax (standard rate tables for the corporate tax levy and the per-capita levy)
- Ministry of Finance, comparison of effective corporate tax rates in other countries (29.74% and 30.64%)
Note: the calculations are this site applying the rates above; they are not worked examples published by the National Tax Agency or by Tokyo. For an individual decision, check with the tax office or a tax accountant.
