Tax Guide for Corporations

Permanently reduced — director remuneration, company housing, travel allowances, entertainment, director retirement benefits. The shift of cost or income is final.
Deferred — the business safety mutual aid scheme, the small-asset write-off, short-term prepaid expenses, depreciation of used assets. Income arises on cancellation or disposal, so decide the exit before you start.

The order to work in: first set director remuneration — it can only be changed within three months of the year start, so the opportunity comes once a year. Then the permanent items (housing, allowances, entertainment). Deal with deferrals only together with their exit: the standard play is to cancel the mutual aid scheme in the year you pay a director retirement benefit, so the income and the deduction cancel out.

29.74% (Ministry of Finance) is the figure for large companies with capital above ¥100 million. It is published for international comparison. Companies subject to size-based business taxation pay an enterprise tax income levy of only 1.0%, so it is a different animal from an SME paying 7.0%. Where the special defence corporate tax applies, the figure is given as 30.64%[Ministry of Finance].

About 33.6% applies only to an SME’s income above ¥8 million. It is calculated from the rates in the table above and is not the average burden across all income. On the same basis, the portion up to ¥8 million works out at about 21.4%.

What you actually pay in a year is 24–30%. As the calculation below shows: 24.1% on income of ¥4m, 24.5% on ¥8m and 30.2% on ¥15m. An effective tax rate builds in the deduction of enterprise tax in the following year, so it is defined differently from "tax paid this year ÷ income". Both sets of numbers can be right at the same time. A breakdown by income level is in the effective corporate tax rate at each profit level.

For fiscal years beginning on or after April 1, 2026, a special defense corporate tax is levied as an add-on based on the corporate tax amount. The amount is "(base corporate tax amount − ¥5 million basic deduction) × 4%," so there is effectively no burden for corporations whose corporate tax amount is ¥5 million or less per year.

How to tell whether it reaches you. At SME rates (15% up to ¥8m, 23.2% above), the corporate tax amount reaches ¥5 million at taxable income of about ¥24.4 million. Below roughly ¥24 million of taxable income, nothing is due.

A return is required even when nothing is due. The defence surtax return is prepared alongside the corporate tax return, so assuming "this does not apply to us" leads to a missed filing. The first year is the March 2027 year end for a March closer, or December 2027 for a December closer. Interim returns start with taxable years beginning on or after 1 April 2027[NTA]. The mechanism and its impact are explained in detail in How the defense tax increase works and its impact on take-home pay.

A sole proprietor pays income tax (up to 45%) ＋ residence tax (10%) ＋ National Health Insurance, so the burden rises sharply as income grows. Once sales and income exceed a certain level, incorporating (going corporate) tends to produce tax-saving benefits. A rough guide is income above ¥6–8 million. For details on the decision, see When to incorporate; for a design that includes social insurance premiums, see Micro-corporations and social insurance premiums.

To treat director compensation as a loss (expense), you must decide the amount within 3 months of the start of the fiscal year and pay the same amount every month (regular fixed-amount compensation). If you change it midyear without reason, the changed portion is not deductible.

An SME picks whichever is better. The non-deductible amount is either (1) entertainment expenses above ¥8 million a year (the fixed-amount deduction limit), or (2) the part above 50% of food-and-drink entertainment. Unless food-and-drink entertainment alone exceeds ¥16 million a year, the ¥8 million allowance wins[NTA No.5265].

Food and drink costing ¥10,000 or less per person is not entertainment expense at all. That threshold applies to spending on or after 1 April 2024; before that it was ¥5,000. But internal meals — meals for directors, employees and their families only — are outside the exclusion and stay in entertainment expenses even at ¥10,000 or less per head. Records must be kept showing the date, the names and relationship of the people entertained, the headcount, the amount, and the name and address of the venue.

Whether you are under ¥10,000 depends on your own consumption-tax accounting. Tax-exclusive accounting means ¥10,000 before tax (¥11,000 including tax); tax-inclusive accounting means ¥10,000 including tax. The same bill can be inside the limit for one company and outside it for another.

The 2024 tax reform extended the measure by three years, so it covers fiscal years beginning on or before 31 March 2027[NTA]. Worked examples are in the ¥8 million entertainment allowance and the ¥10,000-per-head meal rule.

• If you have many B2B transactions: clients often require invoices (qualified invoices), so consider registering early.
• If mainly B2C transactions: general consumers do not care about the purchase tax credit, so you can make the most of the exempt period.
• The 20% special measure ends with the taxable period that includes 30 September 2026: it lets a tax-exempt business that became taxable on invoice registration pay just 20% of its sales consumption tax, and it covers each taxable period containing a day from 1 October 2023 to 30 September 2026[NTA Q&A]. For a September closer that is the year to September 2026; for a December closer, the year to December 2026. The options after it ends are explained in Until when is the 20% special measure? What to do after it ends.
• The 30% measure is not available to companies: the successor created in the fiscal 2026 reform (2027 and 2028 tax years, tax due cut to 30% of sales consumption tax) is for sole proprietors only[NTA]. A company cannot use it whatever its base-period sales, so once the 20% measure ends it must choose between the standard method and the simplified method. How long you can use the 20% measure depends on your year end, so run the numbers early.
• After the 20% measure, the simplified-method election can wait until the filing deadline: normally the election has to be filed by the day before the taxable period starts, but for the period right after one in which the 20% or 30% measure was used, filing by that period's return deadline is enough[NTA]. In other words you can decide after seeing a full year of figures.

80% or 70% is decided by the date the purchase is made. For services, that is in principle the day the agreed work is completed in full. A service received from 21 September, completed on 20 October and paid for on 31 October is calculated at 70%[NTA Q&A Q113-3]. Judging by the payment date gives the wrong answer.

The books have to be relabelled. A purchase under the transitional measure must be marked, for example "80% creditable"; from October the entries become "70% creditable". A symbol with a legend is also acceptable.

The ceiling falls from ¥1 billion to ¥100 million. If purchases from a single unregistered supplier exceed ¥100 million (tax included) in the fiscal year, the excess cannot use the measure. This applies from taxable periods beginning on or after 1 October 2026.

A corporation's losses (net operating losses) can be deducted from future profits for up to 10 years (carryforward deduction). Always file to record early-stage losses. There is also a "loss carryback" system (SMEs only) that carries the current year's loss back to the prior year's profit to receive a refund.