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Japan has introduced a new documentation preservation regime applicable to specified related-party transactions undertaken in fiscal years beginning on or after 1 April 2026. The provisions in the regime requires taxpayers to obtain or prepare and preserve supplementary documentation where the records already maintained for a covered related-party transaction do not contain the prescribed information concerning the transaction and the calculation of the consideration.

In recent years, with the spread of teleworking and the diversification of international work styles, there has been an increasing number of cases where employees of foreign corporations stay in Japan and continue working remotely. While such work arrangements allow companies to utilize human resources more flexibly, they may also give rise to Permanent Establishment (PE) risks in Japan. The determination of a PE directly affects the attribution of taxing rights in Japan, making proper analysis and appropriate responses essential.

This article explains the impact of the reform of determining a taxable enterprise for consumption tax purposes on foreign owned domestic enterprise and a foreign enterprise for taxable periods beginning after October 2024, based on the amendments.

The implementation of Japan's new VAT invoicing system on October 1, 2023, has caused significant disruptions, particularly for Tax-Exemption Businesses. In this analysis, we will focus on the impact of the Invoicing System on general VAT taxpayers, with a particular emphasis on foreign enterprises. The complexities surrounding foreign currency transactions and invoicing regulations present unique challenges that demand a thorough understanding of the new system.

For the translation of foreign currency transactions and assets and liabilities held in a foreign currency at the end of the fiscal year, the rate used for conversion and the method of conversion for each asset and liability are defined in detail for Japanese tax purposes. Although there have been no major revisions to the tax treatment of foreign currency transactions in recent years, it is necessary to consider the advantages and disadvantages for tax purposes, including the applicability of a special treatment (the so-called “15% rule”) in the event of large fluctuations in exchange rates due to the recent sharp depreciation of the Yen.

When royalties are paid to nonresidents or foreign corporations, withholding tax is generally imposed on the income. The withholding tax on such royalties, may be reduced or exempted by applying a tax treaty, but there are some points that require attention regarding the application and procedures.

1. Foreign corporation with a Permanent Establishment (PE) in Japan 2. Calculation of taxable income. 3. Calculation of corporation tax liability 4. Local taxes 5. Documentation requirements