Small Business Tax in Japan Confirm the cited source.

01What corporate tax rates apply to Japanese small and medium enterprises?

Japan's national corporate tax is levied under the Corporation Tax Act (Hojinzeiho, Act No. 34 of 1965) at a standard rate of 23.2%. Corporations whose paid-in capital does not exceed JPY 100 million qualify as small and medium enterprises (SMEs) for tax purposes and access a preferential rate of 15% on the first JPY 8 million of annual taxable income; income above that threshold is taxed at 23.2%. The 15% rate was extended for two further years under Japan's 2025 fiscal-year tax reforms following its originally scheduled expiry on 31 March 2025, so it applies through at least 31 March 2027. One modification introduced in those same reforms: where a company's taxable income exceeds JPY 1 billion, the preferential bracket rate rises to 17% rather than 15%. A qualified tax professional can assess whether a company's capital structure preserves SME eligibility. Japan country overview

02What is the combined effective corporate tax rate for SMEs?

The national corporate tax figure is only part of the total burden. Three additional levies stack on top:

• National Local Corporate Tax (Chiho Hojinzei): 10.3% of the national corporate-tax amount payable, regardless of company size.
• Corporate Inhabitants Tax (Hojin Juminzei): levied by prefectures and municipalities. Standard combined rate approximately 7% of national tax, though metropolitan areas apply slightly higher rates (Tokyo: up to 10.4% combined).
• Enterprise Tax (Hojin Jigyozei): a prefectural income-based tax for SMEs (capital JPY 100 million or below), charged at graduated rates -- 3.5% on income up to JPY 4 million, 5.3% on JPY 4-8 million, and 7.0% on income above JPY 8 million. Enterprise tax is itself deductible for national tax purposes, which reduces the gross-up effect.

Combining these layers, PwC's Japan corporate tax summary (2026) calculates the combined effective statutory rate at approximately 35-39% for SMEs in Tokyo on income in the higher bracket, though the effective rate on the first JPY 8 million -- benefiting from the 15% national rate -- is materially lower, around 22-25% on that income slice. The frequently cited "30-34%" range represents a blended rate across the SME income base including both the reduced and standard brackets.

Source: PwC Worldwide Tax Summaries -- Japan (2026); JETRO Setting Up Business, Section 3.3 (2026). Tokyo rates shown; prefectural rates vary.

03How are sole proprietors (kojin jigyo) taxed in Japan?

Self-employed individuals and unincorporated small businesses operating as sole proprietors (kojin jigyonushi) are not subject to corporate tax. Instead, business profit is treated as business income (jigyo shotoku) and taxed under the progressive national income tax schedule, which runs from 5% on the first JPY 1.95 million up to 45% on income exceeding JPY 40 million. A reconstruction surtax of 2.1% of national income tax has applied since 2013. Local inhabitants tax adds a flat 10% on taxable income plus a small per-capita levy (typically JPY 5,000/year). The combined marginal rate at the highest bracket therefore approaches 55%.

The blue-return system (aoiro shinkoku) allows sole proprietors who maintain proper bookkeeping records to claim a special income deduction of up to JPY 650,000 per year, reducing taxable income before the progressive schedule applies. Qualifying for the full JPY 650,000 deduction requires either: (a) filing the final tax return electronically via e-Tax, OR (b) maintaining qualified electronic books under the Electronic Books Preservation Act, combined in both cases with double-entry bookkeeping (fukushiki boki) producing a profit-and-loss statement and balance sheet. Sole proprietors who file on paper using double-entry bookkeeping receive a reduced deduction of JPY 550,000. A simplified single-entry bookkeeper receives only JPY 100,000. The 2026 Tax Reform Outline proposes raising the top deduction to JPY 750,000 from 2027 for filers using both e-Tax and high-quality electronic books (yuryo na denshi chobo). Blue-return filers may also carry forward net business losses for three years, and can pay actual salaries to family members employed in the business as fully deductible expenses. Consult a qualified tax professional before electing between the blue-return and the default white-return.

04How does Japan's consumption tax affect small businesses?

Japan's consumption tax (shohizei) is charged at 10% on most goods and services (national rate 7.8% plus local consumption tax 2.2%). A reduced rate of 8% applies to food and non-alcoholic beverages excluding restaurant meals, and to qualifying subscription newspapers. Businesses with taxable sales of JPY 10 million or less during the base period (generally the calendar year two years before the current tax period) are exempt from consumption tax filing obligations and need not remit tax collected. New corporations with paid-in capital exceeding JPY 10 million lose this exemption from inception.

Since 1 October 2023 Japan has operated a qualified-invoice system (tekikaku seikyu-sho hoshiki). To claim an input-tax credit on consumption tax paid on business purchases, a business must hold a qualified invoice issued by a registered qualified invoice issuer. Businesses with taxable sales above JPY 10 million must register; sub-threshold businesses may register voluntarily. For B2B operators, remaining unregistered means customers cannot fully deduct input tax from purchases made from that supplier. Transitional measures ease the adjustment for buyers dealing with unregistered suppliers: 80% of purchase tax is deductible through September 2026, 70% through September 2028, 50% through September 2030, and 30% through September 2031; the credit then reaches zero from October 2031. A separate transitional relief for small businesses that registered voluntarily allows those former tax-exempt entities to calculate consumption tax payable as only 20% of sales tax collected (the "20% rule" / niwaritokurei), applicable October 2023 through September 2026; from October 2026 a successor 2-year measure allows tax payable to be set at 30% of sales tax. Both the registration decision and rate-election strategy warrant review by a qualified tax professional.

For the broader context of taxes on business operations in Japan, see the Japan country overview.

05What are the filing deadlines for Japanese small businesses?

Corporations must file their annual corporate tax return within two months of the fiscal year end. Where a company's articles of association permit a three-month extension for the shareholders' meeting and the company files electronically and uses a certified public tax accountant (zeirishi), the deadline can extend to three months. Estimated tax payments (chukan shinkoku) are due at the midpoint of the fiscal year for companies whose prior-year tax liability exceeded JPY 100,000. Sole proprietors file the final income tax return (kakutei shinkoku) between 16 February and 15 March for the preceding calendar year's income (the 2025 income tax return window ran 16 February to 16 March 2026 because 15 March was a Sunday). Consumption tax annual returns for sole proprietors are due by 31 March following the taxable year. All figures above are based on current NTA guidance; consult a qualified tax professional for entity-specific deadlines.