After establishing a Japanese subsidiary or branch office, what is the tax relationship for consumption tax in the first year?
★ Explanation ★
1. For a Japanese Corporation
There is no base period for the first year of establishment of a Japanese corporation. The term “base period” generally refers to the previous business year. In principle, taxable sales during the base period are examined if it is more than or less than 10 million yen, and whether it is a taxable or tax-exempted company (Consumption Tax Act, Article 9, paragraph 1). If there is no base period, the amount of capital at the start of the establishment’s fiscal year will determine the consumption tax liability. If the amount is 10 million yen or more, it becomes a liable to consumption tax from the first year (Consumption Tax Act, Article 12, paragraph 2, item (i)) onwards.
Conversely, if the capital amount is less than 10 million yen, it will be a tax-exempt company unless it chooses to be liable to consumption tax.
2. For a Japanese Branch
If you set up a Japanese branch within the first two periods of the foreign corporation, there is no base period, so the obligation to pay the consumption tax will be determined by the amount of capital that the foreign corporation had when it was established. It will be a taxable company if the capital, converted into Japanese yen, is 10 million JPY or more; otherwise, unless it voluntarily choses to pay consumption tax, it is not liable to pay consumption tax.
On the other hand, if many years have passed since the establishment of the foreign corporation, it would mean that there is a base period for the Japanese branch: if there are no taxable sales for that period, it becomes tax-exempted.