I heard that there is a difference in the method of taxation between a "Japanese branch" and a "Japanese corporation." Tell me about that roughly.

In principle, a Japanese branch is categorized into “foreign corporation” while a Japanese corporation is categorized into “domestic corporation” according to the Corporation Tax Act.

Foreign corporations with a Japanese branch, which is legally separated from the overseas head office and has no judicial personality, bear corporation tax that is taxed only on their domestic source income occurring in Japan. The scope of taxable income depends on whether a foreign corporation has permanent facilities, generally called PE (Permanent Establishment) in Japan. A Japanese branch is deemed as a foreign corporation’s PE.

On the other hand, domestic corporations called Japanese corporations, as typified by joint-stock companies and limited liability companies (LLC) established according to the Japanese laws, bear tax that is taxed on their domestic source income occurring in Japan and on their income earned overseas. So, this is generally called “world-wide income taxation.”

Thus, the method of taxation varies depending on whether you establish a Japanese branch (foreign corporation) or a joint-stock company/LLC (domestic corporation) as a subsidiary. Therefore, it is advisable to consult our expert who is specialized in international tax and accounting before you establish your new office location.