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National Tax Agency's View on Taxing Foreign Companies Registered in Japan

2023/3/24

The National Tax Agency has compiled a view on whether to impose taxes on foreign companies that have completed registration in response to the issue of overseas IT giants that were not registered in Japan. Under certain conditions, such as when the "representative" in Japan does not have decision-making power in the business, corporate tax may not be imposed.

Some overseas IT companies have avoided registering to evade corporate tax liabilities. However, under Japanese law, foreign companies that operate continuously in Japan are required to register their overseas headquarters in Japan. The Ministry of Justice and the Ministry of Internal Affairs and Communications have issued warnings to 48 overseas IT companies for violating registration obligations. By not registering, victims of defamation lawsuits had difficulty obtaining information from offenders. Currently, over 40 companies, including Facebook, Twitter, and Google, have registered. 

However, taxation remains an issue, as many companies have generated profits from Japanese consumers, but are not subject to taxation under the current system. A new taxation method called "digital taxation," which was agreed upon by approximately 140 countries and regions in 2021, may provide a solution. This new method allows taxation even if there is no physical business presence. 

 

 

 

 


Encouraging More Fathers to Take Parental Leave in Japan

2023/3/18

The government is considering increasing the benefits for parental leave to encourage more fathers to take advantage of the system known as "papa care leave." Currently, parental leave only covers a portion of the individual's income, leading to some individuals being hesitant to take advantage of the program.

 

The government is proposing to increase the benefit amount to cover 100% of the income for a certain period, possibly one month. In addition, the government is also considering increasing the benefit amount for men who take papa care leave from 67% to 80% of their income. The government hopes that these changes will make it easier for families to take care of their children and address the issue of declining birth rates in Japan.

 

The government also aims to increase the target rate for fathers taking parental leave from 13.97% in 2021 to 50% in 2025 and 85% in 2030. However, the government has yet to determine how to secure funding for the increased benefits.

he instructed operation.

 

 


METI to Offer Subsidies for Decentralizing Data Centers in Local Areas

2023/3/10

The Japanese Ministry of Economy, Trade and Industry (METI) plans to decentralize data centers that are concentrated in large cities, by offering a 50% subsidy for installation costs to companies that establish centers in local areas. The recruitment for companies will begin in fiscal year 2023, with the aim of reducing the risk of communication disruption during disasters.

 

Currently, 80% of data centers are located in Tokyo and Osaka, and the need to relocate to local areas has been pointed out as a preparation for natural disasters such as earthquakes. A METI official says that government support is necessary to promote decentralization, as data centers tend to concentrate in places where communication and power infrastructure are already in place.

 

The cost to launch a data center is said to be hundreds of billions of yen. The establishment of subsidies aims to develop 2-3 facilities in local areas, with a budget of 45.5 billion yen allocated in the 2023 fiscal year budget. The "national treasury debt burden act" will be utilized to provide subsidies over a period of 4 years, promising measures for the following fiscal year in the budget. The support amount will be determined by examining applications from multiple companies.

 

The development of data centers in local areas is essential for the nationwide expansion of new services such as autonomous driving and remote medical care, which require a short response time to execute the instructed operation.

 

 


Snow Resort Town of Niseko Announces 2% Lodging Tax for Touristsy

2023/3/3

The town of Niseko in Hokkaido, Japan, known for its international snow resort, has announced plans to introduce a lodging tax. The tax aims to be at 2%, similar to Kutchan Town which started collecting the tax in 2019. The tax rate will be added to the accommodation fee and will be used as funds for initiatives such as securing transportation within the town, promoting the use of renewable energy, and reducing environmental impact, such as plastic waste.

 

Niseko has been discussing funding options since 2017, including the implementation of a lodging tax, which was put on hold due to the COVID-19 pandemic. However, discussions resumed as the demand for the snow resort increased with the recovery of foreign visitors. The town aims to establish a self-sustaining revenue source without relying on subsidies to promote sustainable tourism. The lodging tax is expected to generate around 200 million yen in annual revenue.

 

The lodging tax is a local government tax first introduced in Tokyo in 2002. Other cities and towns in Hokkaido, such as Kutchan Town, Otaru City, and Sapporo City, are also considering its adoption.

 


Proposal to Correct '100 million Yen Barrier' with Minimum Tax for Wealthy

2023/2/24

The Japanese government has proposed a bill in the regular parliamentary session that would impose additional taxes on individuals with annual incomes exceeding 3 billion yen in an attempt to correct the phenomenon called the "100-million-yen barrier," where the actual tax burden rate decreases as income increases.

The current income tax system has a progressive tax rate that increases as income rises, with a maximum rate of 45%. However, financial income such as stock sales profits is subject to a flat rate of 15% separate from regular income. As wealthy individuals tend to have more financial income, there has been a concern over the fairness of the tax burden, especially with the phenomenon of a reverse effect where the overall tax burden rate decreases beyond the 100-million-yen income.

The proposed minimum tax would impose a 22.5% tax rate on the amount exceeding 3.3 billion yen, and the difference would be collected if the tax amount is higher than the regular tax amount. The measure is expected to affect only about 200-300 people and generate limited tax revenue. While the minimum tax would improve the fairness of the tax burden, its impact on fiscal health is still considered small. It will be implemented from 2025.


Japan's Debate Over the Family Coefficient Rules: Is It Applicable?

2023/2/17

The family coefficient rules are a method of income tax introduced by France in 1946. It involves combining the income of a family, dividing it by a number of family to calculate the income per person, and then multiplying it by the tax rate. You can calculate income tax of a family to multiple income tax per person by a number of a family. This system is said to provide an incentive to have more children, as households with more children are subject to lower tax rates and pay less tax compared to the progressive income tax system.

Although this system has been proposed by both ruling and opposition parties in Japan, there are issues such as a greater tax reduction effect for single-income households and high-income earners when the entire household has the same income. Additionally, the difference in the rate of non-marital children between France and Japan means that the system may not be applicable in Japan.


Implications for Japan's Labor Market

2023/2/14

Japanese Prime Minister Fumio Kishida has expressed his intention to eliminate the “income wall,” which causes tax and social insurance burdens when income exceeds a certain level, during a parliamentary session on February 1.

The income wall has long been pointed out as an obstacle for people working part-time or temporary jobs, who try to increase their working hours.

The income wall refers to the income level at which the obligation to pay taxes or social insurance premiums arises.

 

There are several stages to the income wall, and when income exceeds 103 million yen, income tax is incurred, and when it exceeds 106 million yen, social insurance premiums are incurred.

When the income exceeds 130 million yen, the obligation to pay social insurance premiums is imposed, and when it exceeds 150 million yen, the special spouse deduction starts to decrease.

The problem with the income wall is that part-time workers may have to adjust their working hours to avoid tax and social insurance burdens, which can lead to a shortage of workers in many companies that employ part-time workers.


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