Introduction
When a foreign company establishes a Japanese corporation, it is often thought that the declaration and payment of corporate tax and consumption tax are completed only at the time of settlement. However, in Japan, there is a system for corporations of a certain size or larger that requires tax payments during the business year, known as the "interim declaration and interim payment system."
Interim payments are a system introduced to smooth out tax burdens and stabilize tax revenues for the national and local governments, and corporations that meet certain criteria must comply with this every year.
Especially for foreign-affiliated companies, it is common for headquarters to manage funds and cash management globally, and there are not a few cases where overlooking the interim payment of the Japanese corporation leads to payment delays or cash shortages.
This article explains the interim declaration system in Japan, focusing on corporate tax and consumption tax, including an overview of the system, the corporations subject to it, calculation methods, and points to note.
1. What is the interim declaration system?
The interim declaration is a system for calculating the tax amount during the business year and making a payment of a certain amount.
Typically, corporate taxes in Japan are settled and paid after the end of the business year, but corporations with a certain amount of tax payment history from the previous year are obligated to make tax payments during the year.
The main taxes subject to the interim declaration system are as follows.
・Corporate tax
・Local corporate tax
・Corporate resident tax
・Corporate business tax
・Special corporate business tax
・Consumption tax and local consumption tax
Since the criteria and calculation methods for each tax item differ, it is necessary to check each one individually.
2. Interim Corporate Tax Declaration
An interim corporate tax declaration is generally required when the corporate tax amount (standard corporate tax amount) for the previous business year exceeds 200,000 yen.
The declaration deadline is within two months from the date that is six months after the start of the business year.
For example, in the case of a company with a March fiscal year-end,
・April Start of the business year
・September Six months after the start of the business year
・End of November Deadline for interim declaration and payment
will be.
There are two methods for the interim corporate tax declaration.
The estimated declaration is a method of payment based on half of the corporate tax amount from the previous year, which many companies adopt.
On the other hand, in the interim declaration based on a provisional settlement, the actual settlement is conducted at the interim point, and the tax amount is calculated based on the income for that period.
If performance has significantly worsened compared to the previous year, choosing a provisional settlement may help reduce the tax amount.
3. Interim Consumption Tax Declaration
There is also an interim declaration system for consumption tax.
Whether it applies is determined by the national consumption tax amount from the previous taxable period.
If the national consumption tax amount exceeds a certain amount,
・Once a year
・Three times a year
・Eleven times a year
one of these interim declarations will be required.
In general, medium-sized enterprises often have once a year or three times a year, but larger companies may have interim payments every month (eleven times a year).
Since consumption tax has a nature of being a deposit, the tax amount can easily become large, and it is not uncommon for the interim payment amount to be high.
In foreign-affiliated companies, the obligation for interim payments may suddenly arise from the following fiscal year after a rapid expansion of sales by the Japanese corporation, making prior financial planning important.
4. If the interim declaration is not made
If the declaration and payment are not made by the interim declaration deadline, there is a possibility of incurring late payment tax.
Additionally, if the unpaid status continues, the tax office will issue reminders, which poses a financial management risk.
On the other hand, the tax amount from the interim declaration is merely a provisional payment, and the difference from the final tax amount will be settled during the final declaration at the time of settlement.
If the interim payment amount exceeds the final tax amount, it will be refunded or applied, and if it is insufficient, additional payment will be made.
5. Points for foreign-affiliated companies to be aware of
In foreign-affiliated companies, the financial management of the Japanese corporation is often handled collectively by the overseas parent company.
Therefore, if the unique interim payment system in Japan is not fully understood, there are cases where the head office cannot arrange funds in time and requests remittance just before the payment deadline.
Additionally, overseas remittances may take several business days, which also poses a risk of not meeting the payment deadline.
Furthermore, if the performance of the Japanese corporation has significantly worsened compared to the previous year, choosing the estimated declaration may temporarily lead to excessive tax burdens, putting pressure on cash flow.
In such cases, considering an interim declaration based on a provisional settlement may also be effective.
Linking the overall group cash management with the tax payment schedule of the Japanese corporation can lead to improved fund efficiency.
6. Points for Properly Managing Interim Tax Returns
The interim tax return system is likely to continue occurring every year once it becomes applicable.
Therefore, it is important to incorporate not only the financial closing schedule but also the interim tax return and payment deadlines into the annual schedule, and to secure tax payment funds in advance.
Additionally, since the systems and filing deadlines differ for corporate tax, consumption tax, and local taxes, it is necessary to manage each tax item individually.
In recent years, the use of electronic filing and electronic payment through e-Tax and eLTAX has become common, and it is also possible to streamline payment procedures by utilizing direct payments and internet banking.
In cases of large tax amounts or significant fluctuations in performance, it is advisable to consult a tax professional early and choose the optimal filing method.
Summary
Japan's interim tax return and interim payment system is an important system that applies not only to corporate tax but also to consumption tax and local taxes. In particular, foreign-affiliated companies may experience issues with payment deadlines and cash flow due to a lack of coordination with headquarters-led fund management.
Since the obligation for interim payments arises based on the previous year's tax payment results, it is essential to have a financial plan that considers not only the period after the financial closing but also the tax payment schedule for the following business year. Additionally, if there are significant fluctuations in performance, interim tax returns based on provisional settlements may also be an option. For foreign-affiliated companies to operate stably in Japan, it is important to correctly understand Japan's unique tax system and establish an appropriate tax management system.
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