Introduction
In recent years, the digitalization of tax administration in Japan has rapidly progressed, and there are increasing opportunities to handle payments for corporate tax, consumption tax, withholding income tax, and resident tax online.
However, foreign-affiliated companies' Japanese subsidiaries and branches often receive questions from their overseas parent companies such as "Can we pay taxes online in Japan?" and "Why is a paper payment slip necessary?" On the other hand, the differences between Japan's unique systems of "e-Tax," "eLTAX," and "Pay-easy" can be confusing, leading to practical confusion.
In particular, in Japan, "electronic filing" and "electronic payment" exist as separate systems, and since the response status of banks and the procedures for starting use are also involved, it cannot simply be stated that "payments can be made online."
This article will organize the overall picture of the electronic payment system in Japan, explain the differences between e-Tax, eLTAX, and Pay-easy, the relationship with direct payment, and the points that foreign-affiliated companies should pay attention to in practice.
1. Can electronic payment be made in Japan?
In conclusion, electronic payment is possible for many tax items in Japan.
Currently, online payment can be utilized in Japan through the following methods.
- Internet banking
- Direct payment
- Credit card payment
- Mobile app payment
- Payment via Pay-easy compatible ATMs
However, the methods available vary depending on the tax item and the system used.
Additionally, it is important to note that "electronic filing" and "electronic payment" are operated as separate concepts in Japan.
For example, even if you file corporate tax using e-Tax, it does not automatically complete the tax payment. You need to carry out separate payment procedures such as direct payment or internet banking.
This point is somewhat unclear compared to overseas tax systems and is one of the points that foreign companies are likely to misunderstand.
2. What is e-Tax?
e-Tax is the electronic filing and payment system for national taxes operated by the National Tax Agency.
It allows electronic filing and payment for many national taxes, including corporate tax, consumption tax, and withholding income tax.
The main tax items include the following.
- Corporate tax
- Consumption tax
- Withholding income tax
- Stamp tax
- Liquor tax
- Inheritance tax
- Gift tax
In corporate practice, the use of corporate tax, consumption tax, and withholding income tax is particularly central.
With e-Tax, you can make payments using the following methods after electronic filing.
- Direct payment
- Internet banking
- Pay-easy compatible ATMs
- Credit card payment
- Mobile app payment
However, prior procedures may be required to start using these services, and especially for direct payment, notification to the tax office is necessary.
Additionally, in foreign companies, there are cases where the overseas parent company only uses overseas bank accounts, but Japan's electronic tax payment system is fundamentally based on cooperation with domestic financial institutions. Therefore, if you do not have a Japanese bank account, there may be usage restrictions.
3. What is eLTAX?
eLTAX (ElTax) is the electronic filing and payment system for local taxes operated by the Local Tax Joint Organization.
It is a separate system from e-Tax, which handles national taxes, and mainly corresponds to the following local taxes.
- Corporate inhabitant tax
- Corporate business tax
- Special corporate business tax
- Fixed asset tax (depreciable assets)
- Special collection of individual inhabitant tax
In foreign companies, it is often used for special collection of inhabitant tax related to payroll and for filing corporate inhabitant tax to prefectures and municipalities.
In recent years, a "common payment" system has been introduced, allowing for consolidated processing of local tax payments to multiple municipalities.
This is a very important improvement for foreign companies, significantly reducing the need for creating paper payment slips for each municipality.
In particular, companies with multiple locations see a significant effect on operational efficiency.
4. What is Pay-easy?
Pay-easy is a payment infrastructure that electronically processes payment information for taxes and public utilities.
It is important to note that Pay-easy itself is not a tax filing system.
In practice, there can be misunderstandings that "e-Tax = Pay-easy," but the actual relationship is as follows.
- e-Tax: Electronic filing system for national taxes.
- eLTAX: Electronic tax filing system for local taxes
- Pay-easy: Financial institution payment infrastructure
In other words, the payment information created by e-Tax and eLTAX is processed by financial institutions via Pay-easy.
By using internet banking and ATMs that support Pay-easy, tax payments can be made.
However, it is important to note that the range of support varies by financial institution.
Additionally, overseas banks typically do not support Pay-easy, so it is often necessary for the Japanese entity to manage a domestic bank account.
5. Differences from Direct Payment
In practice, there is a system called "Direct Payment" that is often confused with Pay-easy.
Direct Payment is a method where direct debit is made from a pre-registered bank account through e-Tax or eLTAX.
Since logging into internet banking is not required, it is well-suited for ongoing tax payment operations.
It is particularly frequently used for the following tax items.
- Withholding income tax
- Consumption tax
- Corporate tax
- Special collection of resident tax
When a tax accountant is involved, they can issue payment instructions immediately after electronic filing, which is effective in preventing payment omissions.
On the other hand, prior notification is required to start using it, and it may take a certain period before the first use.
Also, since it is necessary to confirm the consistency of account names and user information, there may be practical restrictions in cases such as accounts in the name of an overseas parent company.
6. Common Misunderstandings in Foreign Companies
Foreign companies often have the following misunderstandings about Japan's electronic tax payment system.
One common misunderstanding is that "if you file electronically, the tax payment is automatically completed."
As mentioned earlier, in Japan, filing and payment can be separate processes, so forgetting to make a payment may result in late payment penalties.
Another common misunderstanding is that "you can pay taxes directly from an overseas bank account."
In reality, Japan's electronic tax payment system is based on the domestic financial institution network, so a domestic bank account is generally required.
Additionally, the understanding that "all taxes are fully online" is not necessarily accurate.
Operations vary depending on the tax item, municipality, and financial institution's support status, and in some cases, paper procedures still exist.
Furthermore, attention is needed regarding the timing of processing on the payment deadline day.
Due to internet banking reception hours and financial institution maintenance, even if you operate on the deadline day, it may not be treated as same-day processing.
7. Practical Points for Foreign Companies
When foreign companies introduce electronic tax payment in Japan, it is important to confirm the following points in advance.
First, it is necessary to establish a management system for bank accounts in the name of the Japanese entity.
In Japan, there is still a high dependence on the domestic bank network, and domestic accounts are central to electronic tax payments.
Next, managing user IDs and electronic certificates for e-Tax and eLTAX is also important.
Particularly during personnel changes or changes in overseas representatives, managing login information often becomes an issue.
Additionally, the design of internal controls for tax payment authority is also important.
If the approval flow from the overseas parent company and the payment deadline management on the Japan side are not aligned, there may be a risk of payment delays.
Furthermore, clarifying the division of roles with tax accountants is also practically important.
If it is not clear "who will file the return," "who will make the payment," and "who will confirm the completion of the payment," there may be cases where management becomes opaque due to digitization.
8. Summary
In Japan, due to the development of e-Tax, eLTAX, and Pay-easy, electronic tax payments are possible for many taxes such as corporate tax, consumption tax, and resident tax.
On the other hand, Japan's system has many characteristics that differ from overseas systems, such as the separation of "electronic filing" and "electronic payment" and a high dependence on domestic financial institution networks.
Especially for foreign-affiliated companies, the unique tax practices in Japan often become an issue in relation to communication with overseas parent companies and internal controls.
Therefore, it is important to not only digitize but also to understand the differences between e-Tax, eLTAX, Pay-easy, and direct payment, and to establish an operational system suitable for the company.
Involving tax accountants makes it possible to efficiently advance the organization of the process from filing to payment, prevent payment omissions, manage authority, and support the introduction of electronic procedures.
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