Both domestic tax laws and the applicable tax treaties are the main sources of international tax law in Japan.

Since Article 84 of the Japanese Constitution states the principle of no taxation except by law, all taxation is calculated according to domestic tax laws such as the Income Tax Act (Act No 33 of 1965), the Corporation Tax Act (Act No 34 of 1965), the Inheritance Tax Act (Act No 73 of 1950), the Consumption Tax Act (Act No 108 of 1988) and the Act on Special Measures Concerning Taxation (Act No 26 of 1957).

In addition, treaties are generally superior to domestic laws, and the applicable tax treaties override domestic rules (Article 98 paragraph 2 of the Japanese Constitution). 

However, domestic tax laws have adjustment provisions, and the provision of the applicable tax treaties is not a direct source of taxation.

In addition, while tax administrative guidance works as an interpretation of domestic tax law and such guidance is significant in practice, it is not a direct source of taxation.

With regard to treaty networks, as of 1 February 2026, Japan had concluded 90 tax treaties, applicable in 157 jurisdictions, designed to avoid double taxation, prevent tax evasion and foster the exchange of information and assistance in the collection of taxes.

The direct source of taxation is domestic tax law.

However, since treaties are superior to domestic laws, according to Article 98 paragraph 2 of the Japanese Constitution, the applicable tax treaties override domestic tax rules, especially regarding tax-resident status and the source rules.

Tax treaties executed by the government of Japan generally follow the OECD Model Convention. There is no significant difference between the OECD model and most of the actual tax treaties.

The Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting came into effect in January 2019. As of 12 November 2025, Japan had adopted most of this treaty and had selected 43 jurisdictions as applicable areas.

Domestic tax laws apply across Japan. However, it is generally interpreted that any distinctions made by foreign governments or international organisations related to questions of public interest are excluded from the area where domestic tax laws apply.

There are no areas to which special tax rules apply territorially within Japan.

Under domestic tax laws, an individual tax resident means an individual having a residence in Japan, or having a dwelling place (a temporary place to stay) in Japan for no less than one year.

However, domestic rules on the tax residence of individuals may be overridden by the rules of the applicable tax treaties, especially where an individual is deemed to be a tax resident in several jurisdictions.

Residents are generally subject to income tax on worldwide income.

However, with regard to residents who do not have Japanese nationality and have had a residence or a dwelling place in Japan for a period not exceeding five years in the most recent decade (non-permanent residents), the taxable income is limited to (i) income other than foreign-sourced income; and (ii) foreign-sourced income that is paid in Japan or transmitted from abroad.

Non-residents are subject to income tax only on domestic-sourced income.

Under the domestic tax law, domestic-sourced income includes the following types of income:

• business income derived from a permanent establishment (PE) in Japan;
• income from the utilisation or holding of assets located in Japan (excluding as stated below);

• income from the transfer of certain types of assets located in Japan (including shares of Japanese corporations in certain situations but excluding income from the transfer of real estate (including leasehold of land) in Japan);

• distribution of profit from a partnership which has a PE in Japan;
• income from the transfer of real estate (including leasehold of land) in Japan;
• consideration for the provision of personal services carried out in Japan;
• rentals from real property, ships and aeroplanes located/registered in Japan;
• interest on bonds or debentures;
• dividends paid by Japanese corporations or investment trusts in Japan;
• interest on loans paid by business operators engaging in Japan;
• royalties from intellectual property in Japan/rentals from movables in Japan;
• wages or compensation in consideration of services carried out in Japan;
• awards received from sales promotional activities;
• annuities from life insurance policies; and
• distribution of profits from a silent partnership (tokumei kumiai).

Domestic source rules may be overridden by applicable tax treaties.

Domestic corporation means a corporation that has its head office or principal office in Japan.

The location of a head office or principal office is determined not by the place of management and control, but by corporate registration. Accordingly, in substance, residence is determined by the governing laws of incorporation.

Japanese tax law provides the following three types of PEs that are consistent with the OECD Model Tax Convention. A service-type PE is not included in the definition of a PE.

Types of Permanent Establishment

Branch type

A branch, factory, or any other fixed place located in Japan is deemed to be a PE, provided, however, that a “representative office” is not considered to be a PE because it conducts only secondary operations, such as information gathering or market research.

Construction-work type

A place in Japan in which a foreign corporation carries out any construction work or supervises a construction work effort for more than one year is deemed to be a PE.

Agent type

An agent of a foreign corporation in Japan who is habitually authorised to execute an agreement, or to conduct significant aspects of contract negotiations, is deemed to be a PE unless the agent is an “independent agent”. An independent agent is one that provides, as part of its ordinary business, certain services to foreign companies.

Exclusions and Priority

Any type of business base mentioned above which has a preparatory or auxiliary nature is excluded from being a PE.

In addition, tax treaties generally override provisions in domestic tax laws that may be contrary to the treaties, so the specific concept of a PE contained in a tax treaty will apply with priority. However, the basic concepts of PEs remain unchanged under most applicable tax treaties.

Tax Treatment

Individual residents

Any income from immovable property such as a rental fee is generally subject to income tax at a progressive tax rate, the maximum rate of which is 55.945% (including 10% local tax).

Corporate residents

Any income from immovable property such as a rental fee is subject to corporate income tax at approximately 30–35% of the flat tax rate (including local tax).

Individual and corporate non-residents

Non-residents are generally subject to withholding on any income from immovable property which is categorised as domestic-sourced income.

However, if a non-resident has a PE in Japan and the income is attributable to this PE, the non-resident is required to report this income. In addition, where that immovable property is real estate or certain types of assets in Japan, non-residents are required to report their income from that immovable property regardless of whether they have a PE, or not.

Such reported income is generally taxed in the same way as it would be for residents.

Individual Residents

Any business income is generally subject to income tax at a progressive tax rate, the maximum rate of which is 55.945% (including 10% local tax).

Corporate Residents

Any business income is subject to corporate income tax at approximately 30–35% of the flat tax rate (including local tax).

Individual and Corporate Non-Residents

If a non-resident has a PE in Japan and the business income is attributable to the PE, the non-resident is required to report this income. Such reported income is generally taxed in the same way as it would be for residents.

In the absence of a PE, business profits are non-taxable unless these profits are categorised as other types of domestic-sourced income that triggers tax reporting or withholding at the time of payment in Japan.

Individual Residents

Passive income is generally subject to income tax at a progressive tax rate, the maximum rate of which is 55.945% (including 10% local tax). Passive income is generally subject to withholding tax and the withheld amount is credited in the calculation of the tax amount in the tax reporting.

However, as an exception, regarding dividends or interests derived from some types of listed securities in a special securities account, an individual taxpayer can select taxation (i) only by withholding at a flat tax rate of 20.315%; or (ii) by separate reporting (plus withholding) at the progressive tax rate or at 20.315% of the flat tax rate, except where the taxpayer is a large shareholder. In addition, interests derived from bank deposits or some types of bonds in Japan are generally only subject to withholding in practice.

Corporate Residents

Any passive income is subject to corporate income tax at approximately 30–35% of the flat tax rate (including local tax). In addition, dividends and interests are generally subject to withholding tax and the withheld amount is credited in the calculation of the tax amount in the tax reporting.

Individual and Corporate Non-Residents

If a non-resident has a PE in Japan and the passive income is attributable to the PE, the non-resident is required to report this income. Such reported income is generally taxed in the same way as it would be for residents.

In the absence of a PE, passive income paid from Japan is generally subject to withholding tax at 20.42% or 15.315%. Such withholding tax may be exempted or reduced by applicable tax treaties.

Individual Residents

Any capital gain is generally subject to income tax at the progressive tax rate, the maximum rate of which is 55.945% (including 10% local tax). With some exceptions, only half of capital gain is taxed if a taxpayer has held the asset for more than five years.

However, capital gains derived from some types of securities, such as shares, are subject to separate reporting at 20.315% of the flat tax rate. In addition, regarding capital gains derived from some types of listed securities in a special securities account, an individual taxpayer can select taxation (i) only by withholding at a flat tax rate of 20.315%; or (ii) by separate reporting (plus withholding).

Furthermore, capital gains derived from real estate (held for more than five years) are subject to separate reporting at 20.315%, or 39.63% of the flat tax rate.

Corporate Residents

Any passive income is subject to corporate income tax at approximately 30–35% of the flat tax rate (including local tax). In addition, dividends and interests are generally subject to withholding tax and the withheld amount is credited in the calculation of the tax amount in tax reporting.

Individual and Corporate Non-Residents

If a non-resident has a PE in Japan and capital gains are attributable to the PE, the non-resident is required to report this income. Such reported income is generally taxed in the same way as it would be for residents.

In the absence of a PE, capital gains derived from some types of assets, such as Japanese real estate or equities meeting some requirements, are taxed as domestic-sourced income.

With regard to capital gains derived from equities (ie, shares or interests), non-residents are briefly subject to taxation in the following cases:

25/5 rules

• If the transferor, including its “closely related parties” as defined under Japanese tax law, held 25% or more of the issued equity of the target company established in Japan at any time during the year of transfer or the two preceding years; and
• If the transferor (including its closely related parties) transfers 5% or more of the issued equity within the same year.

Real property-related company requirements

• If the target company qualifies as a real property-related company (a company whose real estate holdings in Japan or shares in another real property-related company constitute at least 50% of its total gross assets at any point during the 365-day period preceding the transfer); and
• If the transferor (including its closely related parties) held more than 2% of the issued equity of the target company (or more than 5% if the target is a listed company) as of the day immediately preceding the year of transfer.

However, these requirements, especially the “25/5 rules” may be exempt under applicable tax treaties. In addition, a foreign investor investing in Japanese assets through some types of limited investment partnerships (LPs) may benefit from PE and capital gain exemption if the statutory requirements are met.

Individual residents are generally subject to income tax at the progressive tax rate, the maximum rate of which is 55.945% (including 10% local tax). If (i) employment earnings of a permanent resident or a non-permanent resident who has submitted a certain application do not exceed JPY20 million per year; and (ii) other income required for the reporting does not exceed JPY200,000, such an employee will only be subject to withholding tax and need not report. Instead, the employer will be responsible for the calculation and payment of the employees’ taxes. This system, especially the year-end recalculation procedure of the system, is called the “year-end adjustment system” (nenmatsu chousei) of tax payment.

On the other hand, a non-resident is generally only subject to withholding taxes of 20.42% on their salary paid in Japan. The amount of employment income is generally limited to that income attributable to work physically executed in Japan. However, if a non-resident is an executive of a Japanese corporation, the salary paid by the Japanese subsidiary will be categorised as domestic-sourced income regardless of the executive’s actual workplace.

In addition, if a non-resident employee (generally excluding an executive of a Japanese corporation) meets all the following requirements, the non-resident would generally be exempt from taxation in Japan under the applicable tax treaties:

• the individual’s stay in Japan does not exceed 183 days per year;
• the individual’s salary is paid by a foreign corporation; and
• no domestic Japanese corporation is responsible for paying any part of the individual’s salary.

The tax treatment of cross-border income in Japan is generally consistent with the OECD Model Convention. Accordingly, there is no specific type of income not listed above that is subject to special taxation rules in Japan.

The National Tax Agency of Japan (NTA) has announced that a simplified and streamlined approach to taxation will not be implemented for the time being. Based on this, the NTA prepared an FAQ titled “Simplified and Streamlined Approach (FAQ)” summarising the Japanese tax treatment of this approach in June 2025.

In Japan, the framework for Pillar One has not yet been fully developed. However, discussions are ongoing in alignment with the OECD framework.

A global minimum tax system has been introduced.

Specifically, at the first introduction, an Income Inclusion Rule (IIR) was introduced and became applicable to the business year of all corporations starting on or after 1 April 2024. In addition, the Undertaxed Profits Rule (UTPR) and Qualified Domestic Minimum Top-up Tax (QDMTT) have been introduced and are applicable to the business year of corporations starting on or after 1 April 2026.

Japanese legislation on Pillar Two is consistent with the OECD framework.

Specifically, these rules apply to the ultimate parent corporation of a multinational corporate group, the consolidated revenue of which is equivalent to no less than EUR750 million in two or more business accounting years in the four most recent consolidated business accounting years. In addition, there are transitional safe harbours according to the content of country-by-country (CbC) reporting – for example, a de minimis test, simplified effective tax rate test, and a routine profits test.

The earnings of digital services provided by foreign business operators are subject to Consumption Tax, which is equivalent to VAT if the service recipient is located in Japan.

Specifically, where the digital service by foreign business operators is a business-to-consumer (B-to-C) business, such business operators are generally required to report and pay Consumption Tax. Exceptionally, if the digital service is provided through the specified platforms designated by the NTA and the consideration thereof is collected by the specified platforms, the specified platforms are subject to Consumption Tax, instead of the foreign business operators (first type of platform taxation).

On the other hand, in cases where a digital service by foreign business operators is a business-to-business (B-to-B) business, the service recipient is subject to Consumption Tax, instead of the foreign business operators (reverse charge mechanism).

Under domestic tax laws, tax fraud/evasion and tax avoidance are generally understood as follows:

• Tax fraud/evasion: any wilful concealment, in whole or in part, of the non-fulfilment of any taxation requirement.
• Tax avoidance: any abnormal or irregular action taken to reduce tax burden that is not contemplated by the tax laws (an abuse of tax laws).

With regard to tax avoidance, whether anti-general avoidance rules apply would be determined by comprehensive circumstance.

For example, with regard to general avoidance rules applicable to family-owned corporations that are often applied by the NTA, whether any given act or calculation is deemed as unjustified would be determined under the following criteria:

• whether the series of transactions is unusual, for example, the parties use unusual procedures or methods of transactions that would not normally be conducted between unrelated parties, or they use a legal form of transactions that is different from the actual intended economic result of the transactions; and
• whether there is any business purpose or other commercial reason to execute the transaction, other than a mitigation of tax burden.

In addition, with regard to “abuse of tax law” rules which restrict general tax benefit on the taxpayers, a Supreme Court decision dated 19 December 2005, restricted the use of a foreign tax credit on the grounds that the structure in question mitigated taxes by using a foreign tax credit system in a manner that deviated significantly from its intended purpose, and thus prejudiced the resulting tax burden in a way that was unfair. Accordingly, whether a given act by a taxpayer prejudices the fairness of the intended tax burden may be the ultimate criterion used for determining the presence of tax avoidance.

Tax fraud and tax evasion are generally subject to criminal penalties, in addition to tax dispositions.

With regard to tax avoidance, Japanese tax laws have general anti-avoidance rules such as the disallowance of acts or calculations:

• by family-owned corporations;
• in relation to organisational restructuring;
• by corporate groups of the group calculation framework; and
• regarding foreign entity profits that are attributable to a permanent establishment.

Other than these, according to the abuse of tax law rules, tax benefits such as foreign tax credit may be restricted if the actual use of such tax benefits is deemed as abuse of tax law.

Currently, there is no list of non-cooperative or high-risk jurisdictions.

No direct reporting obligations exist in Japan in order to detect and prevent tax fraud, tax evasion and/or tax avoidance. Currently, no reporting obligation of tax planning is required for tax professionals.

However, the Japanese tax authorities collect information that is strategically sensitive for the detection of tax fraud/evasion or tax avoidance, based on tax reporting and statutory reports required under domestic tax law.

The NTA is responsible for the enforcement of national tax law. Specifically, the 12 regional tax bureaus and 524 tax offices under the supervision of the NTA are authorised to impose and collect taxes based on individual addresses or corporate registered offices.

Tax audits by the NTA are generally conducted on a non-compulsory basis. In this case, tax auditors usually visit the office of taxpayers and check book records or evidence thereof. However, unannounced visits or tax audits for the counterparty of the transactions may be made, depending on the attitude of taxpayers or the complexity of the transactions.

In addition, compulsory investigations may be carried out in cases of tax fraud or tax evasion. A criminal investigation group from the regional tax bureau is generally responsible for compulsory investigations.

As a general rule, in cases where a taxpayer fails to report their taxes or fails to pay the tax amount by the due date, the following penalties are levied on such taxpayers.

• Underreporting: the additional tax is 10% of the difference between the unreported and reported taxes (the “reporting difference”) plus 5% of the difference between the reporting difference and the larger of JPY500,000 or the reported tax.
• Failure to file a tax return: the additional tax is 15% of the unreported tax plus 5% of the difference between the unreported tax and JPY500,000.
• Failure to pay withholding tax: the additional tax is 10% of the unpaid amount.

If a taxpayer files a tax return with the correct tax amount (after filing an earlier erroneous tax return) without having predicted a disposition by the tax authority, additional tax is reduced or not imposed according to the situation of the taxpayer.

On the other hand, for tax evasion, the rate of additional tax as a penalty is increased to 35% (in the case of underreported tax or non-payment of withholding tax), or 40% (in the case of non-filing).

In addition, late payment charges are levied on the taxpayer until payment.

The rate of additional tax on unpaid tax is: 7.3% per annum for the period up to the due date or the period up to the day by which two months will have elapsed since the day following the due date; and 14.6% thereafter until the date payment is completed. However, under the current rule, the 7.3% and 14.6% rates are reduced respectively to: 1% plus a certain rate based on the average rate of banks’ new short-term loans; and 7.3% plus the certain rate.

Regarding cross-border transactions, there is no specific tax penalty that is only applicable to cross-border transactions. However, if a taxpayer is required to submit a foreign assets report, whether the assets were already reported in the foreign assets report would affect the rate of additional tax.

In case of tax fraud/evasion where, for example, a taxpayer intentionally fails to file returns to pay the tax amount, criminal penalties may be imposed on the taxpayer.

Specifically, in brief, criminal penalties are levied in the following cases:

• tax fraud/evasion offender – this offender’s behaviour includes deliberate:
1. underreporting;
2. claiming a tax refund;
3. non-reporting; or
4. non-payment of withholding tax; and
• tax obligation offender – this offender’s behaviour includes deliberate:
1. late reporting without reasonable reason;
2. submission of false records or non-submission; or
3. obstruction of a tax obligation.

The scale of penalties differs according to the scale of the offence. However, as a general rule, an individual taxpayer or executive of a corporate taxpayer is sentenced to imprisonment and/or a fine, and a corporate taxpayer also bears fines that run parallel to any individual criminal penalties. For example, where a taxpayer is prosecuted for corporate tax fraud/evasion, the statutory penalty is imprisonment for up to ten years and/or a fine of up to JPY10 million. In addition, if the evaded tax amount exceeds JPY10 million, the fine may be more than JPY10 million, but less than the evaded tax amount.

In the case of tax fraud or tax evasion, a criminal investigation group from the regional tax bureau investigates the taxpayer and files a criminal complaint to the prosecutor. Based on this criminal complaint, the prosecutor decides whether to prosecute the taxpayer, and the judge renders judgement under the relevant criminal provisions.

Parallel to any criminal procedure, unless the taxpayer voluntarily files an amended tax return and pays the amount due, the NTA will issue a disposition to determine the tax amount to be paid by the taxpayer.

Many tax treaties executed by the NTA have relevant provisions with regard to administrative co-operation, including regarding the exchange of information and co-operation with the tax collection authorities.

In addition, based on the OECD’s Base Erosion and Profit Shifting (BEPS) project, the NTA has jurisdiction over the administration of the Multilateral Instrument  (MLI) to implement tax treaty measures related to preventing BEPS, which will come into effect on 1 January 2029.

By an automatic exchange mechanism, the NTA exchanges:

• the financial account information collected according to the Common Reporting Standard (CRS);
• information on Country-by-Country Reporting (CbCR) based on the BEPS project; and
• information collected by statutory reports.

In addition, the NTA provides foreign tax authorities with information about taxpayers, either voluntarily or at the request of foreign tax authorities.

Furthermore, under the Crypto-Asset Reporting Framework (CARF), the NTA started collecting information on crypto-transactions at the beginning of 2026 and will exchange this information with foreign tax authorities.

The NTA has joined the OECD’s International Compliance Assurance Programme (ICAP).

According to the applicable tax treaty, the NTA will execute a mutual agreement procedure (MAP) if a taxpayer who is deemed to be a dual resident is taxed in a way that is inconsistent with the provisions of a tax treaty, in order to mitigate double taxation or adjustment of transfer pricing.

A taxpayer is generally required to submit a MAP request within three years of the first disposition. However, the actual deadline differs according to the applicable tax treaty.

Under many tax treaties executed by the NTA, mandatory binding arbitration is generally available if a MAP ends in failure.

In Japan, three types of advance pricing agreement (APA) are available:

• unilateral APA (an APA only with the Japanese tax authorities);
• bilateral APA (an APA with a MAP between two jurisdictions); and
• multilateral APA (an APA with a MAP among three or more jurisdictions).

A unilateral APA is based on the Commissioner’s Directive on the Operation of Transfer Pricing. On the other hand, the other two types are based on the applicable tax treaties.

According to the announcement on APA statistics, during the period from 1 July 2024 to 30 June 2025, the NTA accepted 280 MAP requests and 194 of these requests were regarding an APA. The announcement also stated that an APA takes an average of 42.4 months until settlement.

Under Japanese tax practice, with regard to international tax matters, a taxpayer can generally confirm a tax position by either:

• a written response to an advanced tax query; or
• a consultation with the relevant tax department/office regarding the specific transaction.

In addition, if the taxpayer is a large enterprise under the jurisdiction of the Special Examiner in the First Large Enterprise Examination Group of the Tokyo Regional Tax Bureau, such taxpayer can confirm their tax position through the Compliance Assurance Programme of Japan (“J-CAP regime”).

In these programmes, responses given or comments made by the NTA are not legally binding. However, as these comments have a de facto binding effect on the NTA unless the underlying facts differ from those submitted by the taxpayer, many taxpayers apply for participation in these programmes.