MARKET FAQ

Start by separating two things. Japanese taxes fall into two broad groups, direct taxes such as corporate tax and indirect taxes such as consumption tax, and you need to work through them separately. 1. Corporate tax: what matters is whether you have a permanent establishment (恒久的施設), usually shortened to PE, in Japan. For a foreign company, whether you have a PE in Japan changes how you are taxed. If you have a PE, Japan has taxing rights over your company. If you do not have a PE, corporate tax is not imposed. A PE is a place in Japan where a foreign company carries on all or part of its business, and it takes four forms. (1) Fixed place of business PE: a branch, an office, a factory or another fixed place of business. (2) Construction PE: construction work lasting more than six months. (3) Agent PE: a person in Japan who repeatedly concludes contracts on your behalf. This applies even where there is no physical office. (4) Service PE: the provision of services, including consulting, for more than 183 days in any 12-month period. Purely investigative, purchasing, information-gathering and storage work, which counts as activity of a preparatory or auxiliary character, does not, in principle, constitute a PE. 2. Consumption tax: if your Taiwanese company supplies cloud services or app subscriptions directly to ordinary consumers in Japan, and its taxable sales in the base period, meaning the year before last, exceed 10 million yen, your Taiwanese company itself registers in Japan and pays consumption tax. This has nothing at all to do with whether you have a PE. Even without a PE, consumption tax and certain items of Japan-source income, including royalties and dividends, may still be taxed in Japan.

Those four forms, and the six-month and 183-day thresholds, all come from the private-sector tax arrangement between Japan and Taiwan. That arrangement was concluded between private-sector bodies on the Japanese and Taiwanese sides. It is not a treaty between the two governments. What most deserves a Taiwanese startup's attention is where Japanese domestic law and the tax arrangement differ. The time thresholds for service PE and construction PE are not the same under the two sets of rules. Two patterns of conduct create a PE under both sets of rules. The first is actually holding the authority to conclude contracts and exercising it repeatedly. The second is placing a warehouse in Japan and actually performing the work there. What decides whether Japan has taxing rights is how your people act in Japan and what activities they carry on there. The starting point is therefore not whether you have registered a company in Japan. It is what they did there and how long they stayed.

1. Take stock of your people and activities in Japan. Does anyone repeatedly conclude contracts in Japan on your behalf? Do you keep a warehouse in Japan and actually ship from it? Does your construction work or consulting service run beyond the applicable time threshold? If any one of these three applies, you need to address the PE issue. You cannot set it aside just because you have not registered a company in Japan. 2. When you judge whether you have a permanent establishment in Japan, what counts is not how many times you go to the space but whether you are free to use it. Going to someone else's office for regular meetings does not, in principle, constitute a PE. Once you have a fixed desk or a dedicated room available to you at any time, the likelihood of being treated as having a fixed place of business PE rises. 3. Calculate consumption tax separately. If your Taiwanese company takes subscription fees directly from ordinary consumers in Japan, check whether its taxable sales in the base period exceed 10 million yen. If they do, registration and payment are your Taiwanese company's own responsibility, and this has nothing to do with whether you have a PE.

Case 1: A Taiwanese startup had neither a Japanese entity nor an office of its own. Its business lead went to a Japanese consulting firm's office on the same day every week and borrowed a meeting room to discuss which distributor to appoint and how to build out logistics. After several months of this, the team began to worry that the office might be treated as its own PE. The conclusion is that, in principle, it is not. For a fixed place of business PE to exist, the place must be one the company is free to use for its business. The team borrowed the room when it needed it, held no authority to decide how it was used, and remained a visitor even though it went every week. Case 2: Another Taiwanese startup, this one in consulting, likewise had no Japanese entity and no office. It put a single employee in charge of the Japanese market and asked the employee to use their home in Tokyo as the base for the Japanese business. The employee agreed, turned one room of that home into an office, and served Japanese clients there every day. The conclusion here runs the other way. That home may be treated as the company's PE. An employee simply working from home does not by itself create a PE. But where the company plans and requests that the home serve as the base for its Japanese business, and core business activities are carried on there on a continuing basis, that place becomes one the company is free to use for its business.

Start by confirming the legal form of your operation in Japan. The relevant statute is Japan's Companies Act, and the rules it sets for dividends from surplus and for distributions of profits apply to companies incorporated in Japan. If you operate through a branch in Japan, sending profits to the head office is an internal transfer within the same Taiwanese company, so these rules do not apply. A subsidiary is a separate Japanese company, the money returns to your Taiwanese parent company as a dividend or a profit distribution, and the Companies Act is the first legal hurdle. 1. Stock company (株式会社, kabushiki kaisha), commonly abbreviated as KK. A dividend from surplus generally requires a resolution of the shareholders meeting, and a resolution of the board of directors may be used in certain cases. The distributable amount rules under the Companies Act apply, placing a statutory ceiling on the amount that may be paid, and that ceiling is calculated under the Companies Act and the Regulations for Corporate Accounting. Where a company distributes more than the ceiling, directors and others may, in certain cases, be liable to make good the excess to the company. 2. A gōdō kaisha is Japan's limited liability company (合同会社), commonly abbreviated as GK. Its investors are called members rather than shareholders, and a member here means a person who has put capital into the company, not an employee. The distributable amount rules that apply to a KK do not apply to a GK. A GK is instead subject to separate restrictions on the distribution of profits, and distributions exceeding profits are subject to certain limits. A GK also has greater freedom than a KK to set out in its articles of incorporation how and when profits are distributed. A profit distribution to members must be distinguished from a return of the capital a member originally contributed. Returning that capital requires a procedure to reduce the amount of stated capital, and capital cannot be returned freely under the guise of a profit distribution. 3. If your Japanese subsidiary is a single-member GK wholly owned by your Taiwanese parent company, a profit distribution requires neither a shareholders meeting nor a board meeting. A decision by the sole member is enough, which makes the procedure substantially simpler than that of a KK.

If your Japanese subsidiary is a KK, the amount it can send back to Taiwan is determined neither by the retained earnings shown in its financial statements nor by the cash it holds. It is determined by the distributable amount calculated under the Companies Act and the Regulations for Corporate Accounting. These are not the same figure, and the distributable amount can be lower. If your subsidiary is a GK, the distributable amount rules do not apply, and you check the restrictions on the distribution of profits and your own articles of incorporation instead. A KK also needs a resolution of the shareholders meeting or the board of directors, and a GK needs a decision by its members. Either way, you complete that step before the money leaves, not afterward.

1. Confirm whether your presence in Japan is a branch or a subsidiary. A transfer from a branch to its head office is an internal transfer within the same legal entity. A subsidiary follows the dividend or profit distribution procedure. 2. If you have a subsidiary, obtain and review its corporate registry records to determine whether it is a KK or a GK. The two are subject to different financial limits and different approval procedures. For a GK, review the articles of incorporation as well, to see how and when profits are distributed. 3. Confirm the ceiling that applies to your form of company. For a KK, calculate the distributable amount. For a GK, confirm the restrictions on the distribution of profits and the relevant provisions of the articles of incorporation. Then complete the resolution or the member decision that your form requires. 4. Handle tax separately. When your Japanese subsidiary pays a dividend or a profit distribution to your Taiwanese parent company, Japanese tax requirements also apply, and some steps must be completed before payment. The applicable rates and procedures are governed by tax law and fall outside these Companies Act requirements.

Case: A Taiwanese startup's Japanese subsidiary, a KK, recorded its first substantial profit in its third fiscal year. The Taiwanese parent company needed funds and wanted the subsidiary to distribute about 50 million yen at the end of the fiscal year, and the subsidiary's accounting team had already begun preparing the bank transfer. Two problems surfaced before the money moved. First, the accounting team had assumed that all retained earnings shown on the books could be distributed, but the distributable amount calculated under the Companies Act was lower than expected. Second, the required shareholders meeting resolution had not yet been adopted. The company halted the transfer, revised the distribution amount to stay within the distributable amount, and adopted the shareholders meeting resolution in writing.

Japan has several sets of rules governing cross-border movements of funds. Depending on the circumstances, banks may require documents showing compliance with those rules before executing a transfer. Three points are particularly relevant to foreign companies. 1. Reporting an outward payment. When your Japanese subsidiary pays a royalty, a service fee or a dividend to your Taiwanese parent company, and the payment is an ordinary current transaction, a report is required for any single payment above 30 million yen. The form is the Report on Payment or Receipt of Payment (支払又は支払の受領に関する報告書), and it goes to the Bank of Japan through your bank. A single payment of 30 million yen or less normally needs no report. 2. Lending and acquiring securities work differently, and the amount alone does not decide the answer. When your Taiwanese parent company lends money to its Japanese subsidiary or acquires securities, the transaction may fall within the rules for capital transactions, inward direct investment or outward direct investment under the Foreign Exchange and Foreign Trade Act. Whether an advance notification or a post-transaction report is required must be checked for each transaction. For example, where a resident acquires securities from a non-resident and the amount exceeds 100 million yen, a Report on Acquisition/Transfer of Securities (証券の取得又は譲渡に関する報告書) may be required. A loan from a foreign parent company to its Japanese subsidiary, however, is not decided by the 100 million yen figure alone. The test requires multiple conditions: (1) the loan term exceeds one year; (2) the outstanding balance of loans from that parent exceeds 100 million yen; and (3) that loan balance, together with the balance of bonds issued by the Japanese subsidiary and held by the parent, exceeds 50 percent of the Japanese subsidiary's total liabilities. These criteria are used to determine whether the arrangement counts as inward direct investment, meaning investment by a foreign investor into a Japanese company. If it does, a separate screening framework applies. 3. The bank wants the documents up front. Under the Foreign Exchange and Foreign Trade Act, the payment report is a post-transaction report. In practice, many financial institutions carry out checks before executing a large outward transfer, as part of their anti-money-laundering work. This applies in particular to any single transfer above 30 million yen, and to dividends, royalties and service fees paid to a parent company. Banks frequently ask for the report itself, together with the underlying contract, the minutes of a shareholders meeting or a written decision of the member or members, as applicable, the invoice, and other supporting documents. There are also cases where the transfer is held until the document check is finished.

Although the law treats this as a post-transaction report, banks incorporate it into a pre-transfer compliance review. Foreign companies can easily misjudge this difference in timing. If the requested documents cannot be assembled promptly, the transfer may be delayed beyond the planned date. Failure to meet the reporting requirement may result in a request to submit the missing report, and may also expose the company to penalties.

1. Before you execute a large outward transfer, it is best to check with your bank which documents it needs. Do not leave the question until the day you want the money to move. 2. For royalties and service fees, retain documentation showing how the amount was calculated. The contract is only one part of the supporting documentation. The bank asks how the rate was set and what revenue base was used to calculate the amount, and an organised calculation schedule or breakdown is frequently needed. 3. For lending and for acquiring securities, check transaction by transaction which framework applies, rather than applying the 30 million yen or 100 million yen figures in isolation. Do not confuse any of this with the advance notification for inward direct investment made at the time of establishment, which is the investment screening you go through on entering Japan, not something attached to each transfer during operations.

Case: A Taiwanese startup's Japanese subsidiary ran its Japanese business using the brand, trademarks and software held by its Taiwanese parent company. As revenue in Japan began to grow, the subsidiary arranged to pay a royalty to the parent company under the licence agreement between them. The amount was about 40 million yen. The company expected to submit a remittance instruction to its bank in the same way as any other overseas payment. The bank immediately asked for the contract, the invoice and the calculation schedule showing what the payment covered, and told the company that a payment report was also required because the amount exceeded 30 million yen. The company had the licence agreement, but it had not organised the basis for the royalty rate or the breakdown showing what revenue base the amount had been calculated from. The bank's review was therefore put on hold, and the transfer took several days to complete. The company eventually submitted the licence agreement, the invoice issued by the Taiwanese parent company to the Japanese subsidiary, a calculation schedule showing the relevant revenue and the royalty rate, and the payment report, and the transfer was executed once the bank had completed its check.

Yes. Even if you earn nothing in your first year, there are two amounts you still have to spend. One is the per capita levy (均等割). This is a tax whose amount Japanese local governments set according to the capital your shareholders paid in and your headcount, and the minimum annual amount in Tokyo's 23 special wards is 70,000 yen. It has nothing to do with whether you make a profit. For budgeting purposes, the taxes your Japanese subsidiary faces can first be grouped according to whether they depend on profit or loss. One group depends on profit: you pay it when the company makes a profit, and it does not arise in a first year that ends in a loss. The other group does not: as long as the company is registered and operating, it arises every year, and the per capita levy belongs to this group. Consumption tax sits outside this grouping. It requires a separate determination based on whether the subsidiary is a taxable business, not on whether it makes a profit. Filing works the same way. You have to file even when you lose money. At the end of each fiscal year you close the books and file, and the deadline is two months after the fiscal year ends. Most companies in Japan outsource their tax filing to a certified public tax accountant (税理士), who files electronically. That process carries a cost of its own.

The amount of the per capita levy is not calculated by the tax authorities from how your business is doing. Two numbers decide it. The first is the amount of stated capital, etc. (資本金等の額), which is the stated capital shown in the corporate registry plus the portion recorded as capital reserve. The second is the number of employees you hire in that locality. The levy moves into a higher bracket once the amount of stated capital, etc. exceeds 10 million yen or headcount exceeds 50. You choose both numbers yourself, so this first-year cost is already fixed before the company starts trading. Capital also affects a second tax threshold. Above 100 million yen, enterprise tax is imposed on a pro forma basis instead, which can put you at a tax disadvantage. Most startups are far from 100 million yen in their first year, but if a future capital increase brings the company above that threshold, it changes your tax cost directly. A separate consumption tax test also uses the 10 million yen capital threshold. The threshold is the same, but the test is different.

1. When preparing your first-year budget, write in the two costs that do not follow your profit and loss. The first is the per capita levy. The minimum annual amount in Tokyo's 23 special wards is 70,000 yen, and it moves into a higher bracket once the amount of stated capital, etc. exceeds 10 million yen or headcount exceeds 50. The brackets differ from one local government to another, so if you place the company outside Tokyo, confirm with the relevant local government which bracket applies to the company. The second is the cost of bookkeeping, year-end accounts and tax filing. The amount depends on the scope of services outsourced, so ask a certified public tax accountant for a quote before you set your stated capital. 2. On the day you set your stated capital, check two thresholds at the same time. One is the bracket for the per capita levy, where 10 million yen of stated capital, etc. and 50 employees are the two boundaries. The other is 100 million yen, above which the method of calculating enterprise tax switches. Record both numbers alongside your incorporation documents in the first year, and refer to them when considering a future capital increase. 3. Put "two months after the fiscal year ends" in your calendar. That is the deadline for closing, filing and payment, and it applies to loss-making years too. Find your certified public tax accountant before your closing date, not after it.

Case: A Taiwanese AI startup entering Japan established a subsidiary with capital of 5 million yen. It put its money into development and marketing first, and the year closed in the red. Its management team had assumed that a loss-making company would owe no tax in its first year. At year-end closing, the metropolitan taxation office sent the company a payment notice for the 70,000-yen per capita levy on corporate inhabitant tax, which took the team by surprise.

Yes. If you set the stated capital of your Japanese subsidiary below 10 million yen, the company is in principle a tax-exempt business (免税事業者) for its first and second fiscal years. A tax-exempt business is one that neither files nor pays consumption tax. Taiwanese parent companies often set the stated capital of a new Japanese subsidiary at a figure such as 9 million yen, so that the subsidiary legally carries no consumption tax burden in its early stages. Since the invoice system started in October 2023, however, companies that sell to other businesses (B2B) are increasingly asked by their customers to issue a "qualified invoice" (適格請求書). This is a prescribed document format that carries a registration number. To issue one, you have to give up your status as a tax-exempt business and register as a taxable business.

Stated capital is not the only gate. There is also the size of your shareholder. If one party holds, directly or indirectly, more than 50% of a newly established company, and that party's own taxable sales exceed 500 million yen, the new company is a taxable business from its first fiscal year, and the amount of stated capital makes no difference. A Taiwanese parent normally holds 100% of its Japanese subsidiary, so the 50% condition is met from day one. What decides whether the subsidiary can be a tax-exempt business is the parent company's own taxable sales. For taxable periods beginning on or after 2024-10-01, the subsidiary is also taxable from its first fiscal year if the parent's total sales, revenue and other income, including amounts earned outside Japan, exceed 5 billion yen. A large Taiwanese parent, particularly a listed company, may therefore fail to qualify for the exemption under this global threshold even if its taxable sales in Japan do not exceed 500 million yen. The second gate is your customers. Staying a tax-exempt business is not always the better deal. If your business is mainly B2B, not registering leads directly to lost deals. If it is mainly B2C, the benefit of exemption is easier to keep. The test is not "staying exempt saves tax" but "whether you register is decided by who your customers are". When negotiating with your first corporate client, whether you can issue a qualified invoice becomes a condition of the deal itself. Make this decision before you enter that negotiation.

1. On the day you set the stated capital, first check whether your Taiwanese parent's own taxable sales exceed 500 million yen. If they do not, set the stated capital below 10 million yen, and the subsidiary neither files nor pays consumption tax for its first two fiscal years. If they do, the amount of stated capital changes nothing, and filing and payment start in the first fiscal year. However, for taxable periods beginning on or after 2024-10-01, also check whether the parent's total sales, revenue and other income, including amounts earned outside Japan, exceed 5 billion yen. Even if the 500-million-yen test is not met, exceeding the 5-billion-yen threshold means filing and payment start in the first fiscal year. 2. Identify who will be paying you. If your customers are mainly general consumers, the benefit of exemption holds and there is no rush to register. If your customers are mainly companies, you will most likely have to register as a taxable business in your first year, and the exemption period you secured will not last long in practice.

Case: A Taiwanese startup providing SaaS to Japanese companies set its stated capital at 5 million yen and started out as a tax-exempt business. After it began delivering the service, a major Japanese client told the company it could not proceed with the contracting process without an invoice registration number. The company applied for registration partway through the fiscal year and chose to become a taxable business. The company took on the obligation to pay consumption tax, but it won the contract.

Yes. One particularly important filing is the Application for Filing the Blue Return (青色申告の承認申請書), and its deadline is easy to miscalculate. The main benefit of filing a blue return is the ability to carry tax losses forward: losses incurred during the startup phase can be carried forward for up to ten years and offset against future profits, bringing corporate tax close to zero. If you do not file this application, your losses from the first fiscal year cannot be offset against future profits. The filing deadline is the earlier of two dates. The first is the date on which three months have elapsed since incorporation. The second is the last day of your first fiscal year. You must file by the day before that earlier date. Another filing that is particularly relevant to foreign companies is the application for an extension of the filing deadline. Filing this application extends the corporate tax return filing deadline from two months after the end of the fiscal year to three months. It extends only the filing deadline, not the payment deadline. You still make an estimated tax payment in the second month, and settle any difference once the final amount is determined.

Post-registration tax filings make a significant difference to a startup operating with limited resources. Most of a startup's spending is concentrated in its early stages, while its revenue arrives later. The blue return system is designed to address this timing gap. It reduces the tax burden associated with early-stage investment. Without it, your early losses cannot be offset against later profits, and you will be taxed on your full taxable profit in your first profitable year.

1. On the day your company's registration in Japan is completed, calculate the deadline for the blue-return application and put it in your calendar. The deadline is based on the earlier of two dates: the date on which three months have elapsed since incorporation, or the last day of your first fiscal year. File the application by the day before that earlier date. If your first fiscal year is shorter than three months, the end of that fiscal year is the relevant date. 2. Submit the application for an extension of the filing deadline at the same time. It extends the corporate tax return filing deadline from two months after the end of the fiscal year to three months. The payment deadline is not extended. Make an estimated tax payment in the second month, and settle any difference once the final amount is determined. If you also want to extend the consumption tax return filing deadline, you must submit a separate Report on the Extension of the Due Date for Filing a Consumption Tax Return. 3. Begin looking for a certified public tax accountant while the registration process is still under way, rather than waiting until it is complete. Post-incorporation filings have tight deadlines. If you wait until the registration is finished, you will most likely be too late.

Case: A Taiwanese startup established a subsidiary in Japan and handled the registration itself without engaging a certified public tax accountant. It appointed a tax adviser four months after incorporation, by which time the deadline for the blue-return application had passed. As a result, the company could not file a blue return for its first fiscal year, and the substantial losses generated by its first-year development and advertising expenses could not be carried forward.

When you do business in Japan, part of the amount you collect from customers represents consumption tax, which must generally be paid to the Japanese tax authorities. Certain smaller businesses are not required to pay it and may retain the amount collected. Such a business is called a tax-exempt business. Your Japanese corporate customers must also account for consumption tax. When doing so, they may deduct the consumption tax included in the amount paid to you. This is called the purchase tax credit. To claim the credit, they need an invoice from you showing your registration number. This is a qualified invoice (適格請求書). You must apply to the Japanese tax office to obtain a registration number. Once registered, your status is that of a business issuer of qualified invoice. Without registration, you cannot issue this invoice. Whether to register depends on your customer mix. It is not merely a tax-planning question. It is also a commercial decision. 1. If most of your customers are Japanese companies, the answer is normally to register. Without registration, your customers cannot claim the purchase tax credit, and their tax burden increases. They may therefore choose not to do business with you, or ask you to reduce your price. 2. If most of your customers are individual consumers, they do not claim the credit and will not ask you for a registration number. Remaining a tax-exempt business is then the greater benefit, because the consumption tax you collect remains in the company. 3. Once registered, your company also becomes a taxable business and assumes consumption tax filing and payment obligations. In other words, you lose your tax-exempt status. You cannot obtain a registration number without assuming the tax obligations that come with it. 4. A temporary relief measure known as the special 20% measure (ni-wari tokurei) is available. A small or medium-sized business that becomes taxable as a result of registration may calculate its consumption tax liability as 20% of the consumption tax it collects. The measure applies only through the taxable period that includes September 30, 2026 (Reiwa 8). 5. After registration, you may also claim the purchase tax credit for consumption tax you pay on your own purchases. Two measures here expire on September 30, 2029. For purchases from a tax-exempt business, 80% of that tax may currently be credited, falling to 50% from October 2026. Eligible smaller businesses may claim the credit for taxable purchases of less than 10,000 yen by retaining the required ledger records alone.

Japanese corporate customers treat the registration number as one of the conditions for doing business. It is not merely a bargaining chip in price negotiations but a threshold requirement for starting discussions. If the customer's accounting team asks for the number halfway through negotiations, you may be left with only two options: rush to register, or walk away from the deal. Remaining tax-exempt does not always result in tax savings. A company whose customers are mainly corporate may instead lose business opportunities by not registering.

1. Start by calculating your customer mix. Determine what percentage consists of Japanese companies and what percentage consists of individual consumers. 2. If your customers are mainly companies, complete the registration before you start contract talks with your first customer. 3. After registration, ask your certified public tax accountant whether the special 20% measure is still available for your current fiscal year.

Case: A Taiwanese game development company published games in Japan. All of its users were individual consumers, so it chose not to register. It was established with stated capital of less than 10 million yen and remained a tax-exempt business for its first two fiscal periods. The consumption tax collected from users remained in the company.

That person may negotiate. That person must not conclude contracts on behalf of your company. You have no subsidiary in Japan and no branch. The salesperson in Japan works for you as an independent contractor, not as your employee. That arrangement by itself does not make you taxable in Japan. The decisive issue is the authority given to that person. If you give that person authority to conclude contracts on behalf of your Taiwanese company and they exercise that authority repeatedly, you run the risk of being treated as having an agent PE in Japan through that person. An agent PE means that the person is treated as your base in Japan. If an agent PE is found to exist, your Taiwanese company will be subject to Japanese corporate tax on the relevant revenue earned in Japan. The party taxed is not the Japanese salesperson. It is your Taiwanese company. Japanese corporate tax will generally be assessed retroactively on the Japanese income attributable to the PE for the preceding five years, or seven years if there has been fraud or other improper conduct. Additional tax for failure to file and late-payment interest will also be added. This is the risk startups run into most easily. You have no company and no premises in Japan, so it looks as though you have nothing there, but one person concluding contracts repeatedly is enough to create the risk. Here is the line. The salesperson in Japan can carry out market research, find customers and provide information. The authority to conclude contracts stays with a person at your head office who is authorized to represent the company or has final approval authority over contracts, and so does the final judgment on whether to sign and on what terms.

Revising your agreement with the local independent contractor is not enough on its own to show that the person cannot close a deal for you. The agreement may state that the person holds no authority to conclude contracts, but if in practice that person negotiates the price with the customer and effectively closes the deal, a tax audit will focus on what happened in practice. Revise the independent contractor agreement, revise the way negotiations actually run, and make the two match. There is no size threshold here. Even one person and one independent contractor agreement can be enough to expose your Taiwanese company to Japanese corporate tax. The process must also be followed consistently over time. Following it for the first contract and then letting it slip defeats the purpose.

1. Set out what the salesperson in Japan does: market research, finding customers and providing information, and no further. Concluding the contract is not that person's work. 2. State in the independent contractor agreement that the person holds no authority to conclude contracts. 3. The judgment on whether to sign and on what terms stays with a person at your head office who is authorized to represent the company or has final approval authority over contracts, and the final signature, including any electronic signature, is made by that person as well. Keep the customer contracts signed by that person, together with other records showing that the process was actually followed.

Case: A Taiwanese company had no Japanese entity and handled its Japanese sales through a single Japanese country manager engaged as an independent contractor. That manager negotiated prices directly with Japanese customers and effectively concluded the contracts. Once the risk of a tax audit was pointed out, the company did two things. It revised the independent contractor agreement to state that the manager held no authority to conclude contracts. It also changed the way negotiations ran, so that the final signature, including electronic signatures, was made by the CEO of the Taiwanese head office. This reduced the risk of being treated as having an agent PE.

You can recover it, and you have plenty of time. A claim can still be made within five years of the date the tax was withheld. When a dividend is remitted out of Japan, tax is generally withheld at a rate of 20.42%. If the Japanese subsidiary files a notification form with the competent tax office before payment, the rate falls to 10% under the private-sector tax arrangement between Japan and Taiwan, which was concluded between private-sector bodies on the two sides rather than as a treaty between the two governments. If the form was not filed, recovering the 10.42% that was over-withheld requires two documents. The first is a certificate of residence issued by the Taiwanese tax authorities, confirming that your Taiwanese parent company is a tax resident of Taiwan. The second is the 外国居住者等所得相互免除法に関する源泉徴収税額の還付請求書, which can be downloaded from the National Tax Agency website. Submit both to the competent tax office to claim a refund of the excess withholding. Dividends are not the only payment for which an advance notification form may be required. Two other ways of paying money earned by the Japanese subsidiary to the Taiwanese parent company are a management services fee and a royalty. A management services fee is what the Japanese subsidiary pays its Taiwanese parent company for management, administrative and sales-support services. A royalty is the licence fee the Japanese subsidiary pays for using the Taiwanese parent company's patents, trademarks, technology or copyrighted works. The withholding rate on royalties under the arrangement is also 10%, and it applies only if the notification form is filed in advance. One further point. These three are options, and the main difference between them is tax. 1. Dividends are paid out of funds remaining after corporate tax has been paid, and withholding tax is then deducted again on payment. 2. Management services fees and royalties are generally deductible by the Japanese subsidiary, reducing its taxable income and therefore its corporate tax liability. The amount cannot be set unilaterally. It must be supportable under transfer pricing rules, which generally require related-party prices to be consistent with the prices that independent parties would agree at arm's length. There is far more detail to that area than fits here.

A notification form filed once does not cover everything that follows. The form you filed for the dividend does not serve as the form you need the next time you pay a royalty. One more point to watch. The excess withholding can be recovered through the refund procedure, but in practice the refund may take several months. That has an effect on cash management.

1. If 20.42% has already been withheld, start by applying to the Taiwanese tax authorities for a certificate of residence. File it with the refund claim at the Japanese tax office. The refund claim may be filed within five years of the date the tax was withheld. 2. Build filing the required notification form before payment into your internal process, and cover payment types other than dividends. A royalty needs its own form for each payment. 3. Before you choose a management services fee or a royalty, prepare a documented basis for calculating the amount, because it will be examined under transfer pricing rules.

Case: A Japanese subsidiary paid a dividend to its Taiwanese parent company for the first time, forgot to file the notification form in advance, and remitted the money with 20.42% withheld. The company then obtained a certificate of residence from the Taiwanese parent company, filed a refund claim, and received a refund of the excess withholding several months later. After that, it also built filing the notification form before every royalty payment into its process.