          
          
                              TAXATION
          
          Taxes in Japan are imposed by national and local 
          governments and can be classified into four groups: income 
          taxes, property taxes, consumption taxes, and transfer of 
          goods taxes.
          
          (1) Taxes on Income
          National Taxes:  Income Tax (Individual Income Tax) and 
          Corporate Tax (Corporate Income Tax)
          Local Taxes:  Prefectural Inhabitants Tax, Enterprise Tax, 
          and Municipal Inhabitants Tax
          
          (2) Taxes on Property
          
          National Taxes:  Inheritance Tax and Gift Tax
          Local Taxes:  Automobile Tax, Mine-lot Tax, Property Tax, 
          Light Vehicle Tax, Special Landholding Tax, Business Office 
          Tax, and City Planning Tax
          
          (3) Taxes on Consumption
          National Taxes:  Consumption Tax (general excise tax), 
          Liquor Tax, Tobacco Tax, Gasoline Tax, Liquefied Petroleum 
          Gas Tax, Aviation Fuel Tax, Petroleum Tax, Local Road Tax, 
          Customs Duty, and Monopoly Profits Tax
          Local Taxes:  Prefectural Tobacco Tax, Golf Course 
          Utilization Tax, Special Local Consumption Tax, Municipal 
          Tobacco Tax, and Bathing Tax
          
          (4) Taxes on Transfer of Goods
          National Taxes:  Bourse Tax, Securities Transaction Tax, 
          Registration and License Tax, Motor Vehicle Tonnage Tax, 
          Stamp Tax, Tonnage Due, Special Tonnage Due, and Promotion 
          of Power-Resources Development Tax
          Local Taxes:  Real Property Acquisition Tax, Hunter's 
          Registration Tax, Automobile Acquisition Tax, Hunting Tax, 
          and Mineral Product Tax
          
          The United States and Japan signed an Income Tax Treaty on 
          July 9, 1972.  This agreement was designed to prevent 
          double taxation from occurring with respect to income 
          taxes.  The Japanese Government reduced personal and 
          corporate income tax rates and introduced an indirect 
          value-added tax (general excise tax) named the consumption 
          tax in April 1989.
          
          Consumption Tax:  The commodity tax was replaced April 1, 
          1989 with a consumption tax of 3 percent, 6 percent on 
          autos.  The consumption tax, intended to broaden the tax 
          base and thereby improve the Japanese Government's ability 
          to respond to growing claims on the national purse in one 
          of the world's fastest aging societies, evoked widespread 
          popular opposition, as it is primarily viewed by consumers 
          as a sales tax.  The impact of the consumption tax on 
          imports into Japan has not been severe, and imports have 
          continued to rise strongly since its imposition.  It is 
          levied at the time of each resale, starting with customs 
          clearance into Japan at which time it is levied on the 
          cost, insurance, and freight (c.i.f.) value plus import 
          tariff.  Most retail sales are also subject to the 3 
          percent consumption tax.
          
          Tax Treatment of Foreign-Owned Firms:  Local branches of 
          foreign firms are generally taxed only on income derived 
          from within Japan, whereas domestic Japanese corporations 
          are taxed on their worldwide income.  Calculation of 
          taxable income and allowable deductions, and payments of 
          consumption tax are otherwise the same as those for 
          domestic companies, with national treatment for foreign 
          firms.  The Corporation Tax Act classifies corporations as 
          either foreign or domestic depending on the location of the 
          head office, without regard to the place of incorporation.  
          The U.S.-Japan Tax Treaty provides for the avoidance of 
          double taxation.
          
          Dividends distributed by a Japanese firm are subject to a 
          20 percent withholding tax.  The tax treaty reduces this 
          tax to 15 percent for U.S.  shareholders.  Interest payable 
          to a nonresident is normally subject to withholding of 20 
          percent, but the tax treaty reduces this to 10 percent, as 
          long as the interest is not attributable to a permanent 
          establishment in Japan.  Royalties and fees paid to a 
          foreign licenser by a Japanese licensee are subject to a 
          normal withholding tax of 20 percent, reduced to 10 percent 
          by the tax treaty.
          
          Rate of Corporation Tax:  As of April 1, 1990, the basic 
          rate of 37.5 percent was established for the national 
          corporation tax.  The rate is 28 percent for firms 
          capitalized at or under 100 million yen and with a taxable 
          income of under 8 million yen.
          
          Capital Gains:  Capital gains from the transfer of real 
          property in Japan are subject to the normal corporation tax 
          (37.5 percent).  In addition, capital gains are subject to 
          the surtax at the rate of 20 percent with regard to gains 
          on transfer of land in Japan possessed for not more than 
          five years (30 percent surtax if less than two years).  
          Capital gains from the sale of securities are subject to 
          the normal corporation tax at the rate of 37.5 percent.  A 
          special tax-exempt provision concerning capital gains on 
          the sale of securities exists in Japan's tax treaty with 
          the United States.
          
          You should contact a U.S. business consulting or accounting 
          firm in Japan for specific guidance on tax issues.  A list 
          is available from the Japan Export Information Center 
          (JEIC) at (202) 377-2425.
          
          
