On April 20, 2020, the cabinet published the “immediate economic measures for Covid-19” (Covid-19 tax measures), which the state parliament passed and which came into force on April 30, 2020. In addition to the Covid-19 tax measures, the Japanese government has also put in place a number of other economic measures. In addition, the National Tax Authority (NTA) regularly issues detailed guidelines for responding to Covid-19.
Overview of the tax measures of Covid-19
The Covid-19 tax measures consist of 11 items, of which the most important ones for companies – specifically Japanese subsidiaries of foreign multinational corporations (MNCs) – are listed below (other measures are individual income tax measures, etc.):
- Grace period for tax payments (generally applicable to taxes at national and / or local level with a few exceptions such as stamp duty and registration tax);
- Expansion of the loss carryforward;
- Small and Medium Business (SMB) tax credit related to the purchase of assets used for teleworking;
- Election or termination of voluntary Japanese Excise Tax (JCT) status;
- Stamp duty exemption;
- Exemption or 50% exemption from taxation of fixed assets.
Additionally, the NTA’s announcements include:
- Details of the application for an extension of the tax return; and
- Guidance on practical issues (e.g. practical treatment in the event that an overseas tax resident is unable to obtain the tax residence certificate required for tax treaty applications due to quarantine measures in the country).
Despite the “Analysis of the tax agreements by the OECD Secretariat and the effects of the Covid-19 crisis” published on April 3, 2020, which concerns the creation of a permanent establishment (PE) due to the current situation, the announcements by the NTA remain silent about the concerns Connection with the creation of a PE in Japan.
Extension of the tax return
For companies affected by Covid-19, an extension of the tax return can be granted, e.g. B. Corporate Income Tax (CIT), JCT, etc. No tax return is required for withholding tax (WHT). However, if a corporate taxpayer is in a Covid-19 affected situation (as described above), the tax payment will be extended until the events that make it difficult for the taxpayer to pay taxes are increased. As a rule, applications to the responsible tax offices are checked on a case-by-case basis. Once such an extension of the tax returns is granted, the tax payment related to the tax returns is automatically extended.
Based on the NTA’s announcement of April 8, 2020 (amended by the NTA’s announcement of July 1, 2020), an extension of the deadlines for filing (and paying taxes) would be possible by adding within two months a Filing a tax return The event cited as the reason for the renewal ends by adding mandatory wording to show that the tax return delay is due to Covid-19.
Examples of events that could be considered reasons for renewal include:
- the inability to maintain the company’s business operations;
- the need to restrict the company’s business; and
- Closing the ledger takes time, making it difficult for the company to meet filing deadlines for the following reasons:
- A director or employee of the company and / or a business contact remain in the house due to discomfort.
- A director or employee of the company and / or a business contact lives in an area where the local government requires an agreement from home on weekdays.
- A director or employee of the Company and / or a business contact will work from home in accordance with the Company’s decision to help prevent disease transmission.
- A director or employee of the company and / or a business contact remain in the house to avoid the epidemic.
Grace period for tax payments
Covid-19’s tax measures provide for a grace period for tax payments for taxpayers suffering from economic difficulties. Such a grace period (usually one year) is granted for tax payments with deadlines between February 1, 2020 and January 31, 2021. No collateral or interest tax payments are required for taxpayers during the grace period.
The conditions for the grace period are as follows:
- The company’s sales have fallen sharply (i.e. sales for one month (in the period from February 2020 to January 2021) have decreased by 20% compared to the same period last year).
- The tax liability is considered difficult to pay at this point (taking into account the inflow of funds and the taxpayer’s cash needs over the next six months).
- The taxpayer applies for the grace period up to the original due date of the tax payment.
Extension of the loss carryforward
Under the current rule, the one-year loss carryforward can only be used by an SME for CIT purposes (or by Chusho Hojin tou – a company: (i) with a paid-in capital of 100 million yen (US $ 947,000) or less (ii) that is not wholly controlled by a company with a paid-up capital of 500 million yen or more).
The scope is expanded to include a company: (i) whose paid-up capital is 1 billion yen or less; and (ii) that it is not fully controlled by a company whose paid-up capital under Covid-19 tax measures is more than 1 billion yen.
SME tax credit – purchase of assets for teleworking
The Covid-19 tax measures provide for a tax credit (7% or 10%) or an instance write-off related to the expenses of certain assets (e.g. for teleworking). This measure is intended for SMEs for the purposes of the Special Tax Measures Act (STMA) (or Chusho Kigyosya tou) – a company: (i) with a capital contribution of 100 million yen or less and a staff of 1,000 or less, and (ii) this is not controlled by any particular large entity (or large entities). A company must get government approval in advance for the investment plan to improve its business.
Choice or termination of JCT Volunteer Taxpayer status
In general, a taxpayer cannot become a voluntary JCT taxpayer unless they submit a tax report expressing their intention to become a voluntary JCT taxpayer prior to the start of the fiscal year in which the taxpayer wishes to become a voluntary taxpayer to become. Once the tax report has been submitted to become a JCT Voluntary Taxpayer, the JCT Taxpayer status cannot be terminated for two years (“Two Year Restriction”).
As part of the Covid-19 tax measures, companies that have seen a sharp drop in sales (i.e. revenue for one month (in the period from February 2020 to January), the permission to file the tax report late as a voluntary JCT taxpayer will be granted in 2021) will decrease by 50 % compared to sales in the same period of the previous year). Additionally, a voluntary JCT taxpayer suffering from such a sharp drop in sales can terminate their voluntary JCT payer status by submitting a tax report by the due date of their excise return regardless of the two-year limit.
Stamp duty exemption
The special loan agreement between banks etc. and companies whose companies have suffered damage due to the Covid-19 situation is not subject to stamp duty.
Exemption or 50% exemption from taxation on fixed assets for SMEs
For SMEs, a 50% exemption from the taxation of fixed assets is available for SMEs for 2021, whose turnover in three consecutive months in the period from February 2020 to October 2020 has fallen by at least 30%, but not more than 50% compared to is the sales for the same three month period last year. If the company’s sales have decreased by 50% or more, an exemption from tax on fixed assets for 2021 is also possible. To benefit from the exemption, the taxpayer must obtain approval from the Business Innovation Support Agency at the Ministry of Economy, Trade and Industry and file the tax return for fixed assets by January 31, 2021.
Edwin Whatley is a partner and Akihiro Kawasaki is an associate at Baker McKenzie, Japan.
This article is for informational purposes only. Nothing in this document is to be regarded as creating an attorney-client relationship, or indeed as a contractual relationship, or as legal or professional advice on any particular matter.
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