Tax-Compliance Services are offered to:

1. Japanese Start-up companies in India.
2. Indian Start-up companies in Japan.

Tax-Compliance Services to Japanese Start-up companies in India.

INDIAN TAX REGIME
Taxation System in India
India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies.
Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax. Value Added Tax (VAT), (Sales tax in States where VAT is not yet in force), stamp duty, State Excise, land revenue and tax on professions are levied by the State Governments.
Local bodies are empowered to levy tax on properties, octroi and for utilities like water supply, drainage etc.

Taxes Levied by Central Government

Direct Taxes
Tax on Corporate Income
Capital Gains Tax
Personal Income Tax
Tax Incentives
Double Taxation Avoidance Treaty

Indirect Taxes
Excise Duty
Customs Duty
Service Tax
Securities Transaction Tax

Taxes Levied by State Governments and Local Bodies
Sales Tax/VAT
Other Taxes

Direct Taxes
Taxes on Corporate Income
Companies residents in India are taxed on their worldwide income arising from all sources in accordance with the provisions of the Income Tax Act.
Non-resident corporations are essentially taxed on the income earned from a business connection in India or from other Indian sources.
A corporation is deemed to be resident in India if it is incorporated in India or if it’s control and management is situated entirely in India.

Domestic corporations are subject to tax at a basic rate of 35% and a 2.5% surcharge.
Foreign corporations have a basic tax rate of 40% and a 2.5% surcharge.
In addition, an education cess at the rate of 2% on the tax payable is also charged.
Corporates are subject to wealth tax at the rate of 1%, if the net wealth exceeds Rs.1.5 mn ( appox. $ 33333).

Domestic corporations have to pay dividend distribution tax at the rate of 12.5%, however, such dividends received are exempt in the hands of recipients.

Corporations also have to pay for Minimum Alternative Tax at 7.5% (plus surcharge and education cess) of book profit as tax, if the tax payable as per regular tax provisions is less than 7.5% of its book profits.

Tax Incentives
Government of India provides tax incentives for:-
• Corporate profit
• Accelerated depreciation allowance
• Deductibility of certain expenses subject to certain conditions.

These tax incentives are, subject to specified conditions, available for new investment in
• Infrastructure
• Power distribution
• Certain telecom services
• Undertakings developing or operating industrial parks or special economic zones
• Production or refining of mineral oil
• Companies carrying on R&D
• Developing housing projects
• Undertakings in certain hill states
• Handling of food grains
• Food processing
• Rural hospitals etc.

Indirect Taxes
Excise Duty
Manufacture of goods in India attracts Excise Duty under the Central Excise act 1944 and the Central Excise Tariff Act 1985.
Herein, the term Manufacture means bringing into existence a new article having a distinct name, character, use and marketability and includes packing, labeling etc.

Most of the products attract excise duties at the rate of 16%.
Some products also attract special excise duty/and an additional duty of excise at the rate of 8% above the 16% excise duty. 2% education cess is also applicable on the aggregate of the duties of excise.
Excise duty is levied on ad valorem basis or based on the maximum retail price in some cases.

Recent budget initiatives in this regard are as follows:
Reduction in ad valorem component of excise duty on petrol and diesel from 8% to 6%.
Relief to deserving cases especially job creating sectors: exemption limit for small scale industry (SSI) to be raised from Rs.1 crore to Rs.1.5 crore; to encourage food processing sector, biscuits whose retail sale price does not exceed Rs.50 per kilogram and all kinds of food mixes including instant mixes to be fully exempt; reduction in duty on umbrellas and parts of footwear from 16% to 8%; on plywood from 16% to 8%; biodiesel to be fully exempt.

To provide access to pure drinking water, water purification devices operating on specified membrane based technologies and domestic water filters not using electricity to be fully exempt; exemption on pipes used for carrying water from a water supply plant to a storage facility to be extended to all pipes of diameter exceeding 200 mm used in water supply systems.

Reduction in the rate of duty from Rs.400 per metric tonne to Rs.350 per metric tonne on cement sold in retail at not more than Rs.190 per bag; rate of Rs.600 per metric tonne on cement that has a higher MRP.

Specific rates of duty on cigarettes to be increased by about 5%; duty (excluding cess) on biris to be raised from Rs.7 to Rs.11 per thousand for non-machine made biris and from Rs.17 to Rs.24 per thousand for machine made biris; duty on pan masala not containing tobacco to be reduced from 66% to 45%; withdrawal of exemption for pan masala containing tobacco and other tobacco products given to units in the North Eastern States.

Customs Duty
The levy and the rate of customs duty in India are governed by the Customs Act 1962 and the Customs Tariff Act 1975.
Imported goods in India attract basic customs duty, additional customs duty and education cess.
The rates of basic customs duty are specified under the Tariff Act.
The peak rate of basic customs duty has been reduced to 15% for industrial goods.
Additional customs duty is equivalent to the excise duty payable on similar goods manufactured in India.
Education cess at 2% is leviable on the aggregate of customs duty on imported goods.
Customs duty is calculated on the transaction value of the goods.

Rates of customs duty for goods imported from countries with whom India has entered into free trade agreements such as Thailand, Sri Lanka, BIMSTEC, south Asian countries and MERCOSUR countries are provided on the website of CBEC.

Customs duties in India are administrated by Central Board of Excise and Customs under Ministry of Finance.

Recent budget initiatives in this regard are as follows:
Customs duties:
Reduction in peak rate for non-agricultural products from 12.5% to 10%.

Reduction in duty on most chemicals and plastics from 12.5% to 7.5%; on seconds and defectives of steel from 20% to 10%.

All coking coal irrespective of ash content to be fully exempt.

Reduction in duty on polyester fibres and yarns from 10% to 7.5% and on raw-materials such as DMT, PTA and MEG from 10% to 7.5%; on cut and polished diamonds from 5% to 3%; on rough synthetic stones from 12.5% to 5%; and on unworked corals from 30% to 10%.

Dredgers to be fully exempt from import duty.
To augment irrigation facilities and processing of agricultural products, reduction in duty on drip irrigation systems, agricultural sprinklers and food processing machinery from 7.5% to 5%.

Reduction in general rate of import duty on medical equipment to 7.5%.

To make edible oils more affordable, crude and refined edible oils to be exempt from additional CV duty of 4%; reduction in duty on sunflower oil, both crude and refined, by 15 percentage points.

Reduction in duty on pet foods from 30% to 20%; on watch dials and movements and umbrella parts from 12.5% to 5%; to promote research and development, concessional rate of 5% duty to be extended to all research institutions registered with the Directorate of Scientific and Industrial Research; reduction in duty from 7.5% to 5% on 15 specified machinery for pharmaceutical and biotechnology sector.

Duty of 3% (WTO bound rate) to be levied on all private import of aircraft including helicopters; such import to also attract countervailing duty and additional customs duty.

Duty of Rs.300 per metric tonne to be levied on export of iron ores and concentrates and Rs.2,000 per metric tonne on export of chrome ores and concentrates.

Service Tax
Service tax is levied at the rate of 10% (plus 2% education cess) on certain identified taxable services provided in India by specified service providers. Service tax on taxable services rendered in India are exempt, if payment for such services is received in convertible foreign exchange in India and the same is not repatriated outside India.
The Cenvat Credit Rules allow a service provider to avail and utilize the credit of additional duty of customs/excise duty for payment of service tax.
Credit is also provided on payment of service tax on input services for the discharge of output service tax liability.

Recent budget initiatives in this regard are as follows:
Exemption limit for small service providers to be raised from Rs.400,000 to Rs.800,000.

Extension of service tax to: services outsourced for mining of mineral, oil or gas; renting of immovable property for use in commerce or business (residential properties, vacant land used for agriculture and similar purposes, and land for sports, entertainment and parking purposes & immovable property for educational or religious purposes to be excluded); development and supply of content for use in telecom and advertising purposes; asset management services provided by individuals; design services; services involved in execution of a works contract with an optional composition scheme under which tax will be levied at only 2% of the total value of works contract.

Exemption to: Services provided by Resident Welfare Associations to their members who contribute Rs.3000 or less per month for services rendered, services provided by technology business incubators, their incubatees whose annual business turnover does not exceed Rs.50 lakhs to be exempt for first three years; clinical trial of new drugs to make India a preferred destination for drug testing.

Securities Transaction Tax
Transactions in equity shares, derivatives and units of equity-oriented funds entered in a recognized stock exchange attract Securities Transaction Tax at the following rate:-
• Delivery base transactions in equity shares or buyer and seller each units of an equity-oriented fund - 0.075%
• Sale of units of an equity-oriented fund to the seller mutual fund - 0.15%
• Non delivery base transactions in the above - 0.015%
• Derivatives (futures and options) seller - 0.01%

Sales Tax Acts of various State Governments and Central Sales Act governed the application of Sales Tax/VAT.

Sales Tax/VAT
Sales tax is levied on the sale of movable goods. Most of the Indian States have replaced Sales tax with a new Value Added Tax (VAT) from April 01, 2005. VAT is imposed on goods only and not services and it has replaced sales tax. Other indirect taxes such as excise duty, service tax etc., are not replaced by VAT. VAT is implemented at the State level by State Governments. VAT is applied on each stage of sale with a mechanism of credit for the input VAT paid.

There are four slabs of VAT:-
• 0% for essential commodities
• 1% on bullion and precious stones
• 4% on industrial inputs and capital goods and items of mass consumption
• All other items 12.5%
• Petroleum products, tobacco, liquor etc., attract higher VAT rates that vary from State to State

A Central Sales Tax at the rate of 4% is also levied on inter-State sales and would be eliminated gradually.

Municipal/Local Taxes
• Octori/entry tax: - Some municipal jurisdictions levy octori/entry tax on entry of goods

Other State Taxes
• Stamp duty on transfer of assets
• Property/building tax levied by local bodies
• Agriculture income tax levied by State Governments on income from plantations
• Luxury tax levied by certain State Government on specified goods

Tax-Compliance Services to Indian Start-up Companies in Japan:

How to Set Up Business in Japan
Laws & Regulations on Setting Up Business in Japan

Japanese Business Culture expects foreign companies to establish a Legal Entity in Japan, before they expand business in Japan.

Popular types of Legal Business Entities in Japan are :
1. Representative Office
2. Branch Office.
3. Subsidiary

Representative Office
In Japan, a representative office is not a legal entity to engage in business for profit. Representative office is considered a minimal level of physical presence that a foreign corporation may establish in Japan.
The scope of its activities are limited to those which tend to assist the business operations of its head office such as procurement, advertising, public relations activities, information gathering, market service and so on, but which falls short of actual conduct of such business for profit in Japan.

Branch Office
A branch is a base for a foreign company to engage in business activities in Japan.
The Branch is subjected to Taxation under the Corporation Tax law.
When a foreign corporation establishes a branch in Japan, it has to appoint a Representative Director either a native or a person staying in Japan for long term visa.
Branch also needs to have a business office registered address.

Subsidiary
Under Japanese Company law, there are five types of Companies incorporated in Japan.
1. Kabushiki kaisha (joint stock corporation)
2. Tokurei yugen kaisha(joint stock corporation)
3. Godo kaisha (limited liability corporation)
4. Gomei kaisha(partnership corporation)
5. Goshi kaisha (limited partnership corporation)

The business form which most foreign Investors chose is Kabushiki kaisha(K K). Overview of Corporate Taxes Corporations are subject to :
1. Corporate Income Tax
2. Consumption Tax
3. Witholding Tax

A corporation bears Corporate tax liability on Income under corporate tax laws as follows:
i) Corporation Tax (National Tax)
ii) Enterprise Tax( Local tax)
iii)Inhabitants tax (Local tax)

Personal Income-Tax in Japan.
Taxes in Japan are paid on income, property and consumption on the national, prefectural and municipal levels. Below is a summary of some of the most relevant types of taxes paid by individuals:

Income Tax
Paid annually by individuals on the national, prefectural and municipal levels. Also known as "resident tax" on the prefectural and municipal level. The amount is calculated based on the net income of the individual person.

Enterprise Tax
Prefectural tax paid annually by self-employed individuals engaged in business activities. The amount is calculated based on the person's net income and the type of business.

Property Tax
Municipal tax paid annually by individuals who own land, housing and other types of depreciable assets.

Consumption Tax
Paid by consumers when they purchase goods and services.
The current rate is 5% (4% national, 1% prefectural).
Shops and other service providers are required to include the consumption tax in the prices shown.

Vehicle related Taxes
A prefectural automobile tax is paid annually by individuals who own a car, truck or bus.
In case of passenger cars, the amount is calculated based on the engine displacement.
A municipal light vehicle tax is paid annually by individuals who own motorbikes or other motorized light vehicles.
A national motor vehicle tonnage tax is paid by vehicle owners at the time of the mandatory inspections (shaken).
A prefectural automobile acquisition tax is paid by persons when they acquire a car.

Liquor, Tobacco and Gasoline Taxes
The national liquor tax is paid by consumers when they purchase alcoholic beverages.
National, prefectural and municipal tobacco taxes are paid by consumers when they purchase tobacco products.
A national gasoline tax is paid by consumers when they purchase gasoline.
The liquor, tobacco and gasoline taxes are included in the prices shown by shops.

Income Tax
Income tax is paid annually on income earned during a calendar year.
For tax purposes, people living in Japan are classified into three categories. This categorization is not related to visa types:

Non-Resident
A person who has lived in Japan for less than one year and does not have his primary base of living in Japan.
Non-residents pay taxes only on income from sources in Japan, but not on income from abroad.

Non-Permanent Resident
A person who has lived in Japan for less than five years, but has no intention of living in Japan permanently.
Non-permanent residents pay taxes on all income except income from abroad that does not get sent to Japan.

Permanent Resident
A person who has either lived in Japan for at least five years or has the intention of staying in Japan permanently.
Permanent residents pay taxes on all income from Japan and abroad.

How to pay taxes?
Income tax in Japan is based on a self-assessment system (a person determines the tax amount himself or herself by filing a tax return) in combination with a withholding tax system (taxes are subtracted from salaries and wages and submitted by the employer).
Thanks to the withholding tax system, most employees in Japan do not need to file a tax return.

In fact, employees only need to file a tax return if at least one of the following conditions is true:
• If they leave Japan before the end of the tax year
• If their employer does not withhold taxes (e.g. employer outside Japan)
• If they have more than one employer
• If their annual income is more than 20,000,000 yen
• If they have side income of more than 200,000 yen

Employees, who do not need to file a tax return, will have their national income taxes withheld from their salaries by their employer, and an eventual adjustment is made with the year's final salary.
Prefectural and municipal payments have to be paid separately by the employee upon notification by the municipality.