Being aware of tax systems in countries that a company is active in, can be seen as crucial. Filing in the tax documents too late can result in fines or even bad annotations. But for each country, in this case Japan, Germany and the Netherlands, there are certain differences in filing taxes and the tax systems overall. In this article several aspects of corporate taxes will be highlighted in the three respective countries as well as the VAT systems. This article was written to give the reader a short overview of the corporate tax systems in these three countries but is not an advice. For the purpose of this article, governmental websites and professional websites have been consulted to provide relevant data.
Tax bureaus and filing
The Japanese Tax bureau in Japan is called the National Tax agency (国税庁), where filing individual taxes can be done in three ways: Sending your tax return via mail or correspondence delivery service to the local tax office in your area - Bringing your tax return to the Tax office that has jurisdiction over your place for tax payment - Filing the tax return online through E-tax. The filing can be done on the website of the Japanese taxation office (only in Japanese) and can be done 24/7 till the due date. The tax Bureau in the Netherlands is called the Belastingdienst (Dutch Tax office), where filing goes through their online website or one can hire a tax advisor. In Germany the Tax office is called: Bundeszentralamt für Steuern which is literally translated to Federal Central Tax office. However, companies and such will not send their tax filings to this federal bureau. Instead, they will file their taxes with the Finanzamt: local tax offices that are divided in municipalities in Germany. Certain filing documents can be downloaded from the website of these local tax offices. Eventually, they need to be filed and send to the local tax office near the company in Germany. Natural/Legal persons with trade income are obliged to file their tax returns electronically through a special electronic portal called Elster. The difference between these countries concerning tax filing is that Japan and Germany maintain local tax offices, whereas the Netherlands controls its taxes through one tax office. This might be because of the size of the countries, Netherlands being much smaller in size and population in contrast to Germany and Japan.
Profits earned by German businesses are subject to corporate income tax (Körperschaftsteuer) and trade tax (Gewerbesteuer). The German trade tax is not set at a federal level and comes under authority of local governments. These local authorities are divided by municipalities in Germany. For each municipality within Germany a different tax rate is levied on the profits of the German corporate residents. This municipality tax rate is called Hebesatz in Germany and will determine the total rate of the trade tax that will be levied. The German trade tax is local German corporate income tax for any natural or legal person that has a company with trade income in Germany. Overall, the trade tax rate in Germany is determined by a combination of a uniform tax rate of 3.5% and the tax rate of a municipality (Hebesatz) where the company is effectively managed. It is said that municipalities with a minimum of 80,000 inhabitants impose a trade tax rate between 12.6% (which means a Hebesatz of 360%) and 20.3% (Hebesatz of 580%). The corporate income tax rate in Germany is determined by a uniform tax rate of 15%, which is then subject to a solidarity surcharge of 5.5%. Making the corporate income tax rate in Germany a total of 15.825%. This so-called solidarity surcharge was meant to finance the reunification of Germany after the Cold War but is currently in dispute whether this surcharge is still needed and if it should be abolished. Currently this surcharge is levied on corporate income, income and withholding taxes in Germany.
VAT (Value added tax)
Just like the Netherlands, Germany is subject to the VAT under the common system of the EU with a standard rate (in Germany) of 19%. The reduced rate, which is 7%, is levied on certain books, certain foods, certain transports etc. Eventually, the taxpayer has to deduct the VAT that is charged on the inputs from that payable on outputs. There are certain deliveries or supplies, mainly in the financial sector, which are exempt from the VAT. Furthermore, an entrepreneur that delivers supplies of goods and services with a turnover (plus applicable tax from the previous calendar year) that did not exceed €17,500 and will not exceed €50,000 in the current calendar year, is not obliged to file VAT. The VAT is an annual tax, and with each calendar year each tax payer is obligated to file an annual return which must agree with the total of the monthly or quarterly returns. If this is not the case, the local tax office can demand a detailed explanation for this issue.
Compared to Germany, Japan also has different kinds of corporate taxes which are both paid to local tax offices and the national tax office. The corporate tax, a national tax, is for any domestic and subsidiaries of foreign countries levied by the National Tax Agency in Japan. The corporation taxation level may vary between 15% up to 23.2%, depending on the annual net business income of the company. For corporations, the total tax burden may vary between 22.46% to 36.81% as effective rates. But this can depend on certain factors like capital, employees, place of business registration, geographical spread of offices and manufacturing plants nationwide and total taxable income. The first one is the national local corporate tax, which need to be paid by the corporate tax payers since the 1st of April 2018. The fixed rate for this tax is 10.3% and needs to be filed and paid over the corporate tax liabilities. The second tax is the standard enterprise tax, which is levied on the corporate’s income. The rate of this tax depends on the prefecture the corporation is located in. As of October 2019, the local corporate special tax will be replaced by the standard enterprise tax. The third is the size-based enterprise tax, which is applied when the paid-in capital of a company exceeds 100 million Japanese yen at the end of the fiscal year. The additional amount of tax payable is determined by the capital of the company and the size of a corporation’s personnel costs. And as of October 2019, also the local corporate special tax will be replaced with an increase by the size-based enterprise tax. Lastly, the inhabitant’s tax, a local tax with a standard rate of 3.2% for the prefectural tax and a 9.7% tax rate for the municipal tax (but these rates are expected to increase in October 2019).
In Japan the VAT system that is maintained is called the consumption tax. This consumption tax is a national tax which is levied against the volume of business and through self-assessment. Import transactions (foreign cargo that was retrieved from a foreign zone) and Domestic transactions (the transfer of rental/lease of assets or the provision of services as a business in Japan by an enterprise for consideration) are subject to consumption tax in Japan. In Japan the consumption tax system has a tax rate of 8% (with a national rate of 6.3% and a national rate of 1.7%). The reduced rate, the 8%, will be applied to sales of food and beverages (except alcoholic drinks, dining out and sales of newspapers that are published more than twice a week). In April 2017, the reduced consumption tax rate was expected to rise to 10% but was delayed because the government of Japan feared that this change would have a negative impact on Japan’s economy. The 10% of consumption tax can be expected in October 2019.
In the Netherlands the corporate income tax is paid over profits by public and private companies. Foundations and associations, in certain circumstances, also need to file corporation tax returns. Certain legal entities, such as tax investment institutions and legal entities that make collective investments, are exempt from corporation tax. The taxable amount is the deciding factor in calculating the corporation tax rate. The tax rate is 20% when the taxable amount is less than €200,000. When the taxable amount is €200,000 or higher, the tax rate is 25%, which is the standard corporate income tax rate. The new coalition in the Netherlands proposed to lower the standard corporate income tax rate per year with approximately 1%. The same goes for the lower corporate income tax rate, however, no legislative proposals have been submitted yet. The innovation box covers the reduced rate that is applied to activities. To encourage innovative research, this innovation box has been created to provide tax relief. A special rate applies then, which is taxed over all the profits earned from innovative activities. Natural persons, that are self-employed, pay their tax on their profits through the income tax returns.
VAT (Value added tax)
The VAT sales tax (In the Netherlands known as BTW/omzetbelasting) is the tax that the Dutch tax office collects over the sales and revenue of companies. All businesses, excluding some foundations and associations, must add VAT to the price of their goods and services. The three different rate levels of the VAT in the Netherlands are: 0%, a level that is mostly maintained for companies that are doing business with foreign countries (this is when the client or supplier has a VAT ID number within the European Union. The VAT will be replaced to the country of the customer. Or if the client or supplier does service outside of the European Union. When this is the case, the paragraph needs to be mentioned on the invoice) and certain fishing vessels and ocean-going vessels, 9%, which is mostly maintained for food products, water, agricultural goods, medicine, art objects, certain books and 21%, which is mostly requested by the government when pricing goods and services. Businesses calculate the VAT that was earned and spent via the quarterly sales tax declaration, which is afterwards paid to the Dutch Tax office.
As previously stated, being aware of the differences in taxation in certain countries is essential. Not only for avoiding certain fines or bad annotations, but to also profit from certain tax agreements, tax reductions and other tax profits. This article, however, explained just a small part of business taxation in Japan, Germany and the Netherlands. If more information is required concerning taxes and your company, please contact a local tax advisor.
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