A Tax That Appeared Before We Knew It: Local Corporate Tax—Accounting Staff, Note the Calculation and Form Changes on Introduction

The 2015 article stated the following.

Discussions about lowering the corporate tax rate have been attracting attention lately, but companies that will be closing their books in the future have had a new tax added. Local corporate tax... This is not a mistake for corporate inhabitant tax; it is a new tax. Because there is a tax cut, the burden does not change in principle, but the calculation methods and other matters have changed, so accounting professionals need to update their knowledge.

The Tax That Appeared Before We Knew It: Local Corporate Tax

For fiscal years beginning on or after October 1, 2014, corporations liable for corporate tax also became liable for local corporate tax and are required to file local corporate tax returns.

In other words, unless they changed their accounting period or the like, local corporate tax began to apply to corporations with fiscal years ending in September 2015 (corporations filing in November).

The local corporate tax rate is 4.4% for taxable fiscal years beginning from October 1, 2014, through September 30, 2019, and 10.3% for taxable fiscal years beginning on or after October 1, 2019.

A Corporate Inhabitant Tax Cut Introduced Along with Local Corporate Tax

Along with the introduction of local corporate tax, the corporate inhabitant tax rate was reduced by 4.4 percentage points. You may be thinking, “Wait, the tax increase and tax cut are at the same rate, so nothing changes, right?” That is correct: the effective tax burden does not change (strictly speaking, it may change slightly in some cases, but I will omit that here).

Why do this if the effective burden does not change? To eliminate fiscal disparities among regions, taxes that had been paid directly to the locality as corporate inhabitant tax are now collected by the national government and distributed in a way intended to eliminate regional disparities. It runs counter to local self-reliance, doesn't it? Perhaps the Tokyo Metropolitan Government's tax revenue was so large that objections kept arising. I am a little concerned that reduced tax revenues could affect subsidies for companies in Tokyo.

Final Returns and Payment Deadlines for Local Corporate Tax

Final returns for local corporate tax must be filed with the tax office within two months from the day after the end of each fiscal year. If a notification to extend the corporate tax filing deadline has been filed, the local corporate tax filing deadline is extended as well. In addition, if an interim corporate tax return is required, a local corporate tax return must be filed at the same time.

Local Corporate Tax Return Forms

For fiscal years, etc. ending on or after April 1, 2026, domestic corporations use Schedule 1 and foreign corporations use Schedule 1-2 as the respective forms for returns of corporate tax, local corporate tax, and the Special Corporation Tax for Defense.

Please note that a final local corporate tax return must be filed even if there is no corporate tax payable.

What did you think?

The 2015 article concluded as follows.

Systems such as local corporate tax and hometown tax donations (furusato nozei), which advance the transfer of financial resources to local areas, are being actively created, and further systems to correct disparities among regions will likely be created in the future.