[Thai Companies Entering Japan] Part 5: Tax — Corporate Tax, Consumption Tax, and the Japan-Thailand Tax Treaty

This is Part 5 of the 6-part series “Thai Companies Entering Japan.” Readers who have worked through Part 1 (entry vehicle), Part 2 (Foreign Exchange and Foreign Trade Act), Part 3 (incorporation), and Part 4 (Business Manager visa) will face tax issues in the operating phase. This article, based on information publicly available as of April 2026, covers the corporate tax structure for the Japanese subsidiary, treaty-based limitation rates under the Japan-Thailand tax treaty, transfer pricing, the Specified New Establishment Corporation rule, the Global Minimum Tax, and Thai-side considerations.

Important note Tax law evolves more rapidly than other legal areas, with frequent amendments and circulars. This article is intended as a general overview. For specific tax rates, treaty limitation rates, thresholds, deadlines, and filing forms, please consult the relevant tax office and a certified tax accountant or CPA.

Overview of issues covered in Part 5

Tax matters facing the operating phase of a Japanese subsidiary owned by a Thai parent fall into seven layers:

Tax burden structure of the Japanese subsidiary — corporate tax, local corporate tax, inhabitant tax, enterprise tax, special enterprise tax
Payments to the Thai parent and withholding tax — dividends, interest, royalties, service fees, and the Japan-Thailand tax treaty
PE taxation if a branch form was chosen — for readers who chose a branch in Part 1
Discipline of related-party transactions — transfer pricing, donations to foreign related parties, thin capitalization, earnings stripping
Specified New Establishment Corporation rule under consumption tax — issue specific to 100% subsidiaries of large Thai parents (October 2024 amendment)
Global Minimum Tax (Pillar 2) — multinational groups with consolidated revenue of EUR 750 million or more
Thai-side considerations — taxation of received dividends, foreign tax credit, Thai transfer pricing

1. Tax burden structure of the Japanese subsidiary

A subsidiary incorporated in Japan is a domestic corporation and, in principle, taxed on worldwide income (Articles 4 and 5 of the Corporation Tax Act). The five main categories of tax it bears are:

Table 1: Main taxes borne by a Japanese subsidiary

Tax	Imposing authority	Tax base	Notes
Corporate tax	National	Income for each fiscal year	Standard rate, plus reduced rate for SMEs (income up to JPY 8 million)
Local corporate tax	National	A percentage of corporate tax	Designed for inter-regional fiscal adjustment
Inhabitant tax (prefectural / municipal)	Local	Corporate-tax-based component plus per capita component	Each municipality may apply excess rates
Enterprise tax	Local	Income-based; pro forma corporations also taxed on value-added and capital	Ordinary corporations with capital over JPY 100 million are subject to pro forma standard taxation
Special enterprise tax	National	Equivalent to the income-based enterprise tax	Filed and paid together with enterprise tax

The effective combined rate is generally around 30%, but it varies by capital size, location of the head office, fiscal year, and tax-reform changes. The reduced SME rate (Article 42-3-2 of the Act on Special Measures Concerning Taxation) has been repeatedly extended as a time-limited measure, so applicability, rate, and period must always be checked against the latest information.

Specific tax rates may change from time to time. Please confirm the latest figures with your tax office or a certified tax accountant.

2. Payments to the Thai parent and the Japan-Thailand tax treaty

2-1 Two-layered structure of domestic law and treaty

Where payments from the Japanese subsidiary to the Thai parent (a foreign corporation / non-resident from Japan’s perspective) constitute Japan-source income under Article 161 of the Income Tax Act, the payer must withhold tax at source under Articles 212 et seq. of the Income Tax Act.

The withholding rate has a two-layered structure:

Domestic withholding rate (Income Tax Act) — set at relatively high levels
Limitation rate under the Japan-Thailand tax treaty (Article 10 dividends, Article 11 interest, Article 12 royalties) — caps the rate where the domestic rate is higher

2-2 Framework of the Japan-Thailand tax treaty

The current treaty is the “Convention between Japan and the Kingdom of Thailand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income” (signed 7 April 1990, entered into force 24 August 1990). The original (Japanese, English, and Thai versions) is available through the Ministry of Foreign Affairs treaty database and the Ministry of Finance’s “List of Tax Treaties of Japan.”

The roles of the main articles are:

Article	Subject	Outline
Article 5	Permanent establishment (PE)	Definition (branch, construction PE, agent PE, etc.)
Article 7	Business profits	Principle of taxing income attributable to a PE
Article 10	Dividends	Limitation rate (varies by shareholding ratio)
Article 11	Interest	Limitation rate (with specific carve-outs for financial institutions)
Article 12	Royalties	Limitation rate (consideration for copyrights, patents, know-how, etc.)
Article 22	Elimination of double taxation	Foreign tax credit on the Thai side
Article 24	Mutual agreement procedure	Bilateral consultation on transfer pricing disputes

2-3 Applying the limitation rate and the “Notification on Tax Treaty”

To apply the treaty limitation rate, the “Notification on Tax Treaty” must be submitted to the competent tax office before the payment (Act on Special Provisions of the Income Tax Act, the Corporation Tax Act and the Local Tax Act for the Enforcement of Tax Treaties, and its enforcement order/regulations). Without the notification, withholding must be made at the domestic rate. Separate forms exist for dividends, interest, and royalties; check the latest forms on the National Tax Agency website.

Table 2: Withholding tax on payments to the Thai parent (conceptual overview)

Type of payment	Domestic law	Japan-Thailand tax treaty	Practical points
Dividends	Domestic withholding rate under Articles 212 et seq. of the Income Tax Act	Limitation rate under Article 10 (varies by shareholding ratio)	Submit notification before payment. Confirm parent-subsidiary holding ratio requirements
Interest	Same as above	Limitation rate under Article 11 (carve-outs for financial institutions, etc.)	Confirm requirements for parent-subsidiary loan interest
Royalties	Same as above	Limitation rate under Article 12	Distinguish know-how, trademarks, copyrights and align with license agreements
Service fees	Case-by-case	Articles 5 and 7	PE attribution analysis is the central issue

The exact limitation rate (%) and the shareholding-ratio or financial-institution thresholds for each treaty article should be confirmed against the original treaty text or with a tax professional. Modifications under amending protocols and the BEPS Multilateral Convention (MLI) should also be checked. For notification forms, see the National Tax Agency “Notification on Tax Treaty” page.

2-4 MLI impact

The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI) introduces, on a bulk basis, Limitation on Benefits (LOB), Principal Purpose Test (PPT), and expanded PE definitions to covered tax treaties. Japan deposited its instrument in 2018 and Thailand in 2022; the entry-into-force dates and applicable provisions for the Japan-Thailand treaty must be checked against the latest information from the Ministry of Foreign Affairs and the OECD. Note that treaty benefits (such as the limitation rate) may be denied under PPT if obtaining the treaty benefit was a principal purpose of the arrangement.

3. PE taxation in a branch arrangement

If the readers chose the branch form in Part 1, the Thai parent (a foreign corporation) will have a permanent establishment (PE) in Japan. Where it falls under the PE definition in Article 5 of the Japan-Thailand tax treaty, income attributable to the PE is taxable in Japan under Article 7 of the same treaty, with corporate tax and local taxes assessed in essentially the same manner as for a domestic corporation (Articles 141-142 of the Corporation Tax Act).

A representative office is not a PE so long as its activities are limited to preparatory or auxiliary functions such as market research and information gathering. However, where it acts as a contract-concluding agent or carries out an essential part of the parent’s business, it may be deemed an agent PE or service PE.

4-1 Transfer pricing (Article 66-4 of the Act on Special Measures Concerning Taxation)

Transactions between the Thai parent and the Japanese subsidiary are transactions with foreign related parties, which must be conducted at the arm’s length price (ALP). Typical covered transactions include trade in products and raw materials, management fees, technical service fees, royalties, and intercompany loans.

Table 3: Transfer pricing documentation obligations (concept)

Document	Outline	Scope
Local file	ALP analysis and method selection per transaction	Contemporaneous documentation when foreign related-party transactions exceed certain monetary thresholds
Master file	Group-wide organization and business overview of the multinational group	Large multinational groups
CbCR (Country-by-Country Report)	Country-by-country revenue and tax	Same as above

Specific thresholds and scope must always be confirmed against the latest provisions of the Act on Special Measures Concerning Taxation, related ministerial ordinances, and National Tax Agency publications.

Gratuitous transfers of economic benefits to the Thai parent (interest-free loans, undervalued transfers, debt forgiveness, excessive royalties without consideration, etc.) are treated as donations to foreign related parties and are entirely non-deductible. Note that transfer pricing tax and donation tax apply on a separate-track basis.

4-3 Thin capitalization and earnings stripping

Thin capitalization rule (Article 66-5): Where debt from foreign controlling shareholders exceeds a certain debt-to-equity ratio, interest on the excess portion is denied deduction
Earnings stripping rule (Article 66-5-2): Where net interest expense exceeds an EBITDA-based threshold, the excess is denied deduction

Excessive parent-subsidiary loans from the Thai parent may trigger both rules, requiring a careful design of capital structure, interest rate, and EBITDA level.

5. Specified New Establishment Corporation rule under consumption tax (key point)

This is the most practically impactful issue for 100% subsidiaries of large Thai parents (CP / SCB / PTT / Charoen Pokphand / Siam Cement class).

5-1 Framework for consumption tax exemption

Article 9 of the Consumption Tax Act exempts businesses whose taxable sales in the base period (the fiscal year before last) are JPY 10 million or less. A new corporation has no base period and is dealt with under special rules.

5-2 New Corporation Rule (Article 12-2)

A new corporation whose stated capital is JPY 10 million or more at the start of a fiscal year is a taxable enterprise for two periods after incorporation.

5-3 Specified New Establishment Corporation Rule (Article 12-3) — October 2024 amendment

Where more than 50% of the shares of a new corporation are held, directly or indirectly, by parties meeting specified requirements and their related corporations (i.e. essentially a large parent group), the new corporation is a taxable enterprise from its first fiscal year.

For taxable periods beginning on or after 1 October 2024, the criteria were expanded:

Test	Pre-amendment	Post-amendment (taxable periods beginning on or after 1 October 2024)
Taxable sales test on the determination subject	Taxable sales for the period equivalent to the base period exceed JPY 500 million	Same as left
Newly added test	—	Total amount of sales, revenue, and other income of the determination subject exceeds JPY 5 billion (including foreign-source revenue)

The key takeaway is that a new test of JPY 5 billion in total revenue including foreign sales has been added. Large Thai conglomerates such as CP, SCB, and PTT comfortably exceed JPY 5 billion on a consolidated basis, so their wholly owned Japanese subsidiaries are highly likely to be consumption-tax-paying enterprises from their first fiscal year.

5-4 Alignment with the Qualified Invoice (Invoice) System

As discussed in Part 3, registration as a Qualified Invoice Issuer is, in practice, taken near the date of incorporation due to counterparty considerations. Where the new corporation is treated as a Specified New Establishment Corporation and is taxable from year one, the rationale for registration is even clearer.

Table 4: Consumption tax obligation flow

[Newly incorporated 100% Japanese subsidiary of a Thai parent]
        │
        ▼
[Q1: Is stated capital JPY 10 million or more?]
   ├ Yes → Taxable (Art. 12-2)
   └ No  ─┐
          ▼
[Q2: Does the determination subject (parent etc.) have total revenue over JPY 5 billion?]
   ├ Yes → Taxable (Art. 12-3 — Specified New Establishment Corporation)
   └ No  → Generally exempt (subject to the JPY 10 million base-period rule)

For the detailed requirements (scope of determination subject, calculation of revenue, scope of related corporations, etc.), please always confirm against National Tax Agency No. 6503, Article 12-3 of the Consumption Tax Act, and related circulars.

6. Global Minimum Tax (GloBE / Pillar 2)

The Global Minimum Tax agreed in the OECD/G20 BEPS Inclusive Framework was enacted in Japan as Articles 82 et seq. of the Act on Special Measures Concerning Taxation. The Income Inclusion Rule (IIR) applies for fiscal years beginning on or after 1 April 2024.

Table 5: Pillar 2 / GloBE scope

Item	Content
Scope	Constituent entities of specified multinational groups
Consolidated revenue threshold	Consolidated total revenue of EUR 750 million or more (achieved in two of the four immediately preceding subject fiscal years)
Standard rate	Effective rate of 15% secured per jurisdiction
Japan effective date	Fiscal years beginning on or after 1 April 2024 (IIR first)
Main tax	Corporation tax on the international minimum taxable amount per subject fiscal year (IIR) / QDMTT / UTPR

When a Thai conglomerate of the CP / Charoen Pokphand / SCB class owns a Japanese subsidiary, the Pillar 2 information return obligation arises. The status of QDMTT (Qualified Domestic Minimum Top-up Tax) introduction in Thailand should also be checked.

For detailed calculation and applicability, please always confirm with the National Tax Agency Global Minimum Tax page.

7. Thai-side considerations

7-1 Corporate income tax on dividends received

Under the Thai Revenue Code, dividends received from foreign subsidiaries may be exempt under certain conditions. Conditions include shareholding ratio, holding period, and a “taxed income” requirement, but the specifics must be confirmed against the Thai Revenue Department’s official information, the Revenue Code, and related Royal Decrees and circulars. Where the exemption requirements are not met, dividends are taxable at the Thai CIT (standard rate 20%), with the Japan-side withholding tax creditable as a foreign tax credit (FTC).

7-2 Thai transfer pricing (introduced in 2019)

Thailand’s Revenue Code Sections 71bis and 71ter introduced Thai transfer pricing rules and documentation obligations. The Thai parent must maintain a local file for the Thai Revenue Department in respect of transactions with the Japanese subsidiary, requiring two-track preparation alongside Japanese transfer pricing documentation.

7-3 Thai-side withholding on payments from Thailand to Japan

The standard pattern (dividends and royalties from the Japanese subsidiary to the Thai parent) raises Japan-side withholding issues. By contrast, in the opposite direction (service fees, royalties, etc., paid from the Thai parent to the Japanese subsidiary), Thai withholding under Section 70bis of the Thai Revenue Code becomes the issue. Treaty limitation rates apply in both directions.

7-4 Thai CIT, VAT, and SBT basics

Tax	Rate
Thai CIT (standard)	20%
Thai CIT (SME / BOI)	Reduced rates and exemptions available
VAT	7% (extended by Royal Decree until 30 September 2027)
SBT (Specific Business Tax)	Industry-specific

Latest Thai-side rates and incentive requirements should always be confirmed with the Thai Revenue Department.

8. Practical schedule

Table 6: Main tax events from D-0

D-0       ── Incorporation, corporate number assigned
D+7       ── Notification of Establishment (tax office) / Qualified Invoice Issuer registration
D+30      ── Notification of Establishment of Salary Payment Office (when salary payments begin)
D+90      ── Application for Approval of Blue Form return
As needed ── Before payment of dividends/interest/royalties → Submit "Notification on Tax Treaty"
Within FY ── Contemporaneous transfer pricing local file
End of FY
+2 months ── Final returns for corporate tax / consumption tax / local tax
+3 months ── (Where the extended filing deadline applies for corporate tax / local tax)

For details of registration filings, see also Part 3.

9. Common pitfalls

Table 7: Eight common pitfalls and responses

#	Pitfall	Response
1	Withholding at the domestic rate because the “Notification on Tax Treaty” was not filed before payment	Build the notification step into the dividend / interest / royalty payment schedule
2	Treating year one as exempt despite the Specified New Establishment Corporation rule	Assume taxable status for 100% subsidiaries of large parent groups
3	Loss of counterparty trust due to delayed Qualified Invoice registration	Register as a Qualified Invoice Issuer near the date of incorporation
4	Transfer pricing reassessment because intercompany royalties / service fees diverge from ALP	Benchmark analysis, local file preparation, and contractual alignment
5	Loss disallowance under thin capitalization / earnings stripping due to excessive Thai-parent loans	Pre-design capital/debt balance, interest level, and EBITDA
6	Failure to claim foreign tax credit on Thai-side, or claiming Thai-side dividend exemption without meeting requirements	Always confirm Thai-side exemption requirements with the Thai Revenue Department
7	Missing QDMTT / information return filing in a Pillar 2 group	Verify EUR 750M threshold; coordinate with group tax department
8	Relying on outdated commentary for treaty limitation rates without checking the post-protocol/MLI text	Refer to the original treaty in the Ministry of Foreign Affairs database, plus MLI status, every time

Coming next

The final installment, Part 6, will cover labor and employment — fundamentals of hiring Japanese employees and the Rules of Employment: employment contracts, drafting and filing the Rules of Employment (Article 89 of the Labor Standards Act), social and labor insurance, minimum wage, overtime regulations (the so-called Article 36 agreement), dismissal regulations and rules on non-renewal of fixed-term contracts, and the rule converting fixed-term contracts to indefinite-term contracts (Article 18 of the Labor Contract Act). It will conclude the series with an overall summary, organizing the practical aspects of Japanese labor matters that differ from the Thai Labor Protection Act.

This article is for general informational purposes about Japan’s legal and tax system as of April 2026 and does not constitute legal or tax advice under Japanese or Thai law. The Corporation Tax Act, the Consumption Tax Act, the Act on Special Measures Concerning Taxation, the Local Tax Act, the Income Tax Act, the Act on Special Provisions for Tax Treaties, the Japan-Thailand tax treaty, the BEPS Multilateral Convention (MLI), the Thai Revenue Code, and related circulars are amended frequently. The tax rates, treaty limitation rates, thresholds, deadlines, and forms cited herein are based on information publicly available at the time of writing; please confirm the latest figures and requirements with the National Tax Agency, the Ministry of Finance, the Ministry of Foreign Affairs (treaty original text), the Thai Revenue Department, the tax office, and certified tax accountants/CPAs. For specific matters, please consult a qualified professional. Our firm works in collaboration with JTJB International Lawyers’ Thai-qualified attorneys and Tono, Tanami & Kosada Law Office’s Japanese-qualified lawyers and affiliated tax accountants.