We are Murata General Tax and Accounting Office, located in Miyakojima Ward, Osaka City, specializing in inheritance and international taxation.

In this article, we will discuss the Japanese tax implications for a foreign corporation that participates in a trade show and sales event in Japan.

 
1. Case Study

Our company is a foreign corporation headquartered in the United States.

We will be participating in a trade show and sales event in Japan for one week.

In this situation, are we required to file tax returns in Japan?

 
2. Answer

It is likely that the income earned from the event will be subject to Japanese corporate income tax filing requirements.

As for Japanese Consumption Tax (VAT), there is generally no filing or payment obligation because a foreign corporation with no taxable sales during the base period is typically treated as an exempt business operator. However, if the corporation has elected taxable business operator status or is registered as a Qualified Invoice Issuer (Invoice System Registrant), Consumption Tax obligations may arise.

 
3. Corporate Income Tax Considerations

(1) Permanent Establishment (PE)
A foreign corporation is subject to Japanese corporate income tax depending on whether it has a Permanent Establishment ("PE") in Japan.

Examples of a PE include:

A place where business is managed, such as a branch, office, factory, workshop, mine, natural resource extraction site, or any other fixed place through which business activities are carried on;
A construction site, installation project, or supervisory activity in Japan that continues for more than one year;
An agent or other person in Japan who habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts on behalf of the foreign corporation.
These definitions are set forth in Article 2, Paragraph 19 of the Japanese Corporate Tax Act.

In addition, the term "other fixed place of business" is interpreted to include warehouses, servers, hotel rooms used as business bases by foreign corporations, trade show booths, temporary sales venues, and similar locations.

 
(2) Application to a Trade Show and Sales Event
Since a trade show booth or temporary sales venue may constitute a Permanent Establishment, income earned from the event may be regarded as income attributable to a PE in Japan.

As a result, such income may be treated as Japan-source income and therefore subject to Japanese corporate income tax.

Accordingly, the foreign corporation may be required to file a Japanese corporate income tax return and pay Japanese corporate income tax on the income attributable to the event.

 
4. Consumption Tax Considerations

(1) Requirements for Japanese Consumption Tax
A transaction is subject to Japanese Consumption Tax if all of the following requirements are satisfied:

The transaction is conducted in Japan;
The transaction is carried out in the course of business;
Consideration is received;
The transaction involves the transfer of assets, leasing of assets, or provision of services.
In the present case, the sales made at the trade show would generally satisfy all four requirements and therefore constitute taxable transactions for Consumption Tax purposes.

 
(2) Consumption Tax Filing Obligations
A foreign corporation that has no taxable sales during the base period is generally treated as an exempt business operator and therefore has no obligation to pay Japanese Consumption Tax.

However, Consumption Tax obligations may arise if:

The corporation files an election to become a taxable business operator; or
The corporation registers as a Qualified Invoice Issuer under Japan's Invoice System.
In such cases, Japanese Consumption Tax returns may be required.

 
In this article, we discussed the Japanese tax treatment of a foreign corporation participating in a trade show and sales event in Japan.

If your company is planning to conduct sales activities, exhibitions, or temporary business operations in Japan, careful consideration should be given to potential Permanent Establishment and Consumption Tax issues.

If you have questions regarding a situation similar to the one described above, please feel free to contact us through our inquiry form.