Japanese Taxation on Dissolution of a Company
Assume you have established a limited liability company in Japan with an investment of 500,000 yen. The capital of this company is 500,000 yen.
If you dissolve this company and receive 500,000 yen of the company’s residual assets, would you be subject to income tax or other taxes on this 500,000 yen?
If you dissolve a limited liability company in Japan and receive a distribution of residual assets(500,000 yen), the amount of the distribution that exceeds the amount of capital contribution is considered deemed dividends(みなし配当＝Minashi Haitou), and income tax and resident tax are imposed on it .
• If deemed dividends occur, the company must withhold income tax from the paid dividends. For unlisted companies, the withholding income tax rate is 20.42% of the deemed dividend amount.
• In your case, since the amount of capital contribution and capital are the same 500,000 yen, no deemed dividends will occur if the amount of distribution of residual assets is 500,000 yen or less.
However, if the amount of distribution of residual assets exceeds 500,000 yen, the excess amount will be deemed dividends and subject to income tax and resident tax .
For example, if the amount of distribution of residual assets was 600,000 yen,
• Amount of deemed dividends: 600,000 yen – 500,000 yen = 100,000 yen
• Amount of withholding income tax: 100,000 yen x 20.42% = 20,420 yen
• Amount paid to you: 600,000 yen – 20,420 yen = 579,580 yen
• Withholding income tax paid by the company to the tax office: 20,420 yen
This is how the calculation works.
