Many foreign corporations have subsidiaries in Japan. These companies are often small, especially shortly after establishment, and are often small and medium-sized enterprises (SMEs) under tax law.
SMEs are entitled to various tax advantages, as described in a separate article.
So what exactly constitutes SMEs under Japanese tax law?
In fact, although different definitions are given for each specific tax measure, generally, corporations with capital of 100 million JPY or less are considered to be small to medium size enterprises (SMEs).
However, a company whose parent company has a capital of JPY 500 million or more and 100% direct or indirect control with that parent company is not a SME, even if its year-end capital is JPY 100 million or less.
Thus, for example, if a company with a capital of 400 million yen owns 100% of a company with a capital of 100 million yen, this subsidiary would qualify as a SME, but if a company with a capital of 500 million yen owns 100% of a company with a capital of 10 million yen, this subsidiary is not a SME.
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