Withholding tax rarely tops a finance director’s risk register, and that is precisely why it produces findings. It is a national tax, and an adjustment here can pull corporate tax and consumption tax into the discussion with it.

A self-check before the inspector arrives

These are the areas a Japanese tax audit will work through. Read down the list: if you can explain how each is handled at your company without going to look it up, your withholding position is in good order.

• Overseas remittances and withholding on payments to non-resident individuals
• Withholding on dividends
• Withholding on interest
• Withholding on royalties
• Closing allowances
• Domestic withholding on payments to individuals
• Payroll withholding
• Taxation of expatriate compensation

Where the findings actually land

Payroll is the item everyone worries about and almost nobody gets wrong — it runs through the ordinary pay cycle, and errors are rare.

The findings cluster in three places: expatriate compensation, withholding on payments to non-resident individuals, and closing allowances. These are technically demanding, and they are also where the company and the tax office are most likely to hold genuinely different views of the same facts. For a foreign-owned subsidiary with assignees and intercompany charges, that is not a hypothetical risk.

If you would like to go into any of this in more detail, please get in touch.