Local corporate tax introduced and the reform of local corporate special tax rate and enterprise tax rate

1. Overview As a measure to rectify the uneven distribution of local tax revenue and help balance the local government finance, 2014 tax reforms state that a local corporate tax will be introduced and the inhabitant tax will be reduced. At the same time, the local corporate special tax will be reduced and the enterprise tax will be increased. As a matter of fact, these changes have no significant impact to the tax burden on taxpayers. 2. Content The newly established tax rate (4.4%) of local corporate tax, and the inhabitant tax rates compared in the table below: Current tax rateReformed tax rate Local corporate tax (newly established)－4.4% Inhabitant tax rate (Local governmental level 1 )Standard tax rate5.0%Standard tax rate3.2% Maximum tax rate6.0% aMaximum tax rate4.2% c Inhabitant tax rate (Local governmental level 2 )Standard tax rate12.3%Standard tax rate9.7% Maximum tax rate14.7% bMaximum tax rate12.1% d Notes: ● In habitant tax applied to company with year-end paid-in capital > 100 million yen in Tokyo metropolitan: a+ b = 6.0% + 14.7% = 20.7% (current tax rate) c+ d = 4.2% +12.1% = 16.3% (reformed tax rate) ● In habitant tax applied to company with year-end paid-in capital ≦ 100 million yen: 5.0% + 12.3% = 17.3% (current tax rate) 3.2% + 9.7% = 12.9% (reformed tax rate) The enterprise tax rate and the local corporate special tax rate are as follows: Enterprise tax Current tax rateReformed tax rate Company with year-end paid-in capital > 100 million yenTaxable income ≦4 million yen1.5%2.2% 4 million yen < Taxable income≦ 8 million yen 2.2%3.2% Taxable income < 8 million yen2.9%4.3% Company with year-end paid-in capital ≦ 100 million yenTaxable income ≦4 million yen2.7%3.4% 4 million yen < Taxable income≦ 8 million yen 4.0%5.1% Taxable income < 8 million yen5.3%6.7% Note: the enterprise tax rate shown above is the standard tax rate. Please refer to maximum tax rate if needed. Local corporate special tax Current tax rateReformed tax rate Company with year-end paid-in capital > 100 million yen148%67.4% Company with year-end paid-in capital ≦ 100 million yen81%43.2% Note: the taxable base of local corporate special tax is an enterprise tax. 3. Effective date The reformed tax rate will be applicable to companies with fiscal year begin on or after 1 October 2014.