Q69: Is there a tax risk for a liaison office?

A: A liaison office faces the risk of being subject to corporate taxation in Japan if it is recognized as a PE (Permanent Establishment).

Details

A PE refers to a fixed place of business through which the business of an enterprise is wholly or partly carried on in Japan. If a permanent establishment exists, or is deemed to exist, in Japan, then corporate taxes and other taxes may be levied in Japan. Typically, a liaison office is only allowed to engage in preparatory and auxiliary activities and is not usually considered a PE. However, if it is determined to be conducting part of the business activities, it could be recognized as a PE, leading to tax obligations in Japan.

Q: Specifically, what activities could trigger the risk of PE recognition?

A: The main activities that could trigger the risk of PE recognition include those where the liaison office goes beyond preparatory and auxiliary activities to conduct part of the business activities. For instance, engaging in direct business activities such as concluding contracts or selling products increases the risk of PE recognition.

Japanese Certified Public Accountant ・English-speaking Japanese tax accountants Hiroya Aihara
Ringo Tax Corporation

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