When Japanese residents/Japanese companies (“Residents”) make payments from Japan to non-residents/foreign corporations (“Non-residents”) which is subject to Japanese withholding income tax, Residents pay net amount after deducting the Japanese withholding tax to Non-residents. Residents pay withholding income tax to the Japanese tax authorities and Non-residents take foreign tax credit in their tax return.
In the case where payment amount is JPY 1,000,000 and Japanese withholding income tax is 20.42%, the net amount to be paid to Non-residents is JPY 795,800.
（JPY1,000,000－JPY204,200(JPY1,000,000 x 20.42%)=JPY795,800）
In this case, if Residents have to bear the Japanese withholding income tax, gross-up calculation should be needed to settle the Japanese tax obligation.
Gross-up calculation is as follows;
Japanese withholding tax：JPY1,256,597 x 20.42%=JPY256,597
Actual payment amount：JPY1,256,597-JPY256,597＝JPY1,000,000