There Are No Franking Credits in Japan

By MISAWA Masaki, Certified Tax Accountant (Zeirishi, Reg. No. 157367) — formerly of Japan’s tax authorities · Published July 12, 2026 · Reviewed July 17, 2026

From clients who are used to investing in Australian shares, we sometimes hear the question: “Don’t Japanese dividends come with franking credits?” Japan has no franking credit system. It does, however, have a different mechanism for adjusting the double taxation of dividends.

The double taxation of dividends

The starting problem is the same in both countries. A company’s profits are first subject to corporate tax. When the after-tax profits are paid out to shareholders as dividends, the shareholders in turn pay income tax. The same profits are taxed twice — the so-called double taxation of dividends. Each country designs its own way of adjusting for this, and the design philosophies of the two countries differ markedly.

Australia’s dividend imputation system

Australia’s approach is the dividend imputation system. Corporate tax actually paid by the company is attached to the dividend in the form of franking credits (imputation credits) and “imputed” to the shareholder. The shareholder declares the sum of the cash dividend and the credit as income, then subtracts the credit from the tax calculated. The company’s tax is treated as a prepayment made on the shareholder’s behalf, so that in the end tax is imposed only once, at each shareholder’s own rate. The defining feature is that company-level and shareholder-level taxation are directly linked through the credit.

Japan’s credit for dividends

Japan’s approach is called the credit for dividends (haitō kōjo). Where you include dividends received from domestic companies in your other income and file under aggregate taxation, an amount equal to a set percentage of the dividends is deducted from your income tax. The aim — relieving double taxation — is the same as imputation, but the design is simpler. The credit is calculated mechanically from the amount of the dividend and is not linked to how much corporate tax the paying company actually paid. In contrast to Australia’s precise system of tracking credits company by company, Japan adjusts by way of a flat-rate approximation — a deliberately simplified design.

The choices Japanese law gives shareholders

Another difference is that shareholders in Japan have choices. For dividends on listed shares, you may either file under aggregate taxation and claim the credit for dividends, or have the dividends taxed separately from your other income at a set rate (in which case there is no credit). You may also choose not to declare listed-share dividends at all, and even for unlisted shares, small-amount dividends below a certain threshold need not be declared for income tax purposes (again, no credit in either case). Which option is advantageous depends on your income level and circumstances, so the credit for dividends is best understood not as a system you always use, but as one adjustment tool you can elect.

Foreign dividends are treated differently

One caution: the credit for dividends applies only to dividends from Japanese domestic corporations. Dividends that a resident of Japan receives from foreign companies — Australian or otherwise — do not qualify (double taxation in that case is relieved by a separate mechanism, the foreign tax credit). (See our note: The Overseas Assets Report.)

Japan has no franking credits, but although the mechanism differs, Japan too has a system in place to relieve the double taxation of dividends. That system is the credit for dividends.