Scenario: a precision-components maker must choose where to build its next plant: Japan, where its engineers and key suppliers already are, or Vietnam, where costs are lower but the supply chain must be rebuilt. The CFO compares headline corporate tax rates — 23.2% vs 20% — and misses the real question: what are you actually buying with the cost difference?
The true cost gap is wider than the tax table suggests
Japan’s corporate tax is three-layered: 23.2% national plus local enterprise and inhabitant taxes, bringing the effective burden in Tokyo to roughly 29.7% — against Vietnam’s single 20% national rate under the 2025 Law on Corporate Income Tax 67/2025/QH15 (with 10%-for-15-years incentives, 4-year exemption plus 9-year 50% reduction, for qualifying projects). But tax is the smaller part of the gap. Japanese manufacturing wages, land in industrial zones near Tokyo/Osaka/Nagoya, and an aging workforce with chronic labor shortage are the structural cost drivers. Vietnam’s advantage is not just cheaper labor — it is a young workforce and industrial land at a fraction of Japanese prices, under the 2025 Law on Investment 143/2025/QH15 (in force 01/3/2026, replacing Law 61/2020) which streamlines the IRC/ERC licensing path for foreign investors.
What Japan still sells: precision, stability, proximity
Choose Japan when the product demands it: ultra-precision machining, advanced materials, and R&D-intensive processes where supplier density within a 50 km radius matters more than unit cost. Japan’s advantages are institutional — predictable regulation, deep supplier tiers, and customers (automotive, semiconductor equipment) who audit quality systems, not just prices. For export to the US, note Japan has no bilateral FTA with the United States; Vietnam ships under MFN today but benefits from a web of FTAs (CPTPP in force for Vietnam since 14/01/2019, EVFTA since 01/08/2020, RCEP since 01/01/2022) that Japan cannot replicate for Vietnam-bound production.
A decision rule
Choose Japan when your moat is precision, IP protection depth, or co-location with Japanese customers’ R&D — and your margins absorb the cost. Choose Vietnam when you compete on cost at scale, serve export markets through FTA preferences, or need workforce expansion Japan’s demographics cannot supply. The hybrid many Japanese SMEs now run — R&D and pilot lines in Japan, mass production in Bac Ninh or Hai Phong — is not indecision; it is the answer both JETRO surveys and the cost math keep producing.
This article has been quality-reviewed by the FLAW AI Legal Council
Frequently Asked Questions
Is Japan’s corporate tax really just 23.2% vs Vietnam’s 20%?
No — 23.2% is only the national layer. With local enterprise and inhabitant taxes, the effective burden in Tokyo is about 29.7%. Vietnam applies a single 20% national rate (Law 67/2025/QH15), with incentive packages (10% for 15 years; 4-year exemption + 9-year 50% reduction) for qualifying projects.
Which country gives better tariff access for exports to the US?
Japan has no bilateral FTA with the US; Vietnam currently exports to the US under MFN terms. The FTA comparison favors Vietnam for EU/UK/Japan/Korea-bound goods (EVFTA, UKVFTA, CPTPP, RCEP, VKFTA) — check rules of origin for your product before counting the preference.
Can I split operations: R&D in Japan, mass production in Vietnam?
Yes — and it is the dominant pattern: keep R&D, prototyping and high-mix low-volume work in Japan near customers and suppliers, and move mass production to northern Vietnam. It preserves Japan’s precision advantages while capturing Vietnam’s cost and FTA benefits.