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Tax saving tips for SMEs

time 2017/10/21

After a few years of struggle (or even from the first year), your company has started generating enough income. Now you are worried about the tax to pay.

There are some tax tips that everybody know (not everybody but many. Sorry). They are nothing illegal. There should be no much reason for you not to do them.

Paying rent for a year in advance

According to Japanese Tax Law, expenses to pay for length of period of services are allowed to be expensed when they are paid for one year at maximum in advance. The typical examples are rent and life insurance. For example, your fiscal year ends in December, pay your office rent to the landlord for the whole next year. It will be deductible from your income. The condition to meet is it has to be actually “paid” by the end of the fiscal year.

To make it clear, it is advisable to pay through a bank transfer because there will be an evidence. You also need to agree that with landlord. Please get something in writing with your landlord that you both parties agree that the rent will be paid for 12 months at the end of previous year, “unless” you propose otherwise for cashflow reason or whatever.

Safety net insurance

This one is even more generous.

Safety Insurance (Bankruptcy Insurance)

You can pay at maximum 200,000 yen per month as deductible expense and after 40 months, you can terminate the contract and get 100% refund of what you pay plus interest. The minimum contribution as of today is 5,000 yen. The economical effect here is only to push the taxable income to future, meaning you will have to recognize its refund as income when it is returned.

But it is nice to push the taxable income today so that you will receive the income when rainy day in future.

Company housing

It is rather a long time solution but it does have a great deal of impact on our personal tax and social insurance.

Your company can rent a house for you and pay half of the rent as company’s deductible expense. By reducing your salary and pay it as a rent to your landlord, your taxable income will be reduced by such amount. Because the amount of social insurance contribution is also based on your salary, you will save your income tax as well as social insurance.

Buying property overseas

This one is still popular especially among foreigners who have access to property market abroad. Because the speed of depreciation is determined by how old the property is, properties in foreign countries (especially in Europe and North America) were advantageous because building that is 100 years old is not special there.

You need to be a little bit careful with this. It seems that a new restriction will be coming into place to ban this because the authority seems to think this one is not fair.

There are much more but I want to mention them in a separate post.

Blue Tax Form status

Make sure to obtain “Blue Tax Form” status. There are a few major tax benefits such as tax credits and you can carry your operating losses for next 10 years.

Consumption tax -Simplified Method

This one is basic too but make sure you can apply for the simplified method. By choosing this, you will be using deemed tax rate for consumption tax instead of actual calculation (where you plus and minus all the taxable sales and expenses). The eligibility is that your taxable sales in two years back has to be between 10 and 50 million yen.

If the sales in the fiscal year two years ago was less than 10 million yen, congratulation!, you are free of consumption tax (most of the cases).


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