Japanese Tax Blog in English

日本の税務情報を英語で書くブログ by みなと国際会計事務所

Tax Saving – 4 Tips to know for SMEs (to be continued)

time 2021/01/16

1) Office rents to be prepaid for next months (maximum for the next 12 months).

Office rents and similar regular expenses are ok to be paid at a maximum of 1 year in advance and deduct from the current year’s income.

2) Company house

Let your company own the contract of your house rent. The Japanese tax law allows employers to pay 90% of rent expenses for regular employees and or 50% of the rent for directors. That means that you can lower your salary by 50% of your rent to have the same salary in face value. But One’s take-home pay will be bigger because your income tax and social insurance will be much lower.

3) Consumption tax (choice to become or not to become a consumption tax filer).

When you create a company, consider the amount of paid-capital. If it is less than 10MM yen, you will have a choice of being a tax filer or non-tax filer of consumption tax.

If your sales are not from overseas, your choice will be to become a non-tax filer so that you will save 10% of the consumption tax you receive. On the other hand, if your sales are from overseas, your choice should be a tax filer of consumption tax because you will receive the consumption tax you pay on domestic expenses which are 10%.

4) Consumption tax (Standard method or Simplified method) in case your turnover is between 10MM and 50MM

Consumption tax is calculated based on what you receive on your revenue and what you pay as expenses. This way of calculating is called Standard method. The tax can become very high if your business model falls under certain categories such as consulting or labor-intensive business models. It is because your revenue is taxable while a majority of your expenses (your salary and your staff) are not taxable of consumption tax.

Simplified Method uses the deemed rates for expenses such as 90% or 50% depending on your business category. For example, the deemed expense rate for the service industry is 50% and consulting is defined as it belongs to this category. You will be able to claim 50% of your revenue and taxable expense, and that means that you will have to pay consumption tax 5% of your revenue (10% as consumption tax rate times 50% as deemed expense rate). This can be much better than what you will have to pay based on the Standard method.

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