Tax Saving Tip – Consumption Tax – Simplified Method

There must be many many business owners or freelancers in Japan who are surprised how much consumption tax they have to pay in these months.  I was surprised how expense it can be.

Because the tax rate was raised from 5% to 8% in April 2014, these months are about the time we business owners have to pay consumption tax with higher rate. 

You will become a consumption tax payer automatically if your revenue in two years ago was more than 10 million yen. You do not have to do anything with the tax office. They will register you as a consumption tax payer based on your revenue recorded in their database.

For consumption tax, you have two options to choose in terms of how to calculate the amount you must pay.  The first one, the “standard” method, you must figure the exact amount of consumption tax received in sales and consumption tax paid in expenses.  You then pay, or receive as a refund, the net of the two numbers.  This can be even beneficial if most of your income is from exports because you may be able to claim “refund” instead of having to pay the tax. It is because you do not receive consumption tax from your customers while you pay consumption tax for domestic expenses. In the standard method, what you have to pay is the difference between what you receive and what you pay as consumption tax. If the difference turns out to be negative, you will be able to claim refund.

In the second method, the “simplified” method, you instead only figure out the amount of consumption tax received in sales, then deduct a flat, government-decided percentage of that amount based on the industry to determine the amount payable.  The rate is between 50% (service industry) and 90% (wholesalers).  The actual amount of consumption tax you paid in expenses become irrelevant, so this is handy for companies whose majority of its expenses are human related cost such as salaries.

Here is a quick example:

Retailer A, makes 10 million sales in domestic (Japanese) market.  They have 7 million in expenses, of which 2 million is consumption taxable (the other 5 M is salaries, which is not subject to consumption tax).

If this company (or individual) uses the standard method, they will have 800,000 yen as consumption tax received and 160,000 of consumption tax paid, meaning a net 640,000 yen is payable. 

If they choose to use the simplified method, they have 800,000  yen as consumption tax received, and 80% (the rate for retailers) of that amount they will be automatically deductible, meaning its net 160,000 is payable.

It will make huge difference in what you will have to pay by submitting only a form of paper to choose which method to use for consumption tax calculation. I recommend you give a consideration once. 

We will be happy to consult the matter with you any time.













均等割を減らすときの落とし穴 -How to minimize your corp tax

  • <有償減資・無償減資>
    <Capital reduction in company registry>If you want to reduce the minimum corporate tax (aka Kintowari), you need to reduce the capital.
    Some people think that it can be achieved by simply offsetting its accumulated loss in the company against the paid-in capital on paper. Please be noted. That is not the case.

    It requires actual cash payback because the minimum tax amount depends on “paid-in capital etc”, which includes other form of capital injection to the company, for example, capital surplus. It is much wider concept. Simple offsetting of accumulated loss against the capital does not entail actual cash payback. Therefore, it will not reduce the paid-in capital etc.

    <Share buy back>

    The other form of reducing capital is buying back its own share. Because it has actual cash payment when the company buys back its share from its shareholders, it will reduce “paid-in capital etc”. The only restriction that you need to be careful in this scenario is that you need to have enough retained earnings. In a contract to the case of offsetting the loss, this one needs enough retained earnings because of the Japanese Company Law.

    The former scenario costs some registration tax, lawyers or accountant fee and public notice. The latter does not cost any legal cost. It simply works by buying back its shares.

    It will reduce the minimum tax from 180,000 to 70,000 yen or 290,000 to 180,000 yen. It may not be significant but it will reduce unnecessary tax burden that has no impact on your business performance.

    雑誌のTarzanで「カラダの偏差値 ボディサイズ、筋力、持久力……「平均」を凌駕せよ!」というのを買ってきて読みました。

    ミーハーで影響されやすいので、Garminの腕時計かApple Watchが欲しくなってしまいました。

会社を設立したらやるべきこと What to do after incorporation


<Blue Tax Filer Status>

Obviously the most important thing you have to do when you start your business is to find customers and increase your sales. Accounting and tax will come at the second priority, of course.

One thing I recommend to do at least is to report the company incorporation to the tax office and apply for the Blue Filing privilege for tax. It does not take much time. Probably 3 hours at maximum. You should be able to find time for it.

There are two status in tax filing that are Blue and White. Blue Filing has some tax privileges. The biggest one is you will be able to carry loss for next 10 years. For example, as likely situation for the first year for anyone in their own business, business is not easy and lose money in business. After 3 years, you may become profitable and start worrying about the tax. Don’t worry. The loss in 3 years ago can be used to offset the current profit.

The other (rather minor privilege) is that you can expense items below 300,000 yen at once, as opposed to White Filing status where it has to be booked as asset and can only be expensed for life year of the thing (e.g. 4 years for PC).

Two forms have to be submitted within 2 months from the incorporation as following:
1) Form of company incorporation

2) Application for Blue Tax Filer status

A copy of the company registration and the article of incorporation have to be attached when filing.

You can check the tax office of your jurisdiction from the National Tax Agency website.

Good luck!


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