There are two tax filing statuses. One is called Blue Form filer and the other is called White Form filer. If you have your own company or have your own proprietorship, you should choose Blue Form filer status as your tax status because it is much better and basically there will be nothing to lose.
Benefit of carrying losses to future
Blue Form Filer Status has a lot of tax benefit but the biggest one is you will be allowed to carry your tax losses to the next 10 years.
For example, if you make tax loss of 10 MM yen in this year (Year #1) and you make taxable income of 12 MM yen in the next year (Year #2), your taxable income for Year #2 will be only 2 MM yen if you are Blue. If you are a White Form filer, your taxable income will be 12 MM yen, because you are not entitled to carry tax losses and you are taxed based on each year’s income.
So, if you make tax losses, they will be waisted each year when it is incurred, and if you make taxable income, you will have to pay the tax on the full amount.
There is another relatively major tax benefit for sole proprietors. You will get 650,000 yen extra deduction from your taxable income. If you are making 5,000,000 yen a year after all the expenses, your marginal tax rate is 30%(20% for National Tax and 10% for Resident Tax).
You are saving 195,000 yen as tax every year. If you run your business for 20 years, you will save 3,900,000 yen as tax in total. It is a significant amount. At least, it is for me.
How to become a Blue Form filer
You should submit the following form to the tax office.
you will be a Blue Form filer from the next year.
Deadline to become a Blue Form tax filer
if it is a newly set up company, an application form has to be submitted within 3 month. If it is a sole proprietor, it has to be done within 2 months.
For existing companies and sole proprietors that have been operating for years, the deadline to become one for the next year is the end of this fiscal year. If you would like to become one as a company for calendar year 2023, the deadline is the end of 2022.
If you are a sole proprietor, your deadline is March 15th of the year that you want to become. For example, if you would like to have a Blue Form filer status for 2023, the deadline is March 15th, 2023.