How hiring an English-speaking tax accountant in Japan can save you hours and yens
Are you still looking for a reliable English-speaking tax accountant in Japan? Read our article to understand the benefits Otani Accounting Office can provide to your business!
Doing business in Japan for the newbies is not a walk in the park. And needless to say that tax matters are not something you should expect to be solved at the push of a button, especially if you don’t speak Japanese. No wonder many entrepreneurs feel bewildered when establishing their company in Japan.
If you’re new to Japan and don’t know where to start or which path to take – we have a solution for you. The simplest one you can ever imagine! Keep reading to find out how hiring an English-speaking tax accountant in Japan at an early stage can help you save your money and time.
Let’s now get a brief overview of the taxes you’ll have to pay after finishing your first fiscal year in Japan.
Three major types of taxes in Japan
There are three major types of taxes, they are ‘Corporate Tax’, “Individual Tax” and ‘Consumption Tax’. They are the three pillars of the Tax System.
Consumption Tax
In Japan, you’re exempt from paying the consumption tax for the first two years. After 2 years, your JCT liability depends on the taxable sales amount in the base period.
Individual Tax
All freelancers and self-employed in Japan must pay this tax on total net business income earned between January 1st – December 31st each year. How? By filing a Final Income Tax Return by March 15th every year.
Similarly, certain salary income earners that do not fall under the scope of Year-End Tax Adjustment provided by their companies must report their income by themselves.
Our guest article on how to file your Tax Return in Japan is now live on our partner’s website.
Corporate Tax
It is a combination of National Tax and Local Tax. National Tax is not collected if your business doesn’t make any profit. Local Tax, on the contrary, should be paid on a regular basis no matter what. The lowest amount of tax you’ll have to pay no matter whether you succeed in making a profit or not is 70,000 Yen.
Business liquidation in Japan is no cheap thing either
If you decide to shut down your company for some reason, you’ll be surprised at the amount you’ll need to pay for it. As a result, many foreigners opt for a «Dormant Company» status instead of liquidation. This, however, requires certain paperwork to be completed – otherwise, you may need to pay Local Tax consistently, even if you do not generate any profit. So, it’s not as easy as ABC anyway!
Okay, you’ve already accepted the fact that you’ll have to watch a chunk of your budget disappear on a regular basis.
But why exactly hiring an English-speaking tax accountant in Japan is the key to success?
Not only we’ll help you establish your business in Japan, but also use your funds efficiently. And, if you’ll need help from another professional, we will gladly introduce you to an appropriate one.
(And you’ll have to get acquainted with at least a few of them in the initial stages of company establishment – be it a Certified social insurance labor consultant or Lawyer for registration)
Thus, you’ll be able to save time and money.
To prove the point, we’ll give some simplified case studies where our clients could save money by following our advice. We’ll also show you some benefits of hiring an English-speaking tax accountant in Japan.
Why hire an English-speaking tax accountant in the first place?
Cost Efficiency
So, obviously, you have 3 options for your business:
- Outsource your tax and accounting to OAO
- Hire a full-time accountant
- Do tax and accounting by yourself
Every option has its pros and cons, of course!
For example, a yearly salary of a full-time employee is usually much higher than the fee you will need to pay to an outsourced professional. Besides, you will need to spend money on tax and accounting software (which are not cheap either) if you hire a full-time accountant. All in all, outsourcing to OAO can save you up to 4 million yen yearly.
When handling tax and accounting issues by yourself, there is always a risk of making mistakes and earning penalties. It’s because it requires decent and comprehensive knowledge of Japanese tax regulations and accounting standards.
All this can only be acquired through years of practice.
We’ve got 38 years of experience in Japanese and International taxations and accounting and payroll extending through 2 generations of Zerishis.
Our reviews speak volumes!
We can also provide adequate support in English (European members on board). Thanks to our clear explanations you will understand exactly what we’re doing for you and how it affects your business, from a tax&accounting perspective.
Alright, enough talking, let’s see real examples of what we can do for your business.
Tax Planning Strategy
Suppose you’re a sole proprietor in Japan with an annual sales amount of 10 million yen. Furthermore, your business is growing, and you plan on increasing sales.
Being our client, we would highly recommend establishing G.K. or K.K. because the Individual Tax rate in Japan is progressive – the more you earn, the more taxes you pay.
Corporate Tax rates, on the contrary, are reasonable and easier to control (especially for SME companies).
To give you a basic idea of reducing your tax, let’s simulate two scenarios.
Please be careful, we will show just a primitive tax simulation. Typical income deductions like Basic Deduction or Social Insurance and Tax Credit have not been calculated in this tax simulation.
Therefore, this calculation is for your reference only. Always make sure to run to a professional for tax simulation based on YOUR data.
Alright, so what we have is:
Individual Income Tax and Corporate Tax are calculated as follows:
- Sales – Expenses = Profit
- Profit * Tax Rate = Tax Amount
Ok, clear here. Now let’s simulate two scenarios.
Scenario 1: You keep your sole proprietorship
In order to make sales, you need to spend some money on advertising your business or renting your office, etc. Let’s say you spend 2 million yen on that, so your profit is 8 million yen.
Profit: 10,000,000 – 2,000,000 = 8,000,000
Tax amount: 8,000,000 * 23% – 636,000 yen = 1,204,000 yen
*No earned income deduction is available for a sole proprietor.
Scenario 2: You establish a company
If you establish a company, you will become a representative director. Let’s assume you will receive all profit from your company as your salary. So, 8 million yen is your salary, and the company’s profit is 0.
*Please note whether or not your company makes a profit, you still have to pay 70,000 yen in taxes yearly.
Even if you buy shoes, suits or spend money on acquiring the necessary knowledge, you cannot deduct these actual expenses from your profit ( 8 million yen) being a salaried employee.
However, earned income deduction is available in this case.
If your salary is 8 million yen, the earned income deduction will be:
8,000,000 * 10% + 1,100,000 yen = 1,900,000 yen
So, if you have a company, your taxable income will be:
8,000,000 yen – 1,900,000 yen = 6,100,000 yen
It means that by incorporating a company you can reduce your taxable income by 1,900,000 million.
The amount of income tax will be calculated as follows:
(8,000,000-1,900,000)*20%- 427,500 = 792,500 yen
All in all, by incorporating your company, you can reduce your tax by 411,500 yen.
Quite convincing, don’t you think so?
Tax benfits to reduce your tax bill
An English-speaking tax accountant in Japan knows about the benefits you’re entitled to. That’s why we can reduce your tax bill.
One of the examples would be Blue-form Return Status
Many entrepreneurs contact an English-speaking tax accountant in Japan after establishing their company and experiencing a hike in sales. The order, though, should be the other way around.
An English-speaking tax accountant in Japan is the very first professional you should contact if you’re planning to set up a business in Japan.
Why? Because we can help you get the tax benefits from the very beginning.
For example, there is a «Blue-form Return» you can submit within two months (for self-employed) after your business has been authorized. It is vital to the Tax Reduction Strategy. Despite that neither a lawyer for registration (Shiho-Shoshi) nor a lawyer for paperwork (Gyosei-Shoshi) will tell you about this document as it is not within the scope of their expertise.
Why is « Blue-form Return» all-important?
If it is accepted by the tax office, you will get up to 650,000¥. Moreover, it will offer you some other great benefits.
Read our detailed explanation about Blue-Form Return here.
All in all, this is a crucial benefit to consider in order not to go bust since many companies bet big during their first year.
We can advise you to become a JCT taxpayer, depending on your financials.
Sometimes, even if you’re a tax-exempt business for Japanese Consumption Tax purposes, we may advise you to switch to JCT taxpayer status.
Generally, it may happen in 2 cases.
Case 1:
You’re a start-up company. Suppose it’s your first year operating in Japan, so your sales are limited as you’re just testing the waters. But your expenses are huge because you need to buy new equipment or construct and office space, for example.
It means that you may result in paying the Japanese Consumption Tax in excess (due to business expenses), but wouldn’t be able to receive the JCT back with your sales because they’re pretty limited at the moment.
In that case, becoming a JCT taxpayer to receive the refund for the JCT you paid with your expenses may be advantageous for your business.
Case 2:
You’re located in Japan, and your business is also registered in Japan. However, most of the clients you work with are located overseas. It means that you never receive JCT with your sales because you don’t need to include JCT in the invoices to clients located overseas. But you do have expenses to operate your business, meaning you end up paying JCT with your expenses but never receive it back.
In such a situation, becoming a JCT payer and claiming a refund sounds excellent.
If you’re still thinking of whether to hire us, you can meanwhile read our blog articles – we’re sure you’ll find them helpful. And the pieces of advice there are just 20% of what we can do for your business.
Translation benefit
One of the biggest obstacles for foreigners in Japan is the language. Most Japanese institutions, including banks, tax offices or pension services, still do not provide efficient English support. This might feel unbearable, especially when you’re new in Japan.
Here is where your English-speaking tax accountant can come to the rescue. Although translation is not their duty, we won’t refuse to make some calls on your behalf or even accompany you if you’re in trouble. Sometimes it may come at an extra price, but no one can put a price tag on the sense of security and relief you get.
Continuous support
Having a tax accountant by your side means having continuous and long-lasting support. Anytime. Anywhere.
Not sure how to enroll the company into Social Insurance? Call your English-speaking tax accountant in Japan. Don’t know if you are eligible for a pension exemption? Contact your tax accountant and they will make some calls on your behalf.
They are also the ones who will gladly guide you through the Japanese business custom to secure your smooth adjustment to the new environment.
Feels compelling, doesn’t it?
As you can see, not only can tax accountants advise you on tax matters, but also offer a wide range of support you might have never expected.
Be time and money-wise – contact our English-speaking tax accountant in Japan to start your dream journey with a successful note.
David
I’m David, the Director of the International Department.
Native Japanese speaker, born and raised here in Tokyo, I have more than 10 years of professional work experience.
Through my bicultural background, I decided to support foreigners in Japan by helping them establish their business here.
Taking care of all necessary procedures and providing accounting services with English speaking experts is our promise to help you make the best out of your experience in Japan.
In order to not get lost in translation, we accompany you and your business through every step.
