Navigating Japan's Electronic Bookkeeping Act: An Easy Guide

Japan's Electronic Bookkeeping Act (電子帳簿保存法) sets the rules for how businesses must store tax-related documents electronically. Since the reform took full effect in January 2024, all companies and sole proprietors operating in Japan are required to meet strict digital storage standards or face financial penalties.

This guide explains exactly what the law requires, what's changed, and how to stay compliant.

What is Japan’s Electronic Bookkeeping Act (電子帳簿保存法)?

Japan’s Electronic Bookkeeping Act (電子帳簿保存法, denshi chobo hozon ho) is part of Japan’s ERRL (Electronic Record Retention Law), administered by the National Tax Agency (国税庁). It allows tax-related books, invoices, and ledgers to be stored electronically for all businesses and sole proprietors. More specifically, tax-related books and tax-related documents can now be stored solely electronically.

Some documents, such as handwritten ledgers and invoices, do not fall under this act, so original copies of those must be preserved.

Prior to the establishment of this act, all tax-related items needed to be kept in their original paper form.

What changed under the 2024 Electronic Bookkeeping Reform?

From January 1st, 2022, Japan’s Electronic Bookkeeping Act mandated that the physical copies of financial documents were no longer required.

The purpose of the reform was to encourage modernizing finance and tax reporting practices to streamline business operations. 

The Act specified specific electronic storage requirements that companies must adhere to in order to meet requirements.

Companies in Japan had time to prepare until the end of December 2023.

Before, all electronically stored documents needed physical paper backups.

But now, Japan has broader digital storage standards for bookkeeping.

3 types of electronic storage required under Japan's ERRL

Three types of electronic storage are affected by this law:

1. Electronic ledger and document storage

This type of storage refers to any created and stored digital data on the computer or cloud for easy access and maintenance, including physical media storage like DVDs and hard disks.

Two types of tax-related categories fall under this storage:

• Tax-related books: such as journals, general ledgers, and cash books.

• Tax-related documents: these include financial settlements (balance sheets, profit and loss statements, and inventory) and copies of transactions (receipts, invoices, and purchase orders). 

2. Scanner-based document storage

This type of storage refers to documents that were previously in physical format but are preserved as digital storage.

In terms of tax-related documents, all transaction evidence is scanned, such as receipts, invoices, and purchase orders.

Once scanned, these documents should be in a storage system that prevents tampering and includes timestamps and modifications history.

3. Electronic transaction data storage

Any documents and transactions received and electronically saved fall under this type of storage, such as electronic payment, email data, and EDI (Electronic Data Interchange) transactions. 

As long as these saved files are in a tamper-proof storage system, there is no need for timestamp history.

Additionally, any invoice storage system, must comply with the Electronic Bookkeeping Act in Japan and the Qualified Invoice System.

👉 Learn more about qualified invoices and qualified invoice issuing businesses.

Tamper-proof storage requirements

The new amendments emphasize tampering-proof measures, including detailed records with timestamps to ensure all documents can not be altered without them being tracked.

Searchability and record organization rules

All electronic records must be searchable.

Businesses need to organize their digital records based on transaction dates, amounts, and other relevant details, for example, 2024-03-15_Inv#1234_K-Corporation.pdf.

Electronic submission for tax audits in Japan

The new reform introduces electronic submission of reports and documents to any tax authorities for more streamlined audit and compliance checks.

Penalties for non-compliance with Japan's Electronic Bookkeeping Act

Additional payments 

There are higher penalties when businesses do not complete these new electronic storage requirements.

Under Article 8 of the Electronic Bookkeeping Act, businesses that fail to maintain compliant electronic records may face a 10% additional tax assessment on underreported income identified during an audit. Non-compliant businesses also lose eligibility for the Blue Return (青色申告) tax deductions, which can be worth up to ¥650,000 annually for sole proprietors.

Loss of tax benefits

Not complying can also result in loss of tax benefits, such as deductions or credits.

Frequently asked question

What is Japan's Electronic Bookkeeping Act?

Japan's Electronic Bookkeeping Act (電子帳簿保存法) is a law that sets the requirements for how companies and sole proprietors must store tax-related electronic records. It covers three main categories: electronic ledger and document storage, scanner-based document storage, and electronic transaction data storage (電子取引). The law is part of Japan's broader Electronic Record Retention Law (ERRL) and has been in full enforcement since January 2024.

Who does the Electronic Bookkeeping Act apply to in Japan?

All companies and sole proprietors operating in Japan are obliged to comply with the Electronic Bookkeeping Act. This includes businesses that store tax-related books such as general ledgers, journals, and cash books, as well as those that process electronic transactions through methods like EDI (Electronic Data Interchange) and email. There are no exemptions based on company size, so even small businesses must ensure their record-keeping systems meet the law's requirements.

What documents must be stored electronically under Japan's ERRL?

Tax-related books (帳簿書類の) such as general ledgers, cash books, and journals must be stored in a compliant electronic format. Transaction documents including receipts, invoices, and purchase orders also fall under the law, provided they were created or received electronically. Handwritten ledgers and invoices are not covered by this article of the law, meaning original paper copies of those documents must still be preserved.

What are the tamper-proof requirements under the Electronic Bookkeeping Act?

The Electronic Bookkeeping Act requires that all stored electronic records are tamper-proof and include timestamps to track any modifications over time. Scanner-based documents must be stored in a system that logs changes and prevents unauthorized alterations. For electronic transaction data (電子取引), files must be stored in a way that ensures integrity, though timestamp history is not required as long as the storage system is verifiably tamper-proof.

How must electronic records be organized to meet Japan's searchability requirements?

All electronic records stored under Japan's Electronic Bookkeeping Act must be searchable by transaction date, amount, and counterparty information. Companies are required to organize their 書類の in a consistent, structured way so that records can be retrieved quickly during a tax audit. A recommended method is to use a standardized file naming convention that includes the date, invoice number, and company name, for example: 2024-03-15_Inv#1234_K-Corporation.pdf.

What are the penalties for non-compliance with Japan's Electronic Bookkeeping Act?

Companies that do not meet the electronic storage requirements of the Electronic Bookkeeping Act risk higher tax assessments, particularly if they are unable to present compliant electronic records during an audit. Non-compliance can also result in the loss of tax benefits such as deductions and credits. Enforcement has tightened since the January 2024 deadline, making it important for all businesses in Japan to ensure their bookkeeping systems are fully compliant.

What is the difference between Japan's Electronic Bookkeeping Act and the Qualified Invoice System?

Japan's Electronic Bookkeeping Act governs how electronic records and tax-related books must be stored and preserved. The Qualified Invoice System is a separate requirement that determines how invoices must be issued and what information they must contain in order to be valid for consumption tax purposes. Any electronic invoice storage system must comply with both laws in order to satisfy Japan's full tax reporting requirements.

In closing

The Electronic Bookkeeping Reform represents the shift towards digitization in Japan.

These requirements are a way to improve efficiency, reduce paperwork, and enhance accurate reporting.