Japanese Business Glossary

配偶者特別控除 (haiguusha tokubetsu koujo), special spouse deduction, is a Japanese tax deduction aimed at reducing the income tax burden for taxpayers whose spouses have limited income. This deduction is designed to support households where one spouse has a lower income, usually from part-time work or other minor sources.

To qualify, the taxpayer’s spouse must have an annual income within a specified range. The exact range may vary each year, so it’s important to check the current tax regulations. The amount of the deduction decreases as the spouse’s income increases. The maximum deduction is applied when the spouse's income is at the lower end of the specified range and gradually decreases as the income approaches the upper limit of the range.

The deduction is also influenced by the taxpayer’s income. There are thresholds for the taxpayer’s total income, and exceeding these thresholds can reduce or eliminate the deduction.

The aim of this deduction is to support households by lowering the tax burden, thus encouraging economic stability and potentially increasing consumer spending.

For the exact figures and more detailed conditions, it is advisable to refer to the latest information provided by the Japanese tax authorities or consult with a tax professional.

インボイス制度 (Inboisu seido) in Japan is an invoice system that began on October 1, 2023, and is designed to ensure accurate accounting and tax compliance. Officially called the "Qualified Invoice System" (適格請求書等保存方式), this system requires businesses to issue and store invoices that meet specific criteria to claim input tax credits on consumption tax.

Qualified invoices must include the issuer's name and registration number, the transaction date, details of the transaction indicating any reduced tax rate items, the amount and tax rate, the tax amount for each tax rate, and the recipient's name. Only businesses registered as "Qualified Invoice Issuers" can issue these invoices, and registration involves submitting an application to the tax office, available only to taxable businesses. Exempt businesses must register if they wish to issue qualified invoices.

The system affects both sellers and buyers. Sellers need to ensure their invoices comply with the new standards, and buyers need to collect these invoices to claim tax deductions. The system aims to prevent tax evasion and errors by ensuring that all taxable transactions are properly documented and reported.

Both issuers and recipients of qualified invoices must keep these documents for seven years. This can be done electronically or in physical form, as long as all required information is preserved and accessible for tax audits.

The introduction of the インボイス制度 is significant as it changes the way businesses handle consumption tax. Companies need to update their accounting practices and software to comply with the new requirements. Those dealing primarily with exempt businesses may need to reconsider their business relationships due to potential changes in tax liability.

所得税 (shotokuzei) is a tax levied on the income of individuals in Japan. It applies to income earned within a calendar year, from January 1 to December 31, and is calculated based on the taxable income of an individual. The calculation process involves several steps.

First, you determine the gross income, which includes all types of income such as salary, business income, capital gains, rental income, and others. Then, various deductions are allowed to reduce the taxable income. These deductions include basic deductions for dependents, social insurance premiums, and medical expenses. Specific deductions applicable to most individuals are the basic deduction, social insurance premium deduction, spousal deduction, and dependent deduction.

Next, you subtract the total deductions from the gross income to determine the taxable income. Japan uses a progressive tax rate system, meaning the tax rate increases with higher income brackets. The rates range from 5% to 45% depending on the amount of taxable income. For example, income up to 1,950,000 yen is taxed at 5%, and income above 40,000,000 yen is taxed at 45%.

After applying the tax rates, any applicable tax credits are subtracted to determine the final tax amount. Tax credits may include those for housing loans, specific investments, and other qualifying expenses.

Individuals are required to file a tax return annually, typically between February 16 and March 15 of the following year. If the total income is under certain thresholds or if the income is solely from salary with appropriate withholdings, filing may not be necessary. However, those with multiple income sources or significant deductions usually need to file a return to adjust their tax obligations accurately.

電子帳簿保存法 (denshi chobo hozon ho), Electronic Bookkeeping Preservation Act, is a Japanese law that allows businesses to store accounting records and transaction documents electronically instead of on paper. The law aims to promote paperless operations and streamline record-keeping processes for businesses. It covers three main types of documents: accounting books like journals and ledgers, transaction documents such as invoices and receipts, and electronic transaction data from internet banking or electronic receipts.

To comply with the law, documents must meet specific requirements, including the ability to track modifications and ensure data integrity. Businesses are required to keep records of all electronic transactions digitally since the law's amendment on January 1, 2022. This means any documents received or sent electronically must be stored in their digital form. The law includes provisions for using time stamps, maintaining records of corrections or deletions, and implementing measures to prevent data tampering. Businesses must be able to search and retrieve these documents efficiently by transaction date, amount, or counterpart.

To comply, businesses need to establish internal procedures and use compliant systems for storing electronic records. This helps improve transparency and accuracy in tax reporting and record-keeping, reducing the risk of errors and fraud.

年末調整 (nenmatsu chousei), year-end tax adjustment, is an annual process in Japan where employers adjust the amount of income tax withheld from employees' salaries to match the actual tax owed for the year. This process ensures that the correct amount of tax is paid, avoiding both overpayment and underpayment. Employers calculate the total amount of salary and bonuses paid to each employee throughout the year and compare it to the tax that was already withheld. They then apply various deductions and exemptions that employees are eligible for, such as deductions for dependents, insurance premiums, and housing loans. The adjustments result in either a refund if too much tax was withheld or an additional payment if too little was withheld.

Employees must submit necessary documents, including forms detailing any changes in their personal situation that affect tax calculations, such as changes in dependents or marital status. These adjustments are typically performed between October and January of the following year. If any documents or information are missing, employees may need to file a tax return during the regular filing period from February 16 to March 15 of the following year to claim any eligible deductions or credits not accounted for during the year-end adjustment.

適格請求書 (tekikaku seikyusho), a qualified invoice, is a specific type of invoice mandated under Japan's new invoice system, which began on October 1, 2023. This system ensures that businesses properly document transactions for accurate consumption tax reporting and deductions.

A qualified invoice must include the name and registration number of the issuer, the transaction date, details of the transaction including whether items are subject to reduced tax rates, the total amount for each tax rate category showing the applicable tax rate, the consumption tax amount for each tax rate category, and the name of the recipient. Only registered qualified invoice issuers can issue these invoices, and businesses must register with the tax authorities to become qualified issuers. The registration involves providing details such as the business name and a unique registration number, which for corporations is a combination of "T" and their corporate number​.

Certain industries, such as retail and restaurants, can issue a simplified version known as a 適格簡易請求書 (tekikaku kan-i seikyusho), which allows for less detailed documentation while still complying with the invoice system.