Japanese Business Glossary

確定申告 (kakutei shinkoku), income tax return, is the process in Japan where individuals and businesses calculate their total income for the year, determine the amount of tax owed, and submit this information to the tax authorities. This process includes reporting all income, claiming deductions, and paying any taxes due. The process begins with the preparation of necessary documents, such as income statements, receipts for deductible expenses, and proof of insurance payments. The main documents needed include the kakutei shinkoku sho (tax return form), which can be downloaded from the National Tax Agency's website, obtained from local tax offices, or generated using accounting software like Freee.jp or Money Forward.

The deadline for submitting a tax return is typically from February 16 to March 15 of the following year. If the due date falls on a weekend or holiday, the deadline is extended to the next business day. For the 2023 tax year, the filing period is from February 16, 2024, to March 15, 2024.

Certain groups are required to file a tax return, including self-employed individuals, freelancers, and business owners. Employees may also need to file if their annual income exceeds 20 million yen, they have additional income from side jobs exceeding 200,000 yen, or if they need to claim specific deductions that were not accounted for during the year-end adjustment (年末調整). Examples of such deductions include medical expenses, charitable donations, and mortgage interest.

The submission can be done in several ways: directly at the tax office, via mail, or electronically using the e-Tax system. Electronic filing through e-Tax has several advantages, such as not needing to submit certain documents physically and being able to file outside regular office hours.

給与所得 (kyūyo shotoku) refers to the income that employees receive from their employers in the form of wages, salaries, and bonuses. It is a significant category of income under Japan's tax law and is subject to income tax. The taxable salary income is calculated by subtracting the "salary income deduction" (給与所得控除 = kyuyoshotoku kojo) from the gross salary. This deduction accounts for various work-related expenses that salaried employees may incur and varies based on the total salary income. For example, for annual income up to 1,800,000 yen, the deduction is 55% of the income plus 100,000 yen. Different percentage deductions and additional amounts apply for higher income levels, up to a maximum deduction limit.

Employees can also claim specific deductions such as the "special expense deduction" (特定支出控除 = tokuteishi shutsu kojo), which covers work-related expenses like commuting costs, relocation costs due to job transfers, and costs for obtaining qualifications or attending training related to their job.

Salary income is typically subject to withholding tax, where employers deduct the estimated tax amount from the employee's paycheck and remit it to the tax authorities on their behalf. At the end of the year, a final adjustment (年末調整 = nenmatsu chosei) is made to reconcile any differences between the estimated and actual tax owed, ensuring the correct amount of tax is paid.

相続税 (sozokuzei), inheritance tax, is a tax imposed on the transfer of assets from a deceased person to their heirs. The tax is calculated based on the total value of the deceased's estate after deducting any debts and funeral expenses. This value is then reduced by a basic exemption amount, which is 30 million yen plus 6 million yen multiplied by the number of statutory heirs.

The calculation of inheritance tax involves several steps. First, the total value of the estate is determined. Then, the basic exemption is subtracted to find the taxable estate value. The remaining amount is divided according to the statutory inheritance shares, and each share is taxed at progressive rates ranging from 10% to 55% based on the size of the share. After this, any applicable tax credits or deductions are subtracted to find the final tax amount due.

Special provisions exist for business succession, which can defer or reduce the inheritance tax burden to help maintain family-owned businesses. These provisions include measures to defer tax payments or reduce the taxable value of business assets under certain conditions.

交際費 (kosaihi) in Japanese refers to entertainment expenses that businesses incur to build and maintain relationships with clients and business partners. These expenses include meals, gifts, travel, and event costs related to business entertainment. The primary purpose of kosaihi is to facilitate business relationships, enhance client interactions, and promote goodwill.

In accounting, entertainment expenses are treated differently based on the amount and nature of the expenditure. For example, expenses incurred for meals with clients can be partially deductible, typically up to 50% of the cost, provided certain documentation requirements are met. This includes keeping records of the date, participants, and the purpose of the meeting. Additionally, small and medium-sized enterprises (SMEs) with capital of 100 million yen or less can choose between deducting up to 800,000 yen of kosaihi annually or 50% of their total entertainment expenses.

Expenses that exceed certain thresholds or do not meet the specific criteria might not be fully deductible. It's important to distinguish entertaiment expenses from other similar expenses such as 会議費 (kaigihi = meeting expenses) and 福利厚生費 (fukuri kousei hi = welfare expenses), which have different accounting treatments and tax implications in Japan. Proper categorization and documentation are crucial for accurate tax reporting and compliance.

青色申告 (ao-iro shinkoku), blue tax return, is a tax filing system in Japan offering significant benefits to individuals and small business owners who maintain detailed accounting records using double-entry bookkeeping. Compared to the simpler white form tax filing (白色申告, shiro-iro shinkoku), the blue tax return in Japan provides substantial tax advantages.

One of the main benefits of the blue tax return is the special blue return deduction (青色申告特別控除 = aoiro shinkoku tokubetsu kojo), which can reduce taxable income by up to 650,000 yen if filed electronically via e-Tax or using electronic bookkeeping. Without electronic filing, the deduction is 550,000 yen. Additional benefits include the ability to carry forward net operating losses for up to three years, deducting family member salaries as business expenses, and using specific depreciation provisions for small assets.

To qualify for the blue tax return, individuals must file an application for approval by March 15 of the tax year they wish to start using the system. This application must be submitted to the relevant tax office. Additionally, taxpayers need to submit a detailed balance sheet and profit-and-loss statement along with their tax return.

The blue tax return is especially advantageous for freelancers, sole proprietors, and small business owners who want to maximize available tax deductions and credits.

適格請求書発行事業者 (tekikaku seikyusho hakko jigyosha), qualified invoice issuing business, refers to businesses registered to issue qualified invoices (適格請求書 = tekikaku seikyusho, "qualified invoices") under Japan's new invoice system, introduced on October 1, 2023. These invoices are essential for buyers to claim input tax credits for consumption tax.

To become a qualified invoice issuing business, a business must first be a taxable entity and submit an application to the tax office. The application must include specific documents such as the registration application form and identity verification documents. Once approved, the business receives a registration number, which must be included on all issued invoices.

The registration process and adherence to the invoicing requirements are critical for compliance and ensuring that business partners can claim their input tax credits. Failure to issue these qualified invoices can result in reduced business transactions or demands for price reductions from buyers who cannot claim their tax credits.