If your business is operating across borders, competing in the Japanese market as well as in your home jurisdiction, complying with local tax laws, meeting the necessary reporting requirements, and generally staying on top of your tax activities can be challenging. And it is often more than what the internal finance department is equipped for.
As well as needing a whole new knowledge base when navigating Japan’s increasingly complex tax landscape, many companies simply require additional resources to handle intensified accounting and tax activities in multiple countries.
As you will know already if you have been involved in medium-sized or large corporate entities, one of the keys to success is operational alignment. Without the right approach and skills to completely align your accounting and tax activities to minimize your global tax accountability, you will not be giving your corporate strategy and Japan market entry activities the best chance of success.
In this article, we explore the various benefits for your business by hiring the right international tax accountant in Japan.
Without the right approach and skills to completely align your accounting and tax activities to minimize your global tax accountability, you will not be giving your corporate strategy and Japan market entry activities the best chance of success.
What is an International Tax Accountant?
An international tax accountant, or a Certified Public Tax Accountant (CPTA) is a specific type of tax accountant or accounting specialist who is well versed in international tax law. They can come in different forms, such as international business advisory firms, accounting firms, or tax consultancies, but all will understand the tax implications of operating within separate jurisdictions, as well as in them.
Most commonly, these tax accountants will handle responsibilities such as preparing tax returns, researching tax laws and applicable tax treaties, and integrating this knowledge into your internal processes, and handling other activities such as transfer pricing among many others.
The process of entering the Japanese market for business expansion is usually supported by the presence of an international tax accountant. This person, team or firm will help to take care of the most important legal and compliance aspects that your company faces as you do business in Japan, while still maintaining your tax obligations in your home market.
They should have a firm grasp of the global tax position of your business, be able to work with your internal finance teams in your home territory, as well as work with your local subsidiaries or branches in Japan.
Benefits of Hiring an International Tax Accountant
Establishing a company or subsidiary in a foreign country is a formidable challenge, and one that requires a great deal of due diligence and consideration of local regulations and laws. International tax accountants offer a number of benefits to expanding businesses, such as resources, experience, guidance, and local competency. Here is how they can help you with your international taxation needs.
The truth is that handling taxes in Japan as a newly established entity without sufficient knowledge of the local tax system and various compliances can be incredibly challenging. Almost every multinational company operating in Japan will look to hire international tax accountants to help them in understanding the relevant local rules and regulations, streamline their operations, and succeed in the most efficient way possible.
Without this, you will find your existing internal finance teams can become spread too thinly to sufficiently overcome ongoing tax requirements. Simply researching multiple tax obligations on a global level can tie up your limited resources, whereas an existing international tax accountant could help you to immediately start implementing the best practices for your entity in a foreign market.
As well as being somewhat cumbersome, not having the right international tax support for Japan could actually be risky as well. One of the major risks is that you could expose your company to unnecessary tax liability at high margins, both at home and in Japan.
As an example, just for filing a tax return after the due date, a non-filing penalty is levied in addition to other penalty taxes. This is taxed at a rate of 15% of the tax determined by the tax office, or 20% for the excess over JPY500,000.
For issues of underreporting, the penalty is 10% of the additional tax due as a result of an audit by the tax authority or amended tax return. For more serious defaulting cases, heavy penalty tax applies at a rate of 35% of the additional tax for underreporting, 40% of the tax determined for non-filing, and 35% of the tax determined for failure to make withholding tax payments.
Effective accounting and tax support can help you to build a globally integrated strategy that reduces your tax exposure and helps you to operate progressively in your new market.
A lack of coordination between your existing tax advisors or the finance department in your home country and your new Japanese team can impede growth and cause reduced productivity. It is one of the most common issues that many multinationals face when unprepared to handle international accounting and tax operations efficiently.
To ensure synergy and reduce unnecessary tax liabilities, you need to have a team that is well placed to coordinate on your accounting and tax activities across borders, aligning each respective country with an overarching tax strategy. Whether an international tax accountant will spearhead this initiative or simply support it, they are an invaluable part of the process.
Reducing your global accountability to a scale that is fully compliant with all jurisdictions and effective for your businesses is the ultimate benefit of hiring an international tax accountant. Going beyond how tax details and issues are resolved, these advisors will help you to structure your accounting and tax approach as a whole and within the context of your global accountability and expansion plans.
English Language Reports
Accounting, tax, and financial reports are only useful when they are fully accurate, readable in English and clearly understood by the finance team at your company’s headquarters. While you might have diligent professionals on the ground in Japan handling your various tax management processes, you will still need to be able to access important information in English so you can review it appropriately and share it with the relevant members of your team at your home office. This is only possible if you have full bilingual support from an international tax accountant.
This principle also translates to international accounting standards. While the J-GAAP accounting standard is used in Japan, you might need all data to be converted into other accounting standards, such as IFRS or US-GAAP, in order to facilitate internal group reporting. Having international tax accountants who are able to handle this conversion process will make it easier for you to comprehend and deliver the information you need, easily, and efficiently.
Pitfalls of Poor International Tax Management
Tax compliance is one of the most problematic areas when it comes to expanding in foreign markets, such as Japan. There are a number of potential risks of non-compliance depending on how your operations are structured here and the type of business activities you are engaged in. No matter what your decisions are on the ground, you will always need to abide by the rules and regulations of the country where you are operating a business.
Some of the areas that your international tax accountant will be able to help you build for appropriate planning and accounting including employee payroll related calculations and compliances, bookkeeping activities, and corporate tax compliances on a local and national level.
The Japanese government, like many around the world, takes a diligent approach towards monitoring the activities of businesses that operate domestically, whether it is a local Japanese owned business or an entity of a foreign company. After all, it is an important source of revenue for the country and the best way to secure this is through strict enforcement of tax laws and regulations.
When engaged in Japan market entry activities or expanding your existing presence here, you should always understand the applicable compliance rules and any relevant tax treaties that exist between your home country and Japan. For example, Japan and the US signed a protocol to amend the 2003 income tax treaty between the two countries on January 25, 2013. Knowing what the specific terms are encompassed in this, as well as the most current applications, can help you avoid instances of tax non-compliance.
For non-compliance, you can expect to pay back taxes or adjust past contributions, as well as additional fines and penalties that may be levied for non-payment in the first place. In addition to inviting greater scrutiny from the Japanese Tax Authority, large tax-related fumbles can also impact a business’s social reputation in a country that places great importance on following correct procedures.
Large tax-related fumbles can also impact a business’s reputation in a country that places great importance on following correct procedures.
Examples of Non-Compliance
- A company fails to establish a legal local entity while engaging in revenue-generating activities in Japan and paying foreign employees.
- Incorrect corporate tax payments in accordance with the activities of foreign employees.
- Miscalculated corporate tax or statutory contributions for individual employees, which company entities could be found liable to pay.
- Late or wrong date submissions of important financial and tax reporting documents.
What Services do International Tax Accountants Offer?
Before you hire an international tax accountant, make sure you understand the major areas of expertise in tax accountancy you will need the most. Depending on your operational structure in Japan, you may need only a few specific services, or a more comprehensive package. Below are a few areas to consider as part of your operational process in Japan.
Business Advisory Services
International tax accountants often offer much more holistic business support and knowledge. This is especially the case for firms offering a wide range of services to new businesses entering or already operating in Japan. With multiple departments or various experts, business advisory services are a common counterpart to accounting and tax support, as your tax situation in Japan will be closely connected with your overall business environment and operations. Having someone to advise on both sides of your business, including business development opportunities and the resulting tax implications, can be extremely helpful to move forward with cohesion.
They will be able to answer questions like, “how will additional capacity and new foreign employee recruitment impact my tax liabilities?” Or, “what kind of business insurance is the most economical?”. This additional business consulting and level of local market perspective can influence many important business decisions.
Your international tax accountant should also be able to help you with implementing ongoing and long-term systems for tracking the financial activities of your business.
Accounting and Bookkeeping
International tax accountants will also offer basic accounting functions such as bookkeeping and monthly closing. In addition to setting up accounting processes in Japan and maintaining accurate records, they will also be able to help you with implementing ongoing and long-term systems for tracking the financial activities of your business operations.
This will allow you to more readily evaluate things like profitability and costs in Japan, while letting you track your spending and revenues in relation to your initial predictions. It is also worth noting that while accurate bookkeeping is a foundation stone of any international business, many companies still slip up from small mistakes.
Proactive Tax Advice
Understanding rules and compliances is one thing, but building proactive systems and strategies to handle the financial workings of multinational entities is what truly sets good international tax accountants apart.
Proactive tax planning and advice on an international level is something only the most competent and experienced tax accountants can do to great effect, as they’ll need to draw from tax knowledge in multiple jurisdictions and offer input and direction based on many moving parts.
To learn more about the benefits of having a comprehensive tax advisory, take a look at our recent article: Why Comprehensive Tax Advisory Might be Essential for Your Business.
Audit and Assurance
Businesses may face an audit for a number of reasons, whether it is purely tax-related or needed to acquire loans from financial institutions. An international tax accountant can offer support for various audit-related activities while providing well-needed assurance for a company before the process is initiated.
Audits must be carried out in accordance with the standards generally accepted in Japan. With a view of important financials and an accurate grasp of company-wide tax details, these audits can be completed smoothly and without unnecessary strain on resources.
Japan Market Entry
Accounting and Tax support may just be one small part of the international support you need when operating in Japan. For example, operational outsourcing, HR & labor law support, market research and more might be needed as you do business with Japan for the first time. For foreign-based businesses, it can be beneficial to work with an agency or advisory firm that can help across multiple areas to assist with your Japan market entry strategy.
Choosing the Right Kind of International Tax Accountant
If you have made the decision to work with an international tax accountant for some or all of your activities in Japan, finding the right one is obviously a crucial process. Below are a few criteria you can use for vetting the various individuals and firms available to you.
Referrals – A referral from a local business colleague or existing business advisor should not be underestimated. You will find that many accountants will specialize in supporting large companies entering Japan, and if you find someone who comes highly recommended, it is worth following up with them as part of your shortlist process.
Services and Specializations – Making a comprehensive list of the specific tax, audit or overall financial accounting services that you need, and matching this with different tax accountants is important. If an accountant will be able to help you prepare for audits and stay on top of general bookkeeping, but won’t be able to help you analyze and plan for more long-term tax strategies, you will have to handle this aspect internally or find additional support when needed. In addition, your accounting and tax partner should be able to communicate effectively and clearly with you.
Experience and Track Record – Knowing that your international tax accountant already has success handling certain activities is obviously a good measure of their competency. They should be easily able to inform you of their past experience and success stories when communicating with them.
Approach – The approach of your accounting and tax partner can differ depending on their perspective, experience, and style. It is good to work with someone who has an approach that is compatible with your own, whether that’s workflow and deadlines, internal procedures or effective communication.
Fees – Do not be afraid to ask about fees upfront. You will want to know how standard retainer fees or engagements are priced, as well as what additional services would cost if commissioned in the future to get a sense of total annual costs.
Accounting and Tax compliance should be a priority for multinational companies operating in Japan. You will have to juggle the requirements of your home country, your new jurisdiction, and any relevant tax treaties that exist between the two. As such, the need for tailored and comprehensive compliance and financial advice from accounting and tax experts is something that will help you to operate with confidence and focus on core aspects of your business.
Given the potential for fines, penalties, service disruptions, reputational damage, and general confusion, engaging an international tax accountant offers a number of benefits. Whether you need only limited support with specific services or you want to fully outsource all your operational requirements, an effective accounting and tax partner, can eliminate instances of non-compliance and ensure your accounting and tax activities are conducive to healthy business growth.
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