SMEs are required to pay a 50% overtime premium for monthly overtime work exceeding 60 hours
The Japanese Ministry of Health, Labor and Welfare has made a new amendment towards premium wage rate for overtime work for small and medium enterprises (SMEs). The amendment implemented in April 2023 raised the overtime premium rate to 50% for SMEs, which previously only applied to large enterprises with grace period measures. With this amendment, the reduction of working hours is expected to lead to improved productivity and performance, but the economic burden on SMEs due to the payment of overtime premiums is also acknowledged as a challenge that needs to be addressed.
■Alternative Leave System:
It is also possible to establish a system to grant paid leaves, known as “alternate leaves” in lieu of paying the increased premium wages. The introduction of this system requires a labor-management agreement, and there are provisions specifying that the leave must be granted within two months from the day following the end of the month with overtime work exceeding 60 hours.
■Relationship with Late-Night and Holiday Work:
If overtime work exceeding 60 hours is performed during the late-night hours, employers are obligated to pay an overtime premium calculated at a rate of 75% or higher, including the late-night premium. Additionally, statutory holiday work is not included in the calculation of the 60-hour threshold.
■ Benefits of this Legal Amendment:
The amendment is expected to result in a reduction of working hours, making it easier to manage employees’ health and creating a more favorable working environment. This, in turn, can lead to increased employee motivation and a decrease in attrition. Payment of overtime premiums increases compensation for workers and can improve work-life balance.
■Future Challenges:
There are various challenges, including the financial burden on SMEs and securing human resources. Differences in awareness among employees and the establishment of systems to accommodate employees are among these challenges. Addressing these issues requires not only individual efforts made by the SMEs, but also support from the national government, local governments, industry organizations, and the workers themselves.
■In Conclusion:
SMEs will need to review their employment policies, personnel systems, and labor management systems to adapt to the payment of overtime premium wages and ensure compliance.
It is also essential to be aware of the appropriate procedures and precautions to avoid any risks associated with this legal amendment. Information gathering and reassessment of countermeasures are also crucial to create an optimal working environment.
Please refer to the brochure from the Ministry of Health, Labor and Welfare (in Japanese only) here: LINK
Please feel free to contact us in case of any queries.
Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.
In Japan, there are “Guidelines for Accounting of Small and Medium-sized Enterprises” (the Guidelines) that non-publicly listed companies or that are not large companies under the Companies Act can rely on when preparing their financial statements. Such companies are audited by Certified Public Accountants.
These Guidelines were recently revised on May 10, 2023.
These Guidelines are created by four organizations: Japan Federation of Certified Public Tax Accountants’ Associations, The Japanese Institute of Certified Public Accountants, The Japan Chamber of Commerce and Industry, and The Accounting Standards Board of Japan, in cooperation with the Ministry of Justice, the Financial Services Agency, and the Small and Medium Enterprise Agency.
Compared to the corporate accounting standards that listed companies rely on in preparing their financial statements, the standards in these Guidelines are simplified and easier for SMEs to deal with.
For example, these Guidelines allow the use of the “Last Purchase Price” method inventory valuation.
In addition, certain tax accounting treatment is also permitted, resulting in fewer adjustments required for corporate tax returns. For example, the calculation of the allowance for doubtful accounts can be based on the criteria specified in the Corporate Tax Law under certain conditions.
Furthermore, companies that prepare their financial statements in accordance with these Guidelines may enjoy certain benefits such as discounted guarantee rates from credit guarantee associations and relaxed loan conditions.
While the abovementioned information pertains to the “Guidelines for Accounting of Small and Medium Enterprises,” there is also document on the “Code for Accounting of SMEs” (the Code) specifically designed for smaller companies. The Code does not cover topics such as “tax effect accounting” and “accounting for organizational restructuring”. The descriptions in this Code are more concise, providing even simpler accounting rules.
It is recommended to apply the appropriate set of guidelines based on the size of your company.
Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.
Japan will implement a qualified invoice storage method (Japanese Invoice System) from October 2023. Under this new Japanese Invoice System, all qualified invoices, where tax credits for Japanese Consumption Tax (JCT) are applicable, will require proper storage as per the stipulated guidelines. Otherwise, deductions through tax credits may not be applicable, and the amount of JCT payments may increase.
What is a Qualified Invoice?
A ‘Qualified Invoice’ is an Invoice or Receipt that is issued by a qualified invoice issuing company and includes the following 6 components
1. The name and registered number of the qualified invoice issuer 2. Transaction Date 3. Transaction Detail (clarification of item subject to the reduced tax) 4. Transaction Amount (Display respective amounts by applicable tax rate) 5. Consumption Tax Amount along with the applicable tax rate 6. Name of the counterparty along with billing address
Input of registered number and consumption tax along with the applicable tax rate is the key differentiator from the current invoicing system.
Who is a Qualified Invoice Issuer？
A Qualified Invoice Issuer is a taxpaying business that has applied to the tax office and has been registered as a qualified invoice issuer with tax office. Upon registration as a qualified invoice issuer, the business operator will be given a registered number, and that will also be available along with company name on the National Tax Agency website.
In order to become a qualified invoice issuer, “Eligible Invoice Issuer Application” must be submitted to the authorized tax office.
In order to be registered from the first day of the introduction of the new Japanese invoice system, October 1, 2023, the application was accepted from October 1, 2021 to March 31, 2023 in principle, but it is now possible to be registered on October 1, 2023 if the application is submitted by September 30, 2023, even after April 2023. (Tax Reform 2023)
It is also possible to register on or after October 2, 2023, but please note that the submission deadlines are different.
To avoid confusion, we recommend your business to file the registration as early as possible.
HLS can support the application preparation and submission process.
A current taxpaying entity is considered to be eligible to become a qualified invoice issuer without exception and should apply to become a qualified invoice issuer.
For instance, if a taxpaying entity is a non-qualified invoice issuer, they will not be able to take tax credits on the input consumption tax due to a non-qualified invoice. Such disadvantage to vendors may result in suspension of trading transactions or discount requests to equalize the amount of non-deducted consumption tax.
Influence on a Non-Tax Paying Entity
Non-taxpaying or tax exempted entities are those that are exempted from consumption tax returns and tax payments. Essentially, a non-taxpaying entity cannot become a qualified invoice issuer. In order for a non-taxpaying entity to become a qualified invoice issuer, it must become a tax paying business first, and waive the benefits of tax exemption. Besides that, when a non-taxpaying entity issues an invoice that includes consumption tax, the consumption tax cannot be deducted by the invoice receiving vendor. However, a transactional measure of 6 years is provided as follows.
For an invoice issued by a non-taxpaying entity between October 2023 – September 2026: Only 80% of the consumption tax is eligible for tax credit for invoice receiver
For an invoice issued by a non-taxpaying entity between October 2026 – September 2029: only 50% of the consumption tax is eligible for tax credit for invoice receiver
For all invoices issued after October 2029：No tax credit on consumption tax will be available for invoice receiver
The advantages/disadvantages fora non-taxpaying entity to become a qualified invoice issuer are summarized below:
Advantages
Disadvantages
In case of becoming a qualified invoice issuer
■ Ability to create and issue qualified invoices、and no disadvantages on business trading/transactions ■ Ongoing business trading with vendors continues (no business loss due to consumption tax issues)
■ Can no longer enjoy the tax exemption benefits ■ Need to file consumption tax Returns resulting in an increase in professional fees
In case of not becoming a qualified invoice issuer
■ Can enjoy the tax exemption benefits ■ Filing of consumption tax return is not necessary, hence no additional professional fees
■ Possibility of termination of business trading due to disadvantage to the counterparty of the transaction (input tax credit is not available to the invoice receiver) ■ Possibility of easily getting Requested to offer discounts in the amount equivalent to the non-deductible consumption tax amount
For non-taxpaying entities currently, please consider the advantages and disadvantages as mentioned above before deciding to become a qualified invoice issuer.
In addition, if tax exempted entities take the opportunity of the invoice system and become taxpaying entities as a qualified invoice issuer, it is possible to apply the special provisions for burden reduction measures. For details, please refer to 7. Burden Reduction Measures for Small Businesses (20% Special Provisions).
Please get in touch with your point of contact at HLS in case any specific explanations on this are required.
HLS can support the Qualified Invoice Issuer application and procedures.
If your vendor is a non-taxpaying entity, they cannot issue qualified invoices to you. As a result, after your consumption tax has been calculated, there is a possibility that your consumption tax payment increases (or consumption tax refund decreases). The difference could be equivalent to the non-deductible consumption tax amount from non-qualified invoices.
After the new Japanese Invoice System is implemented, in order to reduce your economic burden, if any, please consider the following measures towards your vendors.
Please request your vendors to become qualified invoice issuers
If your vendors do not become qualified invoice issuers, you may request them for a discount on their goods and services, which would be in the amount equivalent to the non-deductible consumption tax amount.
HLS can support the requirements to prepare a new policy letter for your vendors.
Burden Reduction Measures for Small Businesses(20% Special Provisions)
When a tax exempted entity becomes a taxpaying entity as a qualified invoice issuer under the invoice system, the amount of the tax credit for purchases may be considered as a special tax credit (an amount equal to 80/100 of the amount remaining after deducting the total amount of consumption tax on the return of consideration for sales from the total amount of consumption tax on the total taxable base amount. (2023 Tax Reform).
If this special provision is applied, 20% of the sales tax amount is to be paid.
➀Applicable period
Taxable period that includes the date from October 1, 2023 to September 30, 2026
Image of the applicable period (for a corporation with a December 31 year-end)
➁ Businesses to which the provision can be applied
Businesses that have taken advantage of the invoice system to become a qualified invoice issuer from a tax exempted entity (including cases where a business has become a taxpaying entity by submitting a Consumption Taxpayer Election Notification).
In other words, “Qualified invoice issuers with taxable sales of 10 million yen or less in the base period (*)” are eligible.
However, for example, the 20% special provision cannot be applied to the following taxable periods.
●Taxable periods including October 1, 2023 for businesses that submit a Consumption Taxpayer Election Notification and become a taxable business entity on or before September 30, 2023
●Taxable periods during which “tax exemption threshold system” will not be applied even if the entity ‘s taxable sales was 10 million yen or less in the base period(*).
*Base period: The second preceding fiscal years.
➂ Note
●The 20% special provision can be applied regardless of whether general taxation or simplified taxation is selected.
No prior notification is required for application, and the choice can be made at the time of filing the tax return.
●Special provisions are also provided for the timing of submission of a Consumption Tax Simplified Taxation System Election Notice after the 20% Special Provisions are applied.
Please get in touch with your point of contact at HLS in case any specificexplanations on this are required.
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Disclaimer: All views expressed in this article are solely for informational purposes and should not be construed as legal advice. This information is for reference only and is bound to change in case of any amendments or changes to applicable laws. We do not assume any responsibility or liability for any errors or omissions in the content of this article, and do not make any warranties about the completeness, reliability and accuracy of the information expressed in this article.
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