Articles

German Tax Updates in January 2024

1. Update in Mandatory Electronic Invoicing.

2. Gastronomy from 1st January, 2024: VAT Rate jumps back to 19%.

3. Private use benefit from company cars: Changing the calculation method can save taxes.

4. Due to increase in the annual income threshold as of 1st January, 2024: Reassess public health insurance obligation.

5. Low-value assets.

6. Special depreciation according to Section 7g Individual Tax Law.

(more…)
New invoice system in japan 2023

The Electronic Data Preservation Act with Illustrations

  1. Getting Started

As well known, the Electronic Data Preservation Act (hereinafter referred to as “EDPA“) was originally scheduled to take effect from January 2022. However, the application of this act has been postponed to January 2024. There have been multiple revisions made to this act, which has made it difficult to understand what is mandatory and what has been mitigated. In this article, we will focus on electronic transactions and illustrate their position in the EDPA, and how they can be relevant to your business.

  1. Relationship Between Various Tax Related Documents and the EDPA

The overall relationship between the various tax and accounting documents, and the EDPA can be summarized as shown in the diagram (Exhibit-1) below. 

As you can see from the diagram (Exhibit-1) above, under the EDPA, it is only electronic data exchanged through electronic transactions that is mandatory to be stored in an electronic manner. This applies not only to the data received, but to the data sent as well. For tax and accounting documents exchanged other than electronic transactions, either conventional hard copy storage or electronic data storage is permitted.

So, what are the requirements for this method of electronic storage of all electronic transaction data?

Initially, the visibility requirements represented by the truthfulness and retrieval methods were quite strict. However, a review of the system has resulted in relaxed requirements for the storage of electronic transaction data in accordance with the actual conditions of the taxpayer’s IT environment.

Please refer to the flowchart (Exhibit-2) illustrated below to determine the best method of how to store electronic transaction data under the EDPA according to your IT environment.

  1. Flowchart to Determine the Best Electronic Transaction Data Storage Method

HLS has customized a flowchart published by the National Agency in July 2023. This flowchart can help to determine how to store electronic transaction data according to the taxpayer’s IT environment. 

Please refer to the flowchart (Exhibit-2) below. If your company is not determined to be storing electronic transaction data in accordance with the principle rules, you need to take appropriate measures as soon as possible.

  1. Electronic Transaction Data: Requirements Under the EDPA (in principle)

It is necessary to establish an IT environment that satisfies the “Truthfulness Requirement” and the “Visibility Requirement” as described below.

Truthfulness Requirements (Falsification Prevention Measures)

By taking one of the following measures for electronic data, it must be possible to operate in such a way that any data correction history remains and cannot be deleted.

Visibility Requirements

The data should be able to be searched and displayed in the event of a tax audit. Except for the search requirements, the system should have the ability to be handled with a computer and user manuals.

Specific requirements are as follows:

(*1)”Promptly” is generally defined as within seven business days here, or within two months and seven business days if there are Time-Stamping rules in place.

(*2)If electronic transaction data can be downloaded and given to Tax Examiners upon their request during a Tax Audit, ② and ③ are not required.

HLS can provide you with advice on the requirements for electronic storage of electronic transaction data, tailored to your IT environment. If you would like a more detailed explanation, please do not hesitate to contact us

5 Whether the Deferral Methods (Permanent Measures) are Applicable or Not this grace period is permanent. The details of the grace period and its application are as follows:

(*1)“Reasonable cause” should be determined on a case-by-case basis, but it may include, for example, lack of time to develop an IT environment, lack of funds to develop an IT environment, or unfamiliarity with IT operations.

Other measures are also available to mitigate the electronic storage requirements depending on the taxpayer’s situation.

If you would like a more detailed explanation, please do not hesitate to contact us.

New invoice system in japan 2023

German Tax Updates in November 2023

1. Improvement in company car taxation of electric vehicles planned from 2024.

2. BFH decision on non-cash benefits from company car hire.

3. Loss from the sale of significant shares of GmbH.

4. BFH ruled on the legal situation related to GmbH insolvency.

5. Treatment under income tax related to subsequent payment of social security contributions by means of a summation notice.

  1. Improvement in company car taxation of electric vehicles planned from 2024. 

In addition to the legal changes already presented as part of the Growth Opportunities Act, the German government is planning further improvements to the taxation of company cars.  

According to the government draft, this involves the following:

In the case of private use of a company car that is purely an electric vehicle, only a quarter of the gross list price is used to calculate the non-cash benefit.

If the Logbook rule (A method in which the company car users record the mileage of the car driven for private and business use respectively, and non-cash benefit is calculated by the divided amount based on the mileage of private use portion) is applied, only a quarter of the acquisition costs are recognized under current law. However, this rule is applicable only if the gross list price of the vehicle does not exceed € 60,000. 

The German government wants to increase demand, promote sustainable mobility, and reflect the increased purchase costs of such vehicles in a practical manner.  

For this reason, the existing maximum amount for the reduced taxation of the non-cash benefits when the company car is provided for the first time after 31 December 2023 is to be increased from €60,000 to €80,000.

  1. BFH decision on non-cash benefits from company car hire.

Depreciation for private garage may not be offset. 

If employers provide their employees with a company car for private use, this non-cash benefit must be taxed by using either the 1% method or the logbook method as wages. However, if the employee pays a fee to the employer for the use of this vehicle outside of work (e.g., monthly flat rate, mileage allowance, assumption of leasing installments), this personal contribution reduces the taxable monetary benefit, since the employee is not being enriched in this respect. The employee’s assumption of individual vehicle costs (e.g., for fuel) may also be offset in this case.

The Federal Fiscal Court or Bundesfinanzhof (BFH) has now decided that the costs of an employee’s private garage may not be considered to reduce the benefits if the employee had no legal obligation to park the vehicle there.

A lawsuit was filed by an employee with a company car who wanted to claim the depreciation of his private garage as business expenses. The employer only stipulated that company vehicles had to be treated with care and there was no obligation to park them in the garage. The BFH explained that usage fees may only be deducted to reduce the benefits if they must be paid for the provision and commissioning of the company car. This did not apply to the garage depreciation. There was no legal obligation on the part of the employee to park the vehicle in a specific garage. There was also no assumption of individual usage-dependent costs, as the costs for the garage were not dependent on the use of the company car.

  1. Loss from the sale of significant shares of GmbH.

It is not uncommon for a significant GmbH share to be used to deliberately cause a loss.

Since 31 July 2019, this is no longer so easy. For the period prior to this, a judgement by the Federal Fiscal Court or Bundesfinanzhof (BFH) stipulates that all income from the entire shareholding and not an individual share must be considered for the necessary intention to make a profit.

Background 

If a share in a corporation in which you have held at least 1 % within the last five years is sold, this leads to commercial income (Section 17 (1) of the German Income Tax Act (EStG)). However, in the case of loss-making disposals in particular, the question arises as to whether the intention to realize a profit is generally required or not.

Facts of the case

The single shareholder of a GmbH with a share capital of €25,000 divided into 25,000 shares of €1 each and decided to increase its capital by €1,000 shortly after its formation (November 2015) in December 2015. The 25,001 company shares with a nominal value of €1,000 were created for this purpose. In addition to this nominal amount, a premium of €500,000 was paid into the GmbH as capital reserves.

At the end of 2015, the single shareholder sold 300 shares worth €1 together with the new share to her husband for a purchase price of €26,300, which was in principle reasonable. In her income tax return for 2015, she claimed a capital loss of €475,000 (purchase price of €26,300 less acquisition costs of €1,300 and a premium of €500,000).

  1. BFH ruled on the legal situation related to GmbH insolvency. 

The Federal Fiscal Court or Bundesfinanzhof (BFH) ruled that shareholder of a GmbH can claim guarantee loss for tax purposes. A GmbH shareholder left a guarantee in a certain crisis and was able to claim the loss from the worthlessness of his recourse claims as negative investment income. Because the intention to generate income was positive in an overall assessment of all income from the investment, the BFH ruled on the legal situation until 2019.

  1. Treatment under income tax related to subsequent payment of social security contributions by means of a summation notice.

If the social security authorities require the employer to pay social security contributions in arrears due to recording errors via a summary assessment, this does not result in the accrual of wages for individual employees. The Federal Fiscal Court or Bundesfinanzhof (BFH) has thus confirmed a tax court judgement from 2020.


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.

New invoice system in japan 2023

U.S. GAAP Update – New CECL Standard for Credit Loss: Impact and Measures for Nonfinancial Institutions and Private Companies (Japanese Text Only)

1. CECLの概要

2016年、米国財務会計基準審議会(FASB)は、金融資産(預金、受取手形、売掛金、貸付金、等)の減損の認識に関連して、(予想損失モデル(Current Expected Credit Loss – CECL)に関する新しい基準(ASU 2016-13)を公表しました(FASBから正式に米国会計基準についての改訂等があった場合には、Accounting Standard Update (“ASU”)という形で公表されます)。

(more…)
New invoice system in japan 2023

Understanding the Difference between Kabushiki Kaisha (K.K.) and Godo Kaisha (G.K.) in Japan

When incorporating a subsidiary in Japan, one of the crucial decisions to make is choosing the appropriate business entity type. Unlimited partnerships (Gomei-Kaisha) and limited partnerships (Goshi-Kaisha) are granted corporate status under the Companies Act too, but the two most common options are Kabushiki Kaisha (K.K.) and Godo Kaisha (G.K.). Each entity type has its own characteristics, advantages, and requirements. In this article, we will explore the key differences between a K.K. and G.K. to help you make an informed decision.

The primary difference between a K.K. and G.K. lies in their ownership structure:

– Kabushiki Kaisha (K.K.): A K.K. is equivalent to a joint-stock corporation. It is characterized by the issuance of shares to its shareholders, who own the company based on the percentage of their shareholding. The ownership can be easily transferred through the buying and selling of shares. K.K.s must have a board of directors responsible for decision-making and executing company affairs. They are required to appoint at least one director. The representative director, usually the president, represents the company in all legal matters. A shareholder and director can be the same person.

– Godo Kaisha (G.K.): A G.K. is similar to a limited liability company. It is characterized by its membership structure, where members hold membership interests in the company. The founders can determine the initial capital based on their business needs and investment plans. G.K.s are often favored by small and medium-sized enterprises due to their flexibility in capitalization.

The tax implications and incorporation process for both K.K.s and G.K.s are similar, but K.K.s have stricter requirements under the Companies Act as per the following comparison table:

 Kabushiki Kaisha (K.K.)Godo Kaisha (G.K.)
Articles of IncorporationNotarization requiredPreparation required No notarization requirement
MinutesPreparation required No submission requirementNo creation requirement
ExecutiveRepresentative Director
Director(s) (Both can be the same person)
Member(s)
Position  required to be registeredRepresentative Director Director(s) (Both can be the same person)Member(s)
Positions that can be registeredAuditorRepresentative Member
Executive Partner
Executive Member
Disclosure of Financial ResultsMandatoryOptional
Founder(s)Shareholder(s)Members(s)
DividendAccording to investment ratioRatio can be set in Articles of Incorporation

-In a non-publicly traded K.K., the term of office for directors is until the conclusion of the of the ordinary general meeting of shareholders relating to the last fiscal year ending within 2 years after  their appointment (Article 332, Paragraph 1 of the Company Act). However, this term may be shortened or extended up to ten years by stipulation in the articles of incorporation or by resolution of the general meeting of shareholders. The term of office for auditors is typically four years and can only be extended up to ten years, with no option for shortening (Article 336, Paragraph 1 of the Company Law).

-For a G.K., there is no specified term of office, but it can be determined in the articles of incorporation.

In Tokyo, the ratio of newly established corporations in 2021 was approximately 6:4 in favor of K.K.s over G.K.s. However, the ratio may vary depending on the region. Please note that K.K.s typically enjoy a better social credibility than a G.K.

Click here to read our blog article on Japan Market Entry and Incorporation Strategies.

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.

New invoice system in japan 2023

Items to be confirmed before and after the start of the New Japanese Invoicing System

【1】Items to be reconfirmed before the New Invoicing System starts

Please review the following items to be confirmed if they are being addressed.

※1.The Components needed for a “Qualified Invoice”

※2.System’s capability for handling fractional amounts

 3.Communication of the registered number to your business partners

 4.Confirmation of registration status/registration number of business partners

 5.Price negotiation between Taxpaying entity and Non-Taxpaying entity 

   (Antitrust law compliance required)

※6.Applicable transactions before and after October 1, 2023

(more…)
New invoice system in japan 2023

The Importance of Accounting and Taxation Related to U.S. Market Entry (Japanese Text Only)

イントロダクション:
グローバル化が進む現代のビジネス環境において、米国への進出は多くの日本企業にとって魅
力的な事業拡大の機会となっています。成長を続ける米国市場には、潜在的な顧客層やビジネ
スパートナーが多く存在します。しかしながら、米国進出には、複雑で多様な米国の法人税制
、移転価格税制、米国会計基準等、会計と税務に関する懸念や課題が伴います。これらの課題を
解決し米国進出を成功させるためには、経理の重要性を理解し、適切に準備・対応する必要が
あります。今回は、米国進出における経理の重要性について解説します。

(more…)
New invoice system in japan 2023

About Tax Due Diligence in the U.S.A. (Japanese Text Only)

ドル高円安等の影響に関わらず、日本から米国企業への買収に関しての税務デューデリジェンスのお問い合わせは引き続き受けています。対象会社の税務リスクを把握することは重要です。今回はデューデリジェンスの一翼を担っている税務デューデリジェンスについてご説明します。対象会社が法人なのかパススルーの会社なのかにより、デューデリジェンスの内容が大きく異なります。また、株式や持分の買収なのか、それとも資産買収なのかによっても大きく異なってきます。以下は対象会社が法人で株式買収の場合の主な調査内容を例として挙げ、さらに買収方法や買収後の検討課題も例に挙げます。

(more…)

Amendment to Overtime Premium Rates

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.