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New invoice system in japan 2023

A Special Reduction of Personal Income Tax and Inhabitant Tax for FY2024

Vol 1. Outline

  1. Introduction

In accordance with the tax reforms for 2024, a special tax reduction (“Teigaku Genzei”) will be implemented for the income tax and individual inhabitant tax. The related payroll and administrative tasks will get somewhat complicated. Through this three-part series (No.1 Outline of the tax reduction, No.2 Monthly payroll procedure, and No.3 Year-end payroll procedure (“Nenmatsu Chosei”), we will explain about the tax reductions and related administrative procedures.

Here, it will be focused on the case of salaried employees.

  1. Scheme

(1) Income Tax

  1. Eligible Employees
  • Those whose annual income for 2024 is JPY 18.05 Million (equivalent to earnings income of JPY 20 Million) or less.
  1. Amount of Deduction

(1) Individuals (Only residents of Japan) : JPY 30,000

(2) Spouse and dependents of the same household (Only residents of Japan) : JPY 30,000 per person

  • “Residents” are those individuals who have a domicile in Japan or have been living in Japan for at least one year. “Non-residents” are not eligible for this tax reduction.
  • It also applies to dependents under the age of 16 who do not qualify for the dependent exemption.

  1. Implementation

The tax reduction will be executed by deducting from the tax withheld in the first payroll in June and thereafter, and any amount not fully reduced in June will be deducted sequentially in the subsequent months. It is called Monthly tax reduction procedure. 

  • Even if the estimated annual taxable income is over JPY 18.05 Million (equivalent to JPY 20 Million in earnings from employment salary), it is still subject to the reduction process. The deducted amount will be adjusted at the time of the year-end procedures.  
  • As it is not often the case when the total amount to be reduced can be deducted at a time, it is recommended that a record should be kept in the form of a worksheet like below. It is not mandatory for the employers to keep such a record. 

download worksheet

  • (Example) In the case of a spouse and two dependents living in the same household, the total tax reduction is JPY 120,000. If fully executed in a single withholding, the amount of salary after deduction of social insurance exceeds approximately JPY 1,000,000 (if both dependents are 16 years of age or older).
  • The final process will be at the time of the year-end adjustment (“Nenmatsu Chosei”). The tax reduction procedure will not be carried forward to 2025. The final process is called year-end tax reduction procedure.
タイムライン

自動的に生成された説明

(2) Inhabitant Tax

  1. Eligible Employees

  • Those whose annual income for 2024 is JPY 18.05 Million (equivalent to earnings income of JPY 20 Million) or less.
  1. Amount of Deduction
  • Individual (Only residents of Japan) : JPY 10,000
  • Deductible spouse or dependents (Only residents of Japan) : JPY 10,000 per person

  1. Implementation
  • Withholding tax process will not be executed in June. 
  • One eleventh (1/11) of annual tax payable after the tax reduction shall be withheld every month from July 2024 to May 2025.
  • In the case of ordinary tax payment (“Futsu Choshu”), the reduction shall be made from the first payment of the fiscal year, and any amount not fully deducted shall be deducted from the second and subsequent payment of the fiscal years.

(3) Q&A

 1. What happens to any tax reduction not fully deducted from my salary?

This reduction will not apply to any salaries paid from January 2025 onwards. The portion that cannot be fully deducted will be paid as a benefit. If the case is anticipated, the benefit will be provided by employees’ municipality before the year end.

2. Does the tax reduction also apply to bonuses?

Yes, this applies to withholding tax for bonuses as well.

 

  1. My total taxable income is estimated over JPY 10 Million, am I not eligible for the tax reduction for my spouse? The total income of the spouse is less than JPY 480,000.

As far as your spouse’s income is less than JPY 480,000, you are eligible to get your spouse’s tax reduction. However, if it exceeds JPY 480,000, a tax reduction will be granted from the spouse’s own withholding tax.

【Treatment for spouse’s tax reduction】

ダイアグラム

自動的に生成された説明
  1. It is highly possible that the total income for 2024 will exceed JPY 18.05 Million (salary income of JPY 20 Million), is it ok not to be subject to the monthly tax procedure?

Even if the total income is expected to exceed JPY 18.05 Million, the monthly reduction procedure is executed in the same manner. The reduced taxes will be adjusted at the time of the year-end procedures.  

A Special Reduction of Personal Income Tax and Inhabitant Tax for FY2024

Vol 2. Monthly Tax Reduction Procedures

  1.  Check eligible employees

The Employees who are employed with a company as of June 1, 2024, and are residents, to whom  “Column 甲(kou)” of the Withholding Tax Amount Table is applied for withholding at source of salaries, etc. (hereinafter referred to as “employees on the reference date”)

  • Employees not falling under the category of “employees on the reference date”

(1) Employees to whom “Column 乙(otsu) or 丙(hei)” of the Withholding Tax Amount Table applies for withholding at source of salaries, etc. to be paid on or after June 1, 2024 (employees who have not submitted an Application for Exemption for Dependents), 

(2) Employees who start working for a company on or after June 2, 2024,

(3) Employees who retired from a company on or before May 31, 2024,

(4) Employees who left Japan and became non-residents on or before May 31, 2024.

  1.  Monthly Reduction Procedure

The following points should be checked with reference to Application for Exemption for Dependents. 

(1) Confirmation of a spouse living in the same household who is a resident

A spouse qualified for withholding deduction who is listed on the 

Application for Exemption for Dependents and those whose total amount of income is JPY 480,000 or less, are considered to be spouses living in the same household.

(2) Confirmation of the number of dependents who are residents

The dependents qualified for deduction who are listed on the Application for Exemption for Dependents (扶養控除等異動申告書) and those under 16 years of age (listed as a matter related to inhabitants’ tax).

(3) Application pertaining to a spouse living in the same household, and not listed on the Application for Exemption for Dependents

A spouse living in the same household and dependents under the age of 16 years who are not listed on the Application for Exemption for the dependents may be included in the number of employees of the tax reduction amount if the employer receives an “Application for Fixed-amount reduction of Personal Income Tax for Withholding Tax”(「源泉徴収に係る定額減税のための申告書」). 

It should be checked that the application to confirm that the estimated total income of a spouse living in the household is JPY 480,000 or less.

テーブル

自動的に生成された説明

“Application for Fixed-amount reduction of Personal Income Tax for Withholding Tax”(「源泉徴収に係る定額減税のための申告書」)

  1.  Points to be noted

In case of any changes for spouse and dependents (marriage, divorce, birth, death, and so on) during the tax reduction period, the monthly deduction applied in the first month will be kept (no changes during the tax reduction period), and these changes will be reflected and adjusted at the time of year-end adjustment or final tax returns.

  1.  Presentation of the tax reduction on pay slips

The reduction amount should be presented as “Amount of fixed-amount reduction (income tax): JPY XXX”(「定額減税額(所得税)×××円」) or “Fixed-amount reduction: JPY XXX” (「定額減税××円」)in an appropriate section of the payment slips (salary, bonus, and so on).

The above is not required for the pay slips issued at the year-end as the withholding records(源泉徴収票) with reduction amount are issued at the same time. 

ダイアグラム

低い精度で自動的に生成された説明
  1.  Tax Payment Slips (“Noufu-sho”)

As for the tax payment slips (”Noufu-sho<納付書>”), tax withheld after the reduction should be filled in the column of “Tax Amount (税額)”. It is not necessary to describe the tax reduction applied on the tax payment slips. 

It should be furnished even in the case of no withheld amount after the reduction.  

カレンダー が含まれている画像

自動的に生成された説明

A Special Reduction of Personal Income Tax and Inhabitant Tax for FY2024

Vol 3. Year-End Tax Reduction Procedure

Detailed guidelines will be released on the NTA website in September 2024.

  1.  Check eligible employees for the year-end adjustments

   As those employees, whose annual taxable income is over JPY 18,050,000, are not eligible for the tax reduction, the amount deducted in the monthly tax reduction procedure will be added back to the tax amount due in the year-end adjustment (“Nenmatsu Chosei<年末調整>”). 

The year-end adjustment is not applicable to those who have JPY 20 Million or more in annual salary income.

The total taxable income data shown in the Application for Basic Exemption (基礎控除申告書) is referred to judge whether the annual taxable income exceeds JPY 18,050,000 or not. 

  

  1.  Flow of completing tax reduction at the time of year-end adjustment

In computing the annual tax amount, this tax reduction is deducted from the amount after applying special deduction for housing loans (if applicable).

The annual tax amount is calculated by multiplying the income tax amount after deducting the amount of tax reduction at the year-end adjustment by 102.1% (special income tax for reconstruction).

テキスト

自動的に生成された説明
  1.  Calculation of tax reduction after the year-end adjustment

To calculate the amount of tax reduction at the time of year-end adjustment for each qualified employee, confirm the presence/absence of a spouse living in the same household and the number of dependents (all limited to residents) as of the time of the year-end adjustment using the “Application for Exemption for Dependents” and “Application for Exemption for Spouse” (配偶者控除申告書), and calculate the sum of “JPY 30,000 for the individual themselves” and “JPY 30,000 for the spouse and each dependent living in the same household”.

  1.  In case the tax amount is not fully deducted by year-end adjustment

   The monthly reduction procedure will not be carried forward to next year. In this case “Amount not deducted JPY XXX” (控除外額XXX円) is stated on the withholding slip (源泉徴収票). The amount not deducted will be provided by employees’ municipality after 2025. If anticipated, it will be provided as benefits.

【References】

Guide for Fixed-amount Reduction of Personal Income Tax for FY2024 Pertaining to Withholding Tax System for Salaries – National Tax Agency

136.pdf (nta.go.jp) 

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

German Tax Updates in March 2024 

1. Uncertainties regarding Real Estate Transfer Tax have been eliminated 

2. Shareholder Managing Director : Private Use of Company Car is to be assumed

3. Meals from the Employer as Non-Cash Benefits will apply from 2024

4. New Income Limits for Parental Allowance (Elterngeld)

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New invoice system in japan 2023

The Rules for Explicitly Stating Work Conditions (Employment Contracts) will Change from April 2024

TargetTiming of ClarificationNew Clarifications to be Added
All WorkersAt the time of conclusion of the labor contract and at the time of renewal of fixed-term labor contract1. Scope of changes in place of employment and duties
Fixed-term Contract Workers
At the time of conclusion and renewal of fixed-term labor contract
2. Existence and details regarding the renewal limits(Total contract period or maximum number of renewals)
+ If the maximum renewal period is to be newly established or shortened, the reason for this should be explained in advance.
At the time of renewal of a contract for which the right to apply for indefinite conversion occurs based on the indefinite conversion rule*3. Opportunity to apply for indefinite change of working conditions after changing to indefinite labor contract
+ In determining the working conditions after the indefinite change of employment, the company shall make efforts to explain matters that take into consideration the balance with other regular employees
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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.

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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)。

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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

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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。

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