Capital Reserve

Capital Reserve

Maximum amount of Capital Reserve you can have is half of paid in capital as stated by the Japan Company Act. The balance between capital and capital reserve will be up to the company. Traditionally in Japan, when choosing business partners, companies are judged by the amount of capital for stability and credibility. But the more capital you have, the more liable you will be for pro-forma basis taxation if applicable. So there is a price to pay for credibility in Japan. Company can make transfer between capital and capital reserve by holding a board meeting and shareholder meeting in most company structures in principle.

Another importance aspect of Capital Reserve is, some tax codes define an operation of a company on the gross amount of Capital and Capital Reserve. It is critical when discussing tax measures whether or not it is decided based solely on Capital or combined figures of Capital and Capital Reserve.