Consumption Tax in Japan | Nagamine Mishima Accounting Office

In the past, we have seen cases when we succeed from other accounting offices which do not specialize in foreign companies mishandle fees such as oversea business trip expenses, telecommunication expenses and allocation expenses from related parties. Accountants whose experience is concentrated on Japanese domestic companies may not be able to foresee transactions, ultimately overstating total credit for taxable purchases. Below you will be able to see some examples of accounts you will need to look out for when dealing with consumption tax issues in Japan.

Advertising Marketing

Advertising fees are generally paid in advance as prepaid expenses. In preparing consumption tax returns, timing of claiming as consumption tax receivables is at the time service is provided. Advertising fees are highlighted in one aspect for income tax purposes. Japan tax code restricts income tax deductibles by deeming certain transactions as entertainment expense regardless of how is it is treated accounting wise. A guideline of advertising related fee being deemed as entertainment is determined by the characteristic of advertising. In case the expenditure of the advertising is targeted to a certain individual, the more likelihood the transaction will be deemed entertainment expense for tax purpose.In case it is targeted to mass audience ,it will not be deemed as entertainment.

Office Supplies

With advancement of technology, many office devices had become affordable. Purchase price has gone down so that many devices are not subject to depreciation. The tax code in Japan allows a one-time expense write off for devices which unit price is below JPY 100,000. The key here will be the unit price. Ask your tax accountant would this be including consumption tax for your company. For devices and equipment, unit price falling between JPY 100,000 and JPY 200,000, accelerated depreciation of 3 years is allowed. Confirm with your tax accountant on the condition of such benefits being applied. For small office supply items which are periodically purchased, even if they have not been used or consumed, under some conditions, you will be able to expense them at the time of purchase.

Prepaid Expence

Expenses such as below are in principle recognized based on the service period. 1. Insurance 2. Rent 3. Interest But exceptions apply to those expenses meeting certain condition which allows expense recognition on cash basis. In other words, even if the payment is upfront, a company can claim the full payment amount as expense in the fiscal year which it was settled. Consult with your tax accountant since consistency is also a key in qualifying for this benefit. Please note that consumption tax is recognized at the point service is provided not when payment is settled.