Directors’ compensation may be considered deductible for most countries, but in Japan, it is limited. In Japan, directors’ compensation has been considered to be a handy method to manipulate financial results from the view of the tax authorities and therefore, there are certain rules for directors’ compensation to be deductible under Japan tax code.
In many cases, directors’ compensation is comprised of fixed portion and variable portion which is generally determined based on the result during the year stated in the contract with the company. However, variable portion based on the result is generally non-deductible and certain action should be taken for that variable portion to be deductible. To avoid the situation of directors’ compensation already accounted for is not deductible, careful attention should be paid from the time when deciding the ratio of fixed and variable portion of the compensation in the contract when assigning a director for the company in Japan.
Also,providing housing and supporting living expenses as fringe benefit can also be considered as director’s compensation in some conditions