Year-end Accounting & Income Tax Return In Japan Startups: What To Prepare

By Author: Ken Masaki
Total Articles: 7
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As the end of the fiscal year approaches, year-end accounting and tax filings become soon (albeit necessary) turmoils for Japanese startups, especially those founded by non-Japanese. The correct handling of these requirements is crucial to minimize penalties and to comply with the regulations.

Whether you’re a first-time founder in Japan or have been running a business for some time, this post will cover important points to consider when preparing the Income Tax Return of Japan.

What is the Fiscal Year and Due Dates for Filing?

Most companies in Japan use a fiscal year that ends on March 31, though some use other dates. Whatever your closing date, it is typical for businesses to prepare financial statements and tax returns within two months after the conclusion of the fiscal year. Extensions are possible in some cases, but to avoid last-minute problems, it’s best to be prepared.

Japanese Startups must submit a corporate income tax return, which covers national corporate tax, local corporate tax, and enterprise tax. Furthermore, even sole proprietors, freelancers, and individual business owners ...
... need to submit and file their Income Tax Return in Japan from the 16th of February to the 15th of March next year.

This is particularly relevant for overseas-based entrepreneurs who may not be experienced with all the subtleties inherent to the Income Tax in Japan for Foreigners.

Key Documents and Preparations

Startups may want to get the following documents ready in advance if they don’t want to have nightmares filing them:

• Financial Reports (Balance Sheet, P&L)

• Transaction Records (Invoices, Receipts, Payroll)

• Fixed Asset Schedules

• Bank Statements and Loan Agreements

Evidence of Deductions for Tax and Social Insurance

Keeping the books up-to-date year-round eases the year-end closing process. For many startups, having a knowledgeable tax advisor or accountant who knows the local laws goes a long way. A trusty Guide to Japanese Taxes will have founders knowing what to expect and avoid the simple mistakes.

Special Considerations for Foreigners

Japanese Income Tax for Foreigners may be changed according to the amount of income and where it is earned. Foreign startup founders defined as “non-permanent residents” are generally taxed only on income earned in Japan, as opposed to permanent residents, who are taxed worldwide. It is critical to understand your residency classification when you prepare your tax return.

Deductions and Incentives

There are also a number of tax deductions and credits available to startups, like:

• Startup Expenses

• R&D Tax Credits

• Depreciation on Equipment

• Loss Carryforwards (of 10 years in some cases)

Knowing what these benefits are can help minimize your tax liability and maximize your cash flow, a critical interest of an early-stage entrepreneur.

Final Thoughts

A professional to consult and a Guide to Japanese Taxes, not forgetting any obligations you may have in the year! If you’re proactive and organized, it can make all the difference for your startup to grow and be successful in Japan’s competitive market the next time tax season comes around.