Japanese Business Glossary

消費税 (shohizei), consumption tax, is a value-added tax (VAT) levied on most goods and services in Japan. It operates as a multi-stage tax, collected at each stage of production and distribution, and is ultimately borne by the final consumer. The standard rate is 10%, while a reduced rate of 8% applies to certain items, such as food and non-alcoholic beverages.

The consumption tax system in Japan includes both taxable and exempt transactions. Taxable transactions encompass the sale of goods and services. However, certain transactions, such as the sale and lease of land, interest on loans, and medical services, are exempt from consumption tax.

Businesses are required to calculate and remit the tax collected from their sales. They can deduct the consumption tax paid on their purchases, known as input tax, from the tax collected on sales, known as output tax. This process is called the input tax credit, ensuring that the tax burden ultimately falls on the final consumer rather than on businesses throughout the supply chain.

There are two main accounting methods for handling consumption tax: the tax-included method and the tax-excluded method. The tax-included method simplifies bookkeeping by incorporating the tax into the price of goods and services, while the tax-excluded method separates the tax from the price, providing clearer financial reporting.

Businesses with annual taxable sales exceeding 10 million yen are required to register as taxable businesses and file consumption tax returns. Smaller businesses may qualify as tax-exempt businesses and are not required to collect or remit consumption tax unless they choose to register voluntarily.

給与所得 (kyūyo shotoku) refers to the income that employees receive from their employers in the form of wages, salaries, and bonuses. It is a significant category of income under Japan's tax law and is subject to income tax. The taxable salary income is calculated by subtracting the "salary income deduction" (給与所得控除 = kyuyoshotoku kojo) from the gross salary. This deduction accounts for various work-related expenses that salaried employees may incur and varies based on the total salary income. For example, for annual income up to 1,800,000 yen, the deduction is 55% of the income plus 100,000 yen. Different percentage deductions and additional amounts apply for higher income levels, up to a maximum deduction limit.

Employees can also claim specific deductions such as the "special expense deduction" (特定支出控除 = tokuteishi shutsu kojo), which covers work-related expenses like commuting costs, relocation costs due to job transfers, and costs for obtaining qualifications or attending training related to their job.

Salary income is typically subject to withholding tax, where employers deduct the estimated tax amount from the employee's paycheck and remit it to the tax authorities on their behalf. At the end of the year, a final adjustment (年末調整 = nenmatsu chosei) is made to reconcile any differences between the estimated and actual tax owed, ensuring the correct amount of tax is paid.

相続税 (sozokuzei), inheritance tax, is a tax imposed on the transfer of assets from a deceased person to their heirs. The tax is calculated based on the total value of the deceased's estate after deducting any debts and funeral expenses. This value is then reduced by a basic exemption amount, which is 30 million yen plus 6 million yen multiplied by the number of statutory heirs.

The calculation of inheritance tax involves several steps. First, the total value of the estate is determined. Then, the basic exemption is subtracted to find the taxable estate value. The remaining amount is divided according to the statutory inheritance shares, and each share is taxed at progressive rates ranging from 10% to 55% based on the size of the share. After this, any applicable tax credits or deductions are subtracted to find the final tax amount due.

Special provisions exist for business succession, which can defer or reduce the inheritance tax burden to help maintain family-owned businesses. These provisions include measures to defer tax payments or reduce the taxable value of business assets under certain conditions.

交際費 (kosaihi) in Japanese refers to entertainment expenses that businesses incur to build and maintain relationships with clients and business partners. These expenses include meals, gifts, travel, and event costs related to business entertainment. The primary purpose of kosaihi is to facilitate business relationships, enhance client interactions, and promote goodwill.

In accounting, entertainment expenses are treated differently based on the amount and nature of the expenditure. For example, expenses incurred for meals with clients can be partially deductible, typically up to 50% of the cost, provided certain documentation requirements are met. This includes keeping records of the date, participants, and the purpose of the meeting. Additionally, small and medium-sized enterprises (SMEs) with capital of 100 million yen or less can choose between deducting up to 800,000 yen of kosaihi annually or 50% of their total entertainment expenses.

Expenses that exceed certain thresholds or do not meet the specific criteria might not be fully deductible. It's important to distinguish entertaiment expenses from other similar expenses such as 会議費 (kaigihi = meeting expenses) and 福利厚生費 (fukuri kousei hi = welfare expenses), which have different accounting treatments and tax implications in Japan. Proper categorization and documentation are crucial for accurate tax reporting and compliance.

契約書 (keiyakusho) is a contract or written agreement between two or more parties in Japan. It formalizes the terms and conditions agreed upon by the involved parties, providing a clear reference for what has been mutually decided.

This document typically includes important details such as the obligations, rights, and responsibilities of each party, the duration of the agreement, and any specific conditions or clauses pertinent to the arrangement.

The purpose of a contract is to prevent misunderstandings and disputes by ensuring that all parties have a clear understanding of their commitments. It serves as a legal safeguard, providing evidence of the agreement and its terms in case of any disagreements or legal issues that may arise in the future.

電帳法 (dencho-ho) refers to the Electronic Bookkeeping Act in Japan, a law that governs the electronic storage and management of financial records and documents. This act allows businesses to maintain their accounting records digitally, provided they adhere to specific guidelines and standards set by the Japanese tax authorities.

The main objective of the Electronic Bookkeeping Act is to promote efficiency and accuracy in record-keeping by leveraging digital technology. Businesses that choose to use electronic bookkeeping must ensure that their digital records are secure, easily accessible, and verifiable. This includes using reliable software for data management, maintaining backups, and implementing measures to prevent data tampering or loss.

Complying with the act can streamline accounting processes, reduce paperwork, and facilitate easier tax audits. However, businesses must obtain approval from the tax office to store their records electronically and demonstrate that their systems meet the required standards.

By adopting electronic bookkeeping under this act, businesses can benefit from more efficient financial management and potentially lower administrative costs, while also ensuring compliance with Japanese tax regulations.