Starting a Legitimate Company: Paying Taxes

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Mogura
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Starting a Legitimate Company: Paying Taxes

Unread post by Mogura » Sun Dec 02, 2007 12:10 pm

Q: So now that I am set up, things are running smoothly, and I am making a profit... what are my tax responsibilities? How can I decrease my tax burden?

This thread is for discussing tax issues for businesses registered in Japan.

Please feel free to share your own experiences and/or ask questions with regards to this topic.

Fenrig
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Re: Starting a Legitimate Company: Paying Taxes

Unread post by Fenrig » Tue Feb 12, 2008 10:44 am

A bit long and disorganized... sorry.

For taxes, you need to keep 3 books:

The formatting went to h*** on these tables! :doh:

Here's an example of the first one:

仕訳帳 (This is the general book that includes EVERYTHING)

2007 科目 摘要 元帳 借方 貸方
1/21 消耗品費 現金 文房具代 1,068 1,068 Stationery expense
1/30 現金 授業料 Student1 15,250 15,250 Income from student
1/31 事業主貸 授業料 Corporate Contract 180,000 180,000 Contractual income
1/31 事業主貸 授業料 Corporate Contract 17,000 17,000 Contractual income
1/31 支払手数料 事業主借 振込手数料 300 300 Money transfer fee
1/31 専従者給与 現金 給料 70,000 70,000 Employee Salary
1/31 通信費 事業主借 携帯電話代 2,982 2,982 Electricity bill (%for work)
1/31 福利厚生費 現金 食事補助23日 11,500 11,500 Lunch expenses
1/31 旅費交通費 事業主借 通勤3日 1,380 1,380 Commuting expenses

Here's an example of the 2nd one:

現金出納帳 (Cashbook)

2007 科目 摘要 収入 支出 残高 (The last one is the balance of the book)
1/21 消耗品費 文房具代 1,068 202,886 Stationery expense
1/30 授業料 student1 15,250 270,546
1/31 専従者給与 給料 70,000 23,500
1/31 福利厚生費 食事補助23日 11,500 12,000

Here's an example of the 3rd one: (edited... forgot some bits)

元帳 (Ledger)

現金 (cash)
2007 摘要 借方 貸方 借貸 残高
1/31 現金出納帳 301,500 301,500 〃 12,000 cashbook

元入金 original capital

開業費 opening expenses
2007 摘要 借方 貸方 借貸 残高
1/1 前期繰越 217,071 借 217,071 at year-start

建物 buildings
2007 摘要 借方 貸方 借貸 残高
1/1 前期繰越 14,035,449 借 14,035,449

土地 land
2007 摘要 借方 貸方 借貸 残高
1/1 前期繰越 5,739,285 借 5,739,285

事業主貸
2007 摘要 借方 貸方 借貸 残高
1/31 授業料 Corporate contract 180,000 365,296
1/31 授業料 Corporate contract 17,000 382,296

事業主借
2007 摘要 借方 貸方 借貸 残高
1/31 通信費 携帯電話代 2,982 17,379
1/31 旅費交通費 通勤3日 1,380 18,759

授業料 class fees
2007 摘要 借方 貸方 借貸 残高
1/30 現金 student1 15,250 〃 296,000
1/31 事業主貸 corporate contract 180,000 〃 481,500
1/31 事業主貸 corporate contract 17,000 〃 498,500

租税公課 taxes and dues

水道光熱費 utilities
2007 摘要 借方 貸方 借貸 残高
1/22 事業主借 電気代 5,284 借 5,284

旅費交通費 commuting costs
2007 摘要 借方 貸方 借貸 残高
1/31 事業主借 通勤3日 1,380 借 1,380

通信費 communications costs
2007 摘要 借方 貸方 借貸 残高
1/31 事業主借 携帯電話代 2,982 〃 11,845

接待交際費 (entertainment expenses)

図書費 (books)

消耗品費 stationery
2007 摘要 借方 貸方 借貸 残高
1/21 現金 文房具代 1,068 〃 2,065

支払手数料 fees

雑費 miscellaneous expenses
Here, we put in my bike light expense, repairs etc.

福利厚生費 cost of benefits
2007 摘要 借方 貸方 借貸 残高
1/31 現金 食事補助23日 11,500 借 11,500 my lunches

専従者給与 (Full-time staff's salary)
2007 摘要 借方 貸方 借貸 残高
1/31 現金 給料 70,000 借 70,000

減価償却費 depreciation and amortization.

So, after you make these books, you have everything you need for your taxes. Yay! The government gives out a huge booklet that explains how to go about all of this with examples of what items fall into which category.

Mogura asked about deductions. Well, those are nice and straight-forward here in Japan. In addition to the following, you have your initial capital expenses which you spread out over 5 years (typically).Lunches on work-time. commute. business clothing. paper. electronics. stationery. books. etc. etc. All of these are paid for in pre-tax dollars.

CAREFUL with company cars, though! Those have to either be used ENTIRELY for the sole purpose of the business OR you have to figure out EXACTLY what percentage is business and what is pleasure. A good friend and former boss of mine in Canada got burned on this one years ago and well... once governement comes down on you, they don't let go easily. He lost his business over a crummy tax-break. Personally, i don't think it was anywhere near worth it. So, be careful, make everything transparent and anything you have to ask questions about the validity of can get axed, IMHO. Either get the correct answers or forgo that deduction for the time being.

Anyway here's a quick and dirty guide to personal taxes: (http://www2.gol.com/users/jpc/Japan/taxes.htm)

All numbers are given in millions of yens (0.38m means 380,000 yens and 2.2m means 2,200,000 yens).

(A)Income: This is the number that includes all salaries, bonuses, fees... Values are the ones on your contract, not on your paycheck (since taxes are automatically withheld at the source).

(B)Tax Breaks: One typical tax break is pre-paid housing by the company (deducted from your salary). If the company is paying your 2,000,000 a year apartment (but these 2,000,000 is taken out of your monthly salary), you basically get a tax free apartment, and enter the 2,000,000 number here as a tax break.

(C)Gross Income: C = A-B

(D)Standard Deduction: What the government thinks you (only yourself, as an individual) should be spending to live and work. D is calculated as follow:
- If C < 6.6m then D = 20% of C + 0.54m
- If C < 10.0m then D = 10% of C + 1.20m
- If C > 10.0m then D = 5% of C + 1.70m

(E)Personal Deduction: E = 0.38m

(F)Dependants Deductions: If you have kids, a non-working wife/husband, a mother in law... F can include the following (but all rates are not detailed here):
- allowance for spouse (0.38m for non-working spouse),
- allowance for dependants aged < 16 (0.38m per dependant)
- allowance for dependants aged 16 to 23 (0.63m per dependant)
- allowance for dependants aged > 70 (0.58m per dependant)
- allowance for handicapped dependants
- allowance for widow or widower
- allowance for working students

(G) Other Deductions: mainly insurance and medical stuff. Note that if your insurance contracts are not with Japanese insurance companies, you cannot deduct your premiums!! G can include the following (but rates are not detailed here):
- accidental loss,
- medical expenses,
- (Japanese) social insurance premiums,
- (Japanese) life insurance premiums,
- (Japanese) fire and other accident insurance premiums,
- contributions (charity...).

(H)Taxable Income: The magic number on which tax rates are applied. H = C-D-E-F-G
National Tax: That part goes to the government for them to pay the roads, public school teachers, official receptions and parties, the Emperor family... I is calculated as follow:
- If H < 9m then I = 20% of H - 0.33m
- If H < 18m then I = 30% of H - 1.23m
- If H > 18m then I = 37% of H - 2.49m

(I)Prefectural Tax: That part goes to the prefecture (whether it is a To, a Ken, a Do or a FU). J is calculated as the sum of each of the following:
- 2% of the part of H which is < 7m
- 3% of the part of H which is > 7m

(J)Municipal Tax: That part goes to the city (the Ku) for you to enjoy 300 yens entrance fee to the public swimming pool, the public library and so on... K is calculated as the sum of each of the following:
- 3% of the part of H which is < 2m
- 8% of the part of H which is in [2m, 7m]
- 12% of the part of H which is > 7m

Total Taxes: This is it, your taxes! L = I+J+K

Make sure you don't forget to give yourself lines E and F! BUT, if your wife is working, you can't claim 0.38M for her. In our own case, my wife gets 0.92M in salary, which is better than the standard deduction, so I reduce my taxes by giving her some of my income and we get a lower tax bracket that way.

Re: business expenses. Don't get yourself burned by greed on these! If you work at home, you need to figure out what % of electricity you consume for work from the total bill. Same for the phone / internet / water / gas etc. Don't go around claiming 100% of all household bills or you'll get slapped. (D'uh)

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Mogura
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Re: Starting a Legitimate Company: Paying Taxes

Unread post by Mogura » Sun Mar 02, 2008 9:50 am

Great stuff, Fenrig. Thanks.

Was this in Excel format before you pasted into the body of your message?
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