setting up business in japan tec 28 jan 10 (sirius)
Post on 18-Nov-2014
2.847 Views
Preview:
DESCRIPTION
TRANSCRIPT
Saturday, April 8, 2023
Setting up Business in Japan
The Executive Centre, Shibuya
Setting Up Business In Japan
Tax and Operational Essentials... Agenda
Who am I – (Individual tax overview)What can I become – (Forms of doing business in Japan)My debt to society – (Corporate Tax essentials)Accounting for change – (Accounting/Expenses)Sharing the wealth – (Employee-related issues)Why am I here – (Getting profits out of a company)When the music stops – (Exiting from the business)Take aways…
Page 2
Setting Up Business In Japan
Tax and Operational Essentials... Who am I
Page 3
Setting Up Business In Japan
Individual Tax OverviewClassifications
For Japan tax purposes, individuals are classified as either:Non-resident
No intention to reside in Japan, andIn Japan less than twelve months
Non-permanent residentIntention to reside in Japan, orIn Japan more than twelve months but less than five years in previous ten years
Permanent residentIntention to reside permanently in Japan, orIn Japan for more than five years in previous ten years
Page 4
Setting Up Business In Japan
Individual Tax OverviewScope of taxation
Tax classification determines what income is taxed in Japan and at what rate…Non-resident
Only Japan source income subject to tax at flat 20% (on gross)Exempt from Japan tax if conditions under a Tax Treaty are met
Non-permanent residentJapan source income plus any income remitted into JapanTaxed at progressive rates (0% to 50%)
Permanent residentIncome earned anywhere in the worldTaxed at progressive rates (0% to 50%)
Page 5
Setting Up Business In Japan
Individual Tax OverviewVlSAs
Important to consider…Does the individual meet VISA requirements where
He/she leaves company employmentHires someone from abroad
ExampleBob works for US investment bank – investor/manager VISA , intra-company transferee visa, specialist visaHe sets up his own consulting firmWhen his current VISA expires...
Page 6
Setting Up Business In Japan
Tax and Operational Essentials... What can I become
Page 7
Setting Up Business In Japan
Tax and Operational Essentials... Choice of entity
Forms of doing business in JapanIndividual (sole proprietorship)Corporate entity (KK, GK)Branch
Page 8
Setting Up Business In Japan
Entity taxationSole Proprietorship
Simplest formIndividual is the business Business expenses claimed as a deductionTaxed at applicable progressive rate
Issues include...Legal liabilityLeasing propertyAttracting employees
Page 9
Setting Up Business In Japan
Entity taxation Corporate entities – overview
Japanese corporations taxed on worldwide income Two common types:1. Joint Stock Co. (aka kabushiki kaisha, “KK”)2. Limited Liability Co. (aka godo kaisha, “GK”)
Page 10
Setting Up Business In Japan
Using a corporationIssues to consider
Page 11
Paid in capitalRepresentative DirectorChoosing fiscal year
Setting Up Business In Japan
Entity taxationKK – kabushiki kaisha
Commercial/Legal considerationsCan undertake any business activityOnly type of company which can be listed in JapanMost used form of business entity in Japan – prestige factorShareholders have limited liability
Tax considerationsTaxed on worldwide incomeDirectors bonuses generally non-deductibleDividends paid to non-resident shareholders incur 20% WHT (unless reduced under applicable DTA)US check-the-box treatment unavailable
Page 12
Setting Up Business In Japan
Entity taxationGK – godo kaisha
Commercial/Legal considerationsCan undertake any business activityAll members have limited liabilityLess onerous corporate governance requirements (than KK)Gaining wide acceptance in Japan
Tax considerationsSame Japan tax treatment as KKPass through treatment in the US may be available via Check-the-Box regulations
Page 13
Setting Up Business In Japan
Entity taxationBranch office
Commercial/Legal considerationsCan conduct basically any businessHead office retains legal liability
Tax considerationsSubject to Japan tax on its Japan source income No WHT on income repatriated to head officeBonuses to Branch representative generally deductibleNational Tax Agency (NTA) may want to inspect head office’s books
Page 14
Setting Up Business In Japan
Tax and Operational Essentials... My debt to society
Page 15
Setting Up Business In Japan
Taxation in JapanOverview
Corporate tax41% (effective) corporate tax rate
Corporation tax (national): 30%Inhabitants tax (Tokyo): 6.21%Enterprise tax (Tokyo): 3.26%Local special tax: 4.292%
Aggregated rates: 43.726Effective tax rate 40.69%
Consumption tax – 5%Individual tax
Tax rates (0 – 50%)Withholding and capital gains taxes
Page 16
Setting Up Business In Japan
Incorporation/Getting started Initial tax filings
1 Jan 2010Notice of incorporation filed with National Tax Office (Two months from incorporation)
31 Jan 31 Mar
KK’s Fiscal year – January 1 to December 31
28 Feb
Application for filing Blue return due
Incorporation of a company
Notice of incorporation filed with Local Tax Office (Typically a month but depends on office – eg. Tokyo is 15 days)
Page 17
Setting Up Business In Japan
Corporate TaxationBlue tax return status (1)Blue return filers may qualify for special privileges,
including:Ability to carry forward lossesLimited ability to carry back losses arising within five years of establishment of companyTax office must examine books and records & provide written explanation before making any tax adjustments
Page 18
Setting Up Business In Japan
Corporate TaxationBlue tax return status (2)Blue return filers must
Maintain accounting books
Blue Return status revoked ifFailure to maintain accountsDelaying the filing of tax returns for a period of two years
Page 19
Setting Up Business In Japan
Corporate TaxationMore initial filings…
Due within two months of incorporationNotification of establishment of office paying salaries, for WHT purposes
Due by due date of tax return filing (if applicable):Application for Valuation Method of InventoryApplication for Depreciation Method of Depreciable Fixed AssetsApplication for calculation method of book value per unit of securitiesApplication for translation method of monetary assets and liabilities denominated in foreign currency
Page 20
Setting Up Business In Japan
Tax and Operational Essentials... Tax return filingsCorporate tax
Annual return due within two months of fiscal year endOne month extension on filing (not payment) is commonInterim return due within two months of half year end
Consumption taxAnnual return (if applicable) due within two months of fiscal year endNo extensions
Page 21
Setting Up Business In Japan
Tax and Operational Essentials... Tax return filings – timeline
1 Jan 2009 31 Dec 2009
Interim tax return due
31 Aug 200931 Mar 2010
Corp tax return due if extension granted
XYZ KK’s Fiscal year – 1 January to 31December
28 Feb 2010
Consumption tax return due
Corporate tax return due unless granted extension
Page 22
Setting Up Business In Japan
Tax and Operational Essentials... Accounting for change
Page 23
Setting Up Business In Japan
Tax and Operational Essentials... AccountingAttached to the final corporate tax return
Balance SheetP&L StatementDetailed schedules supporting balance sheet & P&L statementDetailed schedule of changes in shareholders equity
Page 24
Setting Up Business In Japan
Tax and Operational Essentials... Accounting – important issuesAccounting system used needs to accurately record
Consumption taxEntertainment expensesDepreciation
Page 25
Setting Up Business In Japan
ExpensesCommon Examples
Start-up costsCan be expensed in first fiscal year, orAmortized (expensed) over five years
SalariesGenerally deductibleLimitation on deductibility for salaries paid to relatives
Director’s compensation“Excessive” salaries not deductibleIrregular payments (e.g., bonuses) not deductibleBonus paid in equal monthly instalments in following year may be deductible
Entertainment expensesIn principle not deductibleFor small companies 90% of first JPY4m generally deductible
Page 26
Setting Up Business In Japan
Tax audits Current focus of the NTA
Economic slow down – impacted on revenue collectionPressure on auditors to collect more taxFocus areas for smaller business
Directors compensationEntertainment expenses
Page 27
Setting Up Business In Japan
Tax and Operational Essentials... Japan’s Consumption tax
Page 28
Setting Up Business In Japan
Japan’s consumption taxOverview
Imposed at 5% on:Provision of services or legal transfer of goods in JapanImportation of goods into Japan (removed from bonded warehouse)
Page 29
Setting Up Business In Japan
Consumption taxObligation to file a return
Taxable enterprise
Taxable sales in excess of JPY 10 million in “base period”base period is entity’s fiscal year two years prior to current fiscal year
Newly established corporationsNo base period for Companies in first or second fiscal year
Rule: Consumption Tax return only required if paid-in capital is JPY10 million or more at beginning of fiscal year
Page 30
Setting Up Business In Japan
Consumption tax returnsOverviewTiming of returns
Due within two months of end of fiscal periodNo extensionsAnnual, quarterly and monthly filing elections available – based on previous fiscal year’s tax liability
Page 31
Setting Up Business In Japan
Tax and Operational Essentials... Sharing the wealth
Page 32
Setting Up Business In Japan
Tax and Operational Essentials... Employee issues
HiringFinding employees Relevance of the entityRelatives..?
FiringAlways get a (second...) legal opinion
Page 33
Setting Up Business In Japan
Tax and Operational Essentials... Employee issues
ComplianceEmployee filings (tax, social/labor insurance)Monthly payrollWithholding tax requirement (monthly, or semi-annually)End of year adjustment
Sole proprietor needs to file for social/labor insurance on behalf of employees...
Page 34
Setting Up Business In Japan
Tax and Operational Essentials... Compensation packages
Standard compensation package includesSalaryTransportationSocial/labor insurance
More sophisticated packages include...HousingTuition feesStock optionsHome leave
Page 35
Setting Up Business In Japan
Common for companies to outsource director role
Employee Director
Irregular payments(e.g., bonus) Generally deductible Generally non-deductible
Housing Generally 5-15% taxable 35% or 50% taxable
Income exclusion for travel outside Japan Generally available Require shareholders’ meeting
approval
Compensation adjustments Flexible Require shareholders’ meeting approval
Activities performed As per employment contract Unlimited
Tax and Operational EssentialsEmployee v. Director
Page 36
Setting Up Business In Japan
Employee Independent contractor (IC)Standard employment deduction Generally available Unavailable
Ability to claim expenses Unavailable Available
Social & Labor insurance system
Employer & employee obliged to join Only IC obliged to join
Withholding tax Progressive rates Flat rate
End of year adjustment Yes No
Tax and Operational Essentials... Employee v. Independent contractor
Page 37
Setting Up Business In Japan
Tax and Operational Essentials... Why am I here
Page 38
Setting Up Business In Japan
Getting profits out of the companyDividend vs salary vs consulting fees
Dividend incomeDividend is paid to shareholder from after-tax profits (retained earnings)Taxed with shareholder’s other incomeDouble taxation issue
Salary incomeEmployee is entitled to receive a salaryTaxed as employment incomeNo double taxation as salary is an expense for the company
Consulting feeGenerally treated as business income for individual
Page 39
Setting Up Business In Japan
Tax and Operational Essentials... When the music stops
Page 40
Setting Up Business In Japan
Exit strategiesSale vs. liquidation
SaleShareholder elects to sell his/her interest in the companyJapan tax issue arises BUT may be exempt under Japan/US Tax Treaty
LiquidationShareholder liquidates the companyCash payout generally treated as a dividend Japan tax will arise if seller resident of JapanJapan tax of as low as 5% may be levied if resident of certain jurisdictions (eg. US, UK)
Page 41
Setting Up Business In Japan
Tax and Operational Essentials... Take aways…?
Key points Clearly understand what your business is aboutThink realistically about your needs (office space, employees etc.)Consider your exit options (will your business be something worth buying?)Always get a second opinion...Understand your US tax implications
Page 42
top related