Fall Newsletter (No. 32) as of
Transfer Pricing Documentation
From the fiscal year beginning on or after April 1, 2016, a member of a multinational enterprise with total consolidated revenue in excess of 100 billion yen in the previous fiscal year, will be required to submit the following documents:
(1) Notification of Ultimate Parent
(2) Report by Country (Country-by-Country report)
(3) Statement of Business (Master file)
From the fiscal year beginning on or after April 1, 2017, companies that have transactions with an overseas related party are required to prepare or obtain and preserve documents deemed necessary to calculate their arm’s length prices. The deadline is the due date of the tax return.
Reporting on Share-Based Compensation
When a Japanese resident who is a director or an employee of a Japanese subsidiary of an overseas parent earns share-based compensation granted by the overseas parent, the Japanese subsidiary is required to file a report by March 31 of the following year.
The scope of individuals subject to reporting has expanded to include the followings:
(1) A resident who was a former director or former employee of a Japanese subsidiary of an overseas parent.
(2) A non-resident who is a director or an employee of a Japanese subsidiary of an overseas parent company (including retired directors and employees) and who received economic benefits that fall under Japan source income.
Payments to Professionals Requirement
For many companies, it has become common practice to issue vendor statements on professional fees and real estate fees paid, etc. According to the Japanese income tax law, such statements are not required to be issued to the payees. If a taxpayer voluntarily issues a copy of the statement to the payees, the taxpayer should exclude “My Number” on the statement.
Size of Company vs. Group Organization
Recent tax legislation requires the subsidiary to look at the entire group in determining the filing status and eligibility for certain deductions, etc. For instance, although subsidiaries or branches itself may be categorized into small and medium sized company, they will become a large company if the capital of the ultimate parent company is 500 million yen or more.
Please note that if relationship diagram and/or organization charts that you provide us for tax returns are deemed inadequate or not available by the requested deadline, we will take a conservative approach and assume the entity is a large company. This may result in an additional tax liability for the company. The following are the major differences between large company and SME from the corporate tax view point:
|Ability at a lower tax bracket||N/A||Applicable|
|Tax on excessive retained earnings||Applicable(if privately held)||N/A|
|Deductible limit on entertainment expenses||Nondeductible||Deductible up to a limit|
|Limit on deduction of tax loss carry-forward||Ceiling on deduction||No limit|
|Tax loss carry-back||N/A||Applicable|
Update on Social Insurance Rates
Effective September 2016, the welfare pension insurance rates have increased as follows:
Employer contribution – from 8.914% to 9.091%
Employee contribution – from 8.914% to 9.091%
These rates will remain fixed at 9.15% for both employer and employee from September 2017.
Social Insurance Enrollment Conditions
As already explained in our past newsletter, from October 2016, social insurance enrollment requirements for part-time employees will be expanded from the current rules (initially for large companies with more than 500 employees).
Following the revisions, employees who work 20 hours or more (30 hours or more under the current rules) will be required to enroll. Also, the maximum annual salary permitted to avoid enrollment into social insurance will be decreased from 1.3 million yen to 1.06 million yen (i.e. monthly salary 88,000 yen).
Please check to see if any of your employees have family members working part-time at large companies. They may no longer be able to claim their family members as a dependent for social insurance. In such cases, we need to deregister as dependents and return their health insurance cards.
Other Amendments to Social Insurance
From January 1, 2017, a newly hired employee who is 65 years old or over will be able to enroll for employment insurance. From 2020, employees who are 64 years old or over will be subject to employment insurance premiums (no insurance premium is charged under the current rule).
From January 1, 2017, it will become easier for employees to take nursing care leave. Taking half days off will be possible and a 93-day-leave can now be taken over three periods. Also, measures for shortening of working hours will be relaxed and provisions for exemption of overtime will be newly established. The nursing care benefits pay for such employees who start nursing leave on or after August 1, 2016 will increase from 40% to 67% of base wages.
In collaboration with “Pay-look” (https://www.pay-look.com/index.html), ePayslips are now available for use free of charge. Your employees can access their monthly payslips on the web by entering their IDs and passwords. If you would like to switch to web based payslips or would simply like to know more, please contact your payroll in–charge for more information.
If you are still manually inputting accounting information into your enterprise accounting system, we may have an easier solution to import electronically.
We have been gradually rolling out our EPS (Employee Profile System) to our clients to allow easier exchange of information and the management of “My Number”.
This also allows HR administrators to manage personal information on our secure cloud servers.
In addition to providing expense reporting online, this is also a great tool for management at the macro level to see which employees are spending a lot in which expense categories over time.
If you would like to know more about any of these free to use applications, please approach your in-charge for details.
Tri-annual Service Survey
For two weeks starting Friday, October 7, we will be opening the following link to get feedback on our services:
The survey should only take five minutes to complete.
Your comments are appreciated.
Effective October 1, 2016, Michiya Akuzawa, our director will become a partner of OC & Associates KK. As already announced, he is also a partner of OC & Associates Tax Co.
Michiya Akuzawa Profile
USCPA, CPTA – Japan. Graduate of Waseda University. After spending nearly 10 years at KPMG AZSA (formerly Arthur Andersen), performing accounting and payroll outsourcing services as well as audits. He has a total of 18 years in public accounting, and now specializes in tax affairs of foreign entities in Japan.
Message from Michiya Akuzawa
“It is my honor to have been promoted to partner. Recently, we have been facing numerous changes in accounting standards, tax reforms, and HR-related laws and regulations, which have significant impact on subsidiaries/branches of foreign entities in Japan. As a partner of OC & Associates, I will do my best to keep such clients updated and cater to their needs with quality services.”
Office Manager Seminar
We will be holding our annual seminar to highlight the topics of the latest tax and payroll developments. We will also explain “My Number” which will start full-scale operation from next year, focusing on matters which require special attention in this year’s annual year-end adjustments calculation and preparing statement of payment of professional fees, etc. If you are interested in participating, please send an email to the following email address by noon on Tuesday, October 11, 2016. Space is limited, so please register early.
Date: Tuesday, October 25, 2016, 1:30 pm – 3:30 pm
Location: Training room within OC & Associates > Map
This newsletter is for private circulation only. Although care has been taken in the preparation of this document, contents have been highly summarized and it may contain errors and/or ambiguities for which we cannot be held responsible. If you are concerned about a specific issue, we recommend you seek professional advice. The material contained in this newsletter may not be reproduced in whole or in part by any means, without the permission of OC & Associates K.K. or OC & Associates Tax Co.