Fall Newsletter (No. 34) as of
Due to the 2017 tax reform, tax treatments for spousal deductions have changed. If taxpayer who earns an annual salary exceeding 12.2 million yen will no longer qualify for any spousal deductions from 2018. On the other hand, the conditions based on spouse’s annual salary for qualifying for spousal deductions of a taxpayer will be relaxed as follows:
In the past, as long as the “gross pay” of directors’ monthly salary was fixed, it was considered a deductible compensation expense. Under the revised rule, if the “net pay” of directors’ monthly salary paid on or after April 1, 2017 is fixed, this will also be considered as deductible compensation for corporate income tax purposes.
Please keep in mind that there is still a requirement to include a statement in the articles of incorporation and/or a resolution in the shareholders’ meeting when changing a director’s salary.
Transfer Pricing Documentation
There is increasing criticism towards a part of multinational companies for taking actions that artificially manipulates taxable income by using loopholes in the international tax rules.
In order to deal with these problems, the OECD launched the “BEPS (Base Erosion and Profit Shifting)” project to review the international tax rules in 2012, and released “Final Report” in October 2015, and reported it to the G20 Summit in November 2015.
In Japan, based on the recommendations of the BEPS project, the Act on Special Measures Concerning Law was partially amended in the 2016 tax reform and the documentation rules on transfer pricing was revised.
A member of a multinational company with consolidated revenue exceeding 100 billion yen or more for the preceding fiscal year is now obligated to submit transfer pricing documents (Notification for ultimate parent entity, Report by country and Statement of business) to the national tax office. A penalty up to 300,000 yen will be imposed for late filing. For details, please access:
Electronic Books Maintenance Act
Recently, requirements for storage of national tax related documents by electromagnetic methods have been relaxed. Electronic Books Maintenance Act largely stipulates the following:
1. Electronic storage of records and financial statements
2. Scanner storage of receipts, invoices and estimates, etc.
An application form is required to be submitted to the national tax office three months prior to the date of starting electronic storage. In applying for electronic storage by scanner, improvement in internal structures are necessary such as establishing administrative procedures and internal rules and placing timestamps as tamper preventive measures.
Update on Social Insurance Rates
Effective September 2017, the welfare pension insurance rates have increased as follows:
Employer contribution – from 9.091% to 9.150%
Employee contribution – from 9.091% to 9.150%
The welfare pension insurance rates have finally settled at 9.15% since changes to the pension rates started in 2004.
Amendment to the Childcare and Family Care Leave Act
The Amended Childcare and Family Care Leave Act will go into effect from October 1, 2017. The childcare leave period will be extended until the child reaches 24 months instead of 18 months. This also applies to cases where the spouse who supports the child is unable to raise the child due to illness. As a result of this amendment, the term of benefit for childcare leave benefits is extended to 24 months.
Eligibility Period for Japanese Pension
From August 1, 2017, the eligibility period (period required to receive pension) has been reduced from 25 years to 10 years. Until then, when foreign nationals were unable to qualify for receiving old-age pension when visiting Japan, they were able to opt out of the system. This voluntary withdrawal system was abolished as of July 31, 2017 because the eligibility period has been shortened.
The period during which Japanese citizens lived abroad were also covered. Pension claims and pension records can also be confirmed from outside of Japan. For details, please contact the pension office where your final address was in Japan.
Keeping Track of Working Hours
In January 2017, the Ministry of Health, Labor and Welfare announced employer “guidelines on properly tracking working hours.” The guidelines are based on the same principles as in the past, but in this guideline, the contents clarified many areas to look out for in order to track working hours properly.
The Labor Standards Act Article 108 and Enforcement Regulations Article 54 originally prescribed the proper preparation of payroll ledgers (to include items such as working days, working hours, holiday working hours, overtime hours, late night working hours for each employee), but it is described in more detail in this guideline.
In cases where these items are not included in the payroll ledger, or when there are inaccurate working hours deliberately stated in the payroll ledger, fines up to 300,000 yen may be levied based on The Labor Standards Law, Article 120. In the near future, examinations based on these new guidelines are expected to be carried out. We recommend reviewing of your current operations for managing working hours and see if there are any areas for improvement based on these guidelines.
36 “Saburoku” Labor Agreement
In situations where employees are expected to work overtime, the employer is required to enter into a 36 Labor Agreement with the employees. There is no minimum number of employees. According to the Labor Standards Act, employer work-rules are not required if there are fewer than ten employees, but 36 Labor Agreements, are required for overtime and holiday work. Such agreements must be submitted in advance.
For details, please also refer to our May 2017 newsletter.
About Foreign Employees
Employees that are foreign nationals basically have the same social insurance and labor insurance standards applied to them as Japanese nationals assuming residency status is confirmed. However, there are additional forms required for foreign employees which need to be completed.
English letter names
From October 1, 2014, “English (“Roman”) letter name notification” is required for the pension office to manage proper pension records joining the social insurance scheme for foreign nationals. Submission is also required when a spouse of a foreign national becomes a National Pension Insurance No. 3 insured person.
Employment status of foreigners
Employers who retain foreign nationals are required to notify their names, status of residence to the district Employment Insurance Office (Hello Work) when they are hired and/or leave the company.
In case of register employment insurance, you can make a notification of employment status of foreigners by writing their name, status of residence etc. in the remarks column of the application form. If such foreign employees do not participate in the employment insurance program, you will need to separately submit a “Foreign Employment Status Notification Form.”
The deadline for submission is until the end of the following month for both situations. In addition to a penalty of up to 300,000 yen, a violation of this reporting obligation is subject to administrative guidance and advice.
OC & Associates HR Co.
As informed in the May 2017 newsletter, OC & Associates HR Co. was established. Hiroko Hanato and Minako Mochizuki, our certified social insurance and labor consultants will support your company on social insurance and labor matters including preparation, revision and submission of employment rules, company regulations, and labor-management agreements. Please approach your in-charge if you are interested.
Office Manager Seminar
We will be holding our annual seminar to highlight the topics of the latest tax and payroll developments. We will again invite Mr. Otsuka, a lawyer from Tokyo Roppongi Law & Patent Offices to speak on key points regarding “Guidelines on properly tracking working hours” and visa and resident statuses for foreign workers. If you are interested in participating, please send an email to the following address by noon on Wednesday, October 11, 2017. Space is limited, so please register early.
Date: Wednesday, October 25, 2017, 1:30 pm – 3:30 pm
Location: Training room within OC & Associates
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., OC & Associates Tax Co. or OC & Associates HR Co.