Special Issue Newsletter (No. 30) as of
Recent Tax Reforms
Tax credit for salary expense increases
A tax credit for salary expense increases was announced to encourage companies to increase salaries. If the following requirements are satisfied, the company can apply for a tax credit of up to 10% of net increase in employees’ salaries in Japan. All three requirements must be satisfied to be eligible for the tax credit for the year ending December 31, 2015.
(1) Increased net amount in employees’ salaries (*) ≥ 2%
Salary expenses in 2013
(2) Salary expenses in 2015 ≥ Salary expenses in 2014
(3) Monthly average salary expenses per employee in 2015 > Monthly average salary expenses per employee in 2014
Tax credit = Increased net amount in employees’ salaries
(*) x 10% [However subject to certain limits.]
(*) Salary expenses in 2015 – Salary expenses in 2013
Regardless of the amount of the tax credit, this analysis into prior year numbers to determine whether the above requirements are met will result in additional effort to prepare tax returns.
Company size vs. Group Organization size
The recent trend has been to look at the entire group in determining the filing status and eligibility for certain deductions, etc. For example, the corporate tax rate deduction, tax on excessive retained earnings, deductible limit on entertainment expenses, limit on the annual NOL deduction, factor based taxes all look into the group and/or ultimate shareholder to determine the tax treatment.
To properly determine the tax treatment, it is essential that we receive an up-to-date relationship diagram/organization charts at the end of each fiscal year.
Please note that if the information our in-charges receive are deemed inadequate or not available by the requested deadline, we will take a conservative approach which may result in an additional tax liability for the company.
Related Party Information
For companies with at least a 50% shareholding by a single group, the subsidiary in Japan is required to file a related party information form (Schedule 17-4). Such form will disclose the nature, transaction amount and balance of such related party transactions. Although this form has no direct impact on the tax liability, it is a required form.
Our in-charges will be sending out requests for completion of our questionnaire again this year. Please complete it by the end of February for calendar year companies. The tax offices use this Schedule for transfer pricing purposes and have been approaching companies if such form has not been filed. Your cooperation is appreciated.
As a result of the above changes, there is also a need for us to revisit our tax return preparation fees. Our new fee structure for tax returns has been uploaded on our website.
Our CPTAs will be approaching the companies that have been affected by this new fee structure. Your understanding is appreciated.
Collection of Individual Numbers (“My Number”)
As you may all know, the formal implementation of My Number will start next January. So we can properly handle this new information, as your payroll vendor, we are required to enter into a memorandum (Memorandum on the Handling of Specific Personal Information) with our clients explaining how we will handle such information. If you have not been approached already, you will be contacted on this within the coming weeks from engagement management if we provide payroll services.
As announced in our previous fall newsletter, we developed a new cloud-based system (Employee Profile System (“EPS”)) so we can now collect My Number online. The EPS system is secure and can only be accessed through SSL 256bit encrypted communication. The personal information of your employees has already been uploaded into EPS.
Upon confirmation of receipt of the above Memorandum, we will provide an excel file to input employee email addresses. Please fill out the form and return it to us. We will import them into EPS. EPS would then send email links to the employees (including directors and employees with secondary income) so they can input their My Number information.
Under the My Number law, the employer is also now required to verify the employees’ name and My Number with appropriate identification. We will send the designated HR administrators with access codes to EPS so that they can readily perform My Number verification online.
You should have already submitted us a copy of the “Declaration of Tax Exemption for Salaried Employees for 2016 (“Declaration 2016”)” for year-end adjustments. Please hold off on sending us the original of Declaration 2016 until April 2016 when My Number registration in EPS and My Number verification will be completed. We will ask you and your employees to make a short statement on it instead of writing the My Number in the specified space. We will provide the statement at a later point in time.
Please contact your payroll in-charge for details if you don’t have an HR administrator in Japan or are unable to use EPS.
|November/December 2015|| - We start collection of a copy of the Declaration 2016.
– Enter into Memorandum on the Handling of Specific Personal
– We will collect your employees’ email addresses.
– We will register them in EPS.
|January to March 2016|| - EPS will be made available to your HR administrator.
– We will distribute an EPS user’s manual.
– EPS will send email with links to EPS to your employees.
– Your employees will enter their My Number in EPS
– HR administrator will perform My Number verification.
|April 2016 and thereafter||We will start collection of the original of Declaration 2016.|
|During 2017||We will return you the original of Declaration 2016.|
Ark & Co. (www.ark-audit.com) and Meiji Audit Corporation (www.meijiaudit.or.jp), which are medium-sized audit firms in Japan, have recently joined Kreston International (https://kreston.com), the 13th largest global accounting network (10th in Japan). We have been a member since 2006.
As a result, the number of member firms in Japan has increased to four, including Yaesu Audit Company (www.yaesuaudit.or.jp) which joined in 2012 and ourselves. Ark & Co. and Meiji Audit Corporation will merge in January 2016.
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, Hiroko Hanato CPTA Office, Michiya Akuzawa CPTA Office or Fumihisa Shimono CPTA Office.