Spring Newsletter (No. 35) as of
New Revenue Recognition Standard
The International Accounting Standards Board (IASB) and the Financial Accounting
Standards Board (FASB) jointly developed comprehensive accounting standards for
revenue recognition and issued “Revenue from Contracts with Customers” (IFRS 15
(IASB) and Topic 606 (FASB)) in May 2014. IFRS 15 became effective from the year
beginning on or after January 1, 2018 and Topic 606 from years beginning after
December 15, 2017.
There were no comprehensive accounting standards for revenue recognition in Japan
until now. In March 2018, the Accounting Standards Board of Japan (ASBJ) issued
“Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29) and
“Implementation Guidance on Accounting Standard for Revenue Recognition& (ASBJ
Guidance No. 30). The new accounting standards for revenue recognition, which is
similar to IFRS 15, will be effective from the beginning of the year beginning on or
after April 1, 2021.
However, considering the effective date of IFRS 15, early application is also being
permitted for years beginning on or after January 1, 2018. SMEs in Japan can continue
to apply the “Guidance on Accounting of Small and Medium Enterprises.”
2018 Tax Reform
The amendment of the Corporation Tax Act and the Local Tax Act in relation to the
2018 tax reform bill were issued on March 31, 2018. Some of the relevant topics for
our clients are:
Effect of the new revenue recognition standard
As a result of the introduction of the new accounting standards on revenue
recognition, relevant rules for corporate taxes have been clarified. While the tax
authorities have been issuing interpretations regarding calculation of taxable income
for corporate tax purposes, the amount and the timing of revenue recognition are now
clearly stipulated in the corporate tax act by the 2018 tax reform. Although the tax
reform incorporated the new accounting standard on revenue recognition, certain
differences (for example, treatment of bad debt or buybacks, etc.) still remain
between accounting and tax. In principle, the tax treatment will follow the
accounting treatment, but attention is required for the following (practical
treatment will be clarified in the future):
(1) Timing of revenue recognition
For the purpose of calculating taxable income, revenue relating to the sales or
transfer of assets or provision of services should, in principle, be included in the
amount of taxable income in the fiscal year in which delivery or provision of
services (delivery date) occurred.
If the delivery date is different from the revenue recognition date under the new
standards, in accordance with generally accepted accounting standards, the revenue
could be included in a different fiscal year.
(2) Amount of revenue
Calculation of taxable income is, in principle, the fair market value of assets at
the delivery date or value of consideration to be received under normal
The amount of revenue would be unchanged even if there is the possibility of bad debt
or buybacks. For discounts and rebates, the amount estimated objectively is expected
to be deducted from the amount of revenue. The amount of revenue is expected to be
recorded by categorizing into substantial transaction units.
Tax credits for salary level increases
Although the tax credits for salary growth was scheduled to terminate as of the
fiscal year beginning until March 31, 2018, there has been a three year extension.
The tax credits will be offered to enterprises which reported a growth in salary
levels and/or capital investments. Larger tax credits will also be offered to
enterprises which reported increased education and training costs.
(1) Large enterprises
If both (a) and (b) below are satisfied, tax credits of 15% of the salary level
increase amount can be taken.
(a) Percentage of salary level increase for continuously employed individuals is 3%
(b) Amount of capital investments is 90% or more of the total depreciation amount
In addition, if (c) below is also satisfied, tax credits of 20% of the salary level
increase will be offered.
(c) Percentage increase in education and training costs is 20% or more
Generous rules have been established for SMEs as described below, where the tax
credits will be offered in the amount of 15% of the salary level increase by
satisfying condition (a) below.
(a) Percentage of salary level increase for continuously employed individuals is 1.5%
In addition, if (b) and (c) below are also satisfied, the tax credits will be for 25%
of the salary level increase.
(b) Percentage of salary level increase for continuously employed individuals is 2.5%
(c) Percentage increase in education and training costs is 10% or more
Individual Income Taxes
Reduction of the employment income deduction and increase of the basic
The amount of the employment income deduction will
generally decrease by 100,000 yen and the maximum deduction is reduced to 1.95
million yen (for annual gross salary of 8.5 million yen). The employment income
deduction for income taxes from 2020 and inhabitant tax from 2021 will be as
|Employment income (Yen)||Employment income deduction|
|–||1,625,000||650,000 yen||550,000 yen|
|1,625,000||–||1,800,000||Employment income x 40%||Employment income x 40%
– 100,000 yen
|1,800,001||–||3,600,000||Employment income x 30%
+ 180,000 yen
|Employment income x 30%
+ 80,000 yen
|3,600,001||–||6,600,000||Employment income x 20%
+ 540,000 yen
|Employment income x 40%
+ 440,000 yen
|6,600,001||–||8,500,000||Employment income x 10%
+ 1,200,000 yen
|Employment income x 40%
+ 1,110,000 yen
|8,500,001||–||10,000,000||1,950,000 (Upper limit)|
|10,000,001||–||2,200,000 yen (Upper limit)|
For individuals with dependent relatives under 23 years of age, or dependent
relatives eligible for special exemptions for persons with disabilities in the same
household, considerations were made so they would not face an increased tax burden.
From 2020, the basic deduction will increase by 100,000 yen. However the basic
deduction for individuals with total income exceeding 24 million yen will be
gradually reduced. For individuals with total income exceeding 25 million yen the
basic deduction will be zero.
Country-by-Country Reports (CbC report) required for transfer pricing documentation
must be submitted by the ultimate parent entity. In principle, Japanese corporations
that are a constituent entity of a multinational entity group do not need to submit a
However, Japanese corporations must submit a CbC report to the competent district
director in case the information equivalent to the CbC report is not required from
the country in which the ultimate parent entity resides.
Although there is no qualifying competent authority agreement between the United
States and Japan at the moment, Japanese corporations are not required to submit a
CbC report for the fiscal year of the ultimate parent entity for fiscal years
beginning between April 1, 2016 and March 31, 2017.
Update on Social Insurance Rates
Effective March 2018, some of the Health and Nursing
Care Insurance rates have
changed and the current rates can be summarized as follows (Child benefits
contribution rate has changed effective April 2018):
|The Health Insurance
|The Health Insurance Association
|The Foreign Transportation &
Finance Health Insurance Association
|Child Benefits Contribution||0.23%||0.29%|
Effective April 2018, Labor (or Employment) Insurance rates have changed for certain
industries, however, the rates for “other industries” remain unchanged.
Employing People with Disabilities
Effective April 2018, the employment regulations for individuals with disabilities
has been amended as follows:
(1) Statutory employment rate for individuals with disabilities for private companies
has increased from 2.0 % to 2.2% starting from April 2018 and will increase to 2.3%
starting from April 2021.
(2) Companies subject to the employment obligation for individuals with disabilities
have expanded from over 50 employees to 45.5 employees starting from April 2018 and
will expand to 43.5 employees starting from April 2021.
(3) Mentally handicapped individuals have been added to the obligation to the
employment requirement, and the calculation method of mentally handicapped
individuals as short-time workers has also changed.
Health Insurance for Overseas Dependents
When applying for or submitting changes using the “Health Insurance dependents
(change) notification” for family members living overseas, the following additional
supporting documents are now required:
- Reporting of current status regarding dependents (family relationshipswith dependents, dependents’ income and funding of living expenses to dependents,etc.)
- Official certificates to confirm a family relationship with thedependents
- Documents to confirm living on common living expenses (documents differdepending as to whether they are living together or separately)
When the documents are in a foreign language, a Japanese translation with a signature
of the translator is required as an attachment. The above requirement also applies to
those who continue to have dependent status in addition to new applications.
Out-of-Pocket Courier Fees
Sagawa Express, our primary courier vendor, has increased their fees effective May
21, 2018 due to rising labor costs. Normal packages under 2kg delivered within the
Kanto area will increase from 380 yen to 520 yen. Other regions have similar
increases. The new fees will be reflected from our June invoice. Your understanding
Tax Return Preparation Fees
Effective June 1, 2018, OC & Associates Tax Co. renewed the Fee Structure for tax
return preparation for clients with annual sales more than 1 billion yen.
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.