Fall Newsletter (No. 38) as of
Introduction of reduced tax rate and invoice system
On October 1, 2019, the standard consumption tax rate will rise from 8% to 10% and, at the same time, a separate reduced tax rate has been introduced which is the first attempt of this kind in Japan. As a result, there will be the 10% standard rate and the reduced 8% tax rate.
The “Qualified Invoice Retention Method” (so called the “Invoice-based Method”) will be required from October 2023. Under this Method, retention of the “Qualified Invoice” is required for a credit of taxable purchases. This is issued by a “Qualified Invoice Issuing Entity,” which has filed an application with the tax office.
Simplified transitional measures for the “Classified Description Invoice Retention Method” will be implemented gradually between October 2019 and September 2023. Descriptions of “taxable supplies subject to the reduced tax rate and segregation of supplies by tax rates” are required in addition to the current requirements for descriptions under the “Invoice Retention Method” as explained further in the table below. Recipients of invoices (i.e. purchasers) can record such additional descriptions based on facts to qualify for credits of taxable purchases.
|Former method||New method|
|Accounting records||– Name of the counterparty (supplier)
– Amount for taxable purchase
|– Name of the counterparty (supplier)
– Details(a statement that they are subject to the reduced tax rate)
– Amount for taxable purchase
|Invoices||– Name of the preparer of the documents (supplier)
– Amount (including consumption taxes)
– Name of recipient (purchaser)
|– Name of the preparer of the documents (supplier)
– Details (a statement that they are subject to the reduced tax rate)
– Amounts by tax rate (including consumption taxes)
– Name of recipient (purchaser)
Updated Japan-US Tax Treaty
On August 30, 2019, the updated Japan-US tax treaty became effective between the two governments. It took 6 years and 7 months after the Japan’s Diet approval because the ratification procedures stagnated in the U.S. This Treaty is applicable for withholding tax transactions for dividends and interest paid or credited on or after November 1, 2019.
The scope of the withholding tax exemption for dividends and interest at the source will also expand as follows:
1. Requirements to obtain exemption from withholding taxes on dividend at source will be relaxed. In particular, the holding ratio will be lowered from “more than 50%” to “at least 50%” and the holding period will be shortened from “12 months” to “six months.”
2. In principle, withholding taxes for all interest at source will be exempt.
Individual Income Taxes
From January 2020, the amendment of withholding taxes will go into effect. The year-end adjustment processes for 2020 are expected to become complicated. The main amendments will be as follows:
1. Reduction of the employment income deductions
The amount of the employment income tax deductions will decrease across the board by 100,000 yen.
The upper limit of the amount of annual gross salary, which is the condition for obtaining the deduction, will be lowered from the current 10 million yen to 8.5 million yen. At the same time, the maximum deduction will be reduced from 2.2 million yen to 1.95 million yen.
2. Increase of the basic deduction
Currently, 380,000 yen is deducted from individual incomes without exception. The amount of the basic deduction will increase up to 480,000 yen depending on your taxable income amount. For individuals with total taxable income exceeding 25 million yen (i.e. annual gross salary of 26.95 million yen), the basic deduction will be completely disallowed.
In order to utilize the deduction during the year-end adjustment process, an “Application for basic deduction” should be submitted to your employer.
3. Special treatment for people with children or parents who require nursing care
A special deduction for income adjustments has been enacted in order to reduce the increased tax burden for those involved in parenting and elderly care as the individual income tax of the individuals whose annual gross salary are above 8.5 million yen will increase as a result of these amendments. For individuals with an annual gross salary in excess of 8.5 million yen (up to 10 million yen) and is either: (1) eligible for special exemptions for persons with disabilities, (2) has dependent relatives under 23 years old, or (3) has a dependent spouse or relatives residing together or financially supporting those who are eligible for special exemptions with disabilities, an amount equivalent to 10% of the annual gross salary be permitted as a deduction.
In order to apply for a deduction during the year-end adjustment process, an “Application for special deduction” must be submitted to your employer in advance.
Domestic Residence Requirements
A. Health Insurance Dependents
In principle, domestic residence requirements will be introduced to qualify for dependents status for health insurance from April 2020. However, students studying abroad who do not have an address in Japan but recognized as having a base of living in Japan will be allowed as an exception.
B. Qualifying for National Pension
An individual who is 20 years old or older, but under 60 years old who is residing together or financially supported by a salaried employee or a government employee is called a “National Pension No. 3 Insured.” The domestic residence requirements are the same as health insurance dependents above. An exception rule also exists here.
Companies, regardless of the number of employees, are obligated to have their employees take annual medical examinations and monitor the results to satisfy safety consideration obligations under the Industrial Safety and Health Law.
The collected health information should only be handled by authorized human resources department personnel and/or persons in departments related to health. Personal information must be handled under privacy protection policies.
Labor Standards Inspection Office Investigations
The number of investigations from the Labor Standards Inspection Office is on the rise. There are four types of investigations: Normal Supervision, Reported Supervision, Disaster related Supervision and Follow-up Supervision. The two most commonly confused investigations are:
A ‘Normal Supervision’ is the most common method of investigation in which the Labor Standards Inspection Office randomly selects a company and conducts an investigation to see if there are any violations of the Labor Standards Law. They could investigate working conditions, working hours, wages, annual paid leave, safety and hygiene management, and health management. Companies that have not submitted their work rules and notification of agreement on overtime and holiday work under Article 36 (the “36” agreements) and companies operating in industries commonly known for forced unpaid overtime (such as information technology, restaurants, advertising, etc.) are often subject to investigations. In principle, an investigation is made through surprise visits, however, there be advance notifications.
A ‘Reported Supervision’ is an investigation when employees request an inspection. This may be conducted without disclosing the name of the employee(s) and conducted in the same manner as a Normal Supervision.
During the investigation, submission of at least three legal records (roster of workers, wage ledger and attendance record) will be required. Violation for not maintaining these legal records for three years may result in a fine of up to 300,000 yen each. Violation for inadequate work rules and notification obligations will result in a fine of up to 300,000 yen and violation of the 36 agreements may result in imprisonment of up to 6 months, or a fine of up to 300,000 yen or less.
The most common violations are regarding “working hours” and “unpaid wages.” Maintaining appropriate legal records and accurately tracking working hours of employees is critical.
Specific labor standard inspection cases and countermeasures will be discussed in detail recommendation at the upcoming office manager seminar.
Companies with ten or more employees which are allowing employees to work remotely should consider amending their work rules if work conditions differ from the content of the existing work rules. Amendments to the work rules or independently established rules need to be notified to the competent Labor Standards Inspection Office based on established procedures. For example, the following matters should be prescribed in work rules:
– Rules regarding who should work remotely
– Rules regarding working hours if such remote working hours policies have been established
– Rules regarding the payment of communication changes and other expenses
For companies not required to prepare work rules they should enter into a collective agreement or notify employees in the form of a notice of employment concerning working conditions.
Please refer to “FAQ regarding personnel management for remote workers” for further details.
EPS (Employee Profile System) Update
FAQ buttons are now available on the EPS HR Administrator screen as well as the new employee application input screen.
Tri-annual Service Survey
Your feedback is important to us. Please go to the following link by Friday, October 18, 2019 and answer the ten questions.
The survey should only take five minutes to complete. Your comments are appreciated.
OC & Associates K.K.
OC & Associates Tax Co.
OC & Associates HR Co.
Kioicho Building 17F
3-12 Kioicho Chiyoda-ku, Tokyo 102-0094
TEL +81-3 (5276) 0900
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. Ichiro Otsuka, a lawyer from Tokyo Roppongi Law & Patent Offices to speak on key points regarding balanced and fair treatment for part-time and fixed-term contract workers (equal pay for equal work). If you are interested in participating, please send an email to the following address by Tuesday, October 15, 2019. Space is limited, so please register early.
Date: Tuesday, October 29, 2019, 1:30 pm – 3:30 pm
Location: Training room within OC & Associates (view 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., OC & Associates Tax Co. or OC & Associates HR Co.