Spring Newsletter (No. 26) as of



IFRS in Japan

The Financial Services Agency (FSA) still has not made a decision whether to make IFRS adoption mandatory which was originally expected in 2012, but on June 19, 2013, the Business Accounting Council, an advisory body to the Commissioner of the FSA, issued an interim report. This report outlined steps which were necessary to encourage adoption of IFRS, including a proposal to relax some of the requirements for eligibility. As of May 2013, only 20 Japanese companies had adopted IFRS or announced they will be adopting IFRS.

As a result of this report, in October 2013 numerous regulatory changes were made to ease the eligibility requirements to adopt IFRS. Many unlisted entities as well as listed entities who did not conduct financial or business activities overseas are also now eligible to adopt IFRS.

Designated IFRS and Endorsed IFRS

All IFRS published before October 2013 were approved by the FSA and have since been considered “Designated (or “Pure”)” IFRS. In September 2013, the Accounting Standards Board of Japan (ASBJ) created a working group to adopt IFRS in its own way. Each IFRS would be reviewed by the ASBJ working group, and if necessary, changes/deletions would be made to the standards and subsequently approved by the FSA. Such Japanese version IFRS is also being referred to as J-IFRS. Monthly meetings have been held are being held to cover all the applicable IFRS and then “endorse” them. On May 12, the 12th round of meetings were held. The entire endorsement process is expected to be completed this fall.

However through the creation of J-IFRS, the market is taking such standards with mixed feelings. The modifications to IFRS were being considered to reduce transparency to overseas investors and those involved in the market. If J-IFRS is formally adopted, there will be four accounting standards (traditional Japanese GAAP, US GAAP, Designated IFRS and J-IFRS), which may add further confusion in the market.


Corporate taxes

Income Tax Rate Changes

The table below shows the corporate income tax rates for SMEs entities, those with capital of 100 million yen or less (Note 1):



  1. Enterprise tax rates for entities with annual taxable income exceeding 25 million yen have not been finalized.
  2. The 2014 tax reform brought up the taxation period by one year.
  3. Effective for entities with fiscal years starting October 1, 2015, the tax rates for local corporate special tax will decrease gradually, whereas the tax rates for enterprise tax will gradually increase.
  4. A new regional corporate tax (equivalent to 4.4% of national corporate tax) will be introduced from fiscal years starting October 1, 2015. In return, the local corporate income tax rate will decrease by the same percentage.
Salary Expense

A “Tax credit for salary expense increases” was introduced from the fiscal year beginning on or after April 1, 2013. In the 2014 Tax Reform Act, some of the requirements were relaxed and the applicable period was extended to March 31, 2018.

If salary expense increases by 5% or more than the base year, the company in principle, will be able to apply for a tax credit of 10% of the salary increases. However this will be capped at 10% of the corporate income tax, or if the company is on SMEs, up to 20% of the corporate income tax.

Entertainment Expenses

2013 Tax Reform Act: The maximum deductible amount of entertainment expenses for SMEs increased from 6 million yen (up to 90% of the first 6 million yen) to 8 million yen (fully deductible up to the first 8 million yen) from the fiscal year beginning on or after April 1, 2013.

2014 Tax Reform Act: Regardless of the size of entities, expenses for meals (excluding meals for your own directors and employees) that are not entertainment related are 50% tax deductible.

SMEs can select to apply either Act above.

Individual Income Taxes

Limitations on Employment Income Deductions

Under the 2012 Tax Reform Act, salaried employees with gross employment income above 15 million yen received an employment income deduction which was capped at 2.45 million yen. The 2014 Tax Reform Act has made changes to the caps for 2016 and 2017 thereafter as follows:

1. For individuals with gross employment income in 2016 above 12 million yen, their employment income deduction will be capped at 2.3 million yen. This revision is effective in 2016 for individual income taxes and in 2017 for individual inhabitant taxes.

2. For individuals with gross employment income in 2017 above 10 million yen, their employment income deduction will be capped at 2.2 million yen. This revision is effective from 2017 for individual income taxes and from 2018 for individual inhabitant taxes.

In addition, as explained in the last October newsletter (No. 025), effective from 2015, the highest income tax bracket will rise from 40% to 45%.



Update on Social Insurance Rates

Effective March 2014, some of the insurance rates have changed and the current rates are summarized as follows:

Employer Employee
Before Current Before Current
Health Insurance (The Health Insurance Association Health Insurance – Tokyo) 4.99% 4.99% 4.99% 4.99%
Care Insurance (The Health Insurance Association – throughout the country) 0.78% 0.86% 0.78% 0.86%
Health Insurance (ITS Health Union) 4.25% 4.25% 4.25% 4.25%
Care Insurance (ITS Health Union) 0.50% 0.60% 0.50% 0.60%
Health Insurance (The Foreign Transportation & Finance Health Insurance Association) 3.40% 3.40% 3.40% 3.40%
Care Insurance (The Foreign Transportation & Finance Health Insurance Association) 0.45% 0.46% 0.45% 0.46%
Health Insurance (Tokyo Electronic Machine Industries Health Union) 4.65% 4.60% 4.65% 4.60%
Care Insurance (Tokyo Electronic Machine Industries Health Union) 0.65% 0.70% 0.65% 0.70%
Welfare Pension Insurance 8.56% 8.56% 8.56% 8.56%
Children Welfare Contribution 0.15% 0.15%
Workers Compensation Insurance (Other Business) 0.30% 0.30%
Employment Insurance (General) 0.85% 0.85% 0.50% 0.50%
General insurance 0.05% 0.02%


Company Minutes Preparation

Due to limited interest in the above service which was introduced in late 2012, we have decided to wind down this service as of June 30, 2014.


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 Okamoto & Company, Hiroko Hanato CPTA Office, Michiya Akuzawa CPTA Office or Fumihisa Shimono CPTA Office.