Spring Newsletter (No. 28) as of
IFRS in Japan
The Financial Services Agency published “IFRS Adoption Report” on April 15, 2015, which is a fact-finding survey of Japanese companies that voluntarily adopt or will adopt IFRS. This report covers responses from 65 companies. The most common answer for the benefits of adoption was “Adoption of IFRS will contribute to improved business management” because many of the respondents have numerous overseas subsidiaries and IFRS is useful for the analysis needed in business management. The most common answer to what systems were implemented or updated for the adoption was a “Consolidation System.” This is because many companies now needed to manage both Japan GAAP and IFRS after the adoption. As of April 28, 2015, the number of companies that voluntarily adopted or will adopt IFRS has reached 80.
On March 31, 2015, the 2015 tax reform bill was enacted in Japan. The bill includes both favorable and unfavorable tax changes. This newsletter summarizes key provisions relevant to foreign companies in Japan.
Income tax rate reduction
National corporate tax rate will be reduced from 25.5% to 23.9% effective from the fiscal years beginning on or after April 1, 2015. The effective tax rate for SMEs will be reduced from 38.37% to 36.04% and 34.33% for the years ended December 31, 2015 and 2016, respectively.
The table below summarizes the income tax rates for SMEs:
|National corporate tax||25.50%||25.50%||23.90%|
| National special reconstruction
|National regional corporate tax||－||1.12%||1.05%|
|Local enterprise tax||5.30%||6.70%||6.07%|
|Local corporate special tax||4.29%||2.89%||2.89%|
|Local corporate income tax||4.41%||3.29%||3.08%|
(a) NOL deduction limitation
The ceiling for an annual NOL deduction (currently 80%) will be lowered to 65% from the fiscal years beginning on or after January 1, 2015 through the fiscal years beginning on or before March 31, 2017. A further reduction to 50% will apply to the fiscal years beginning on or after April 1, 2017. SMEs are still eligible for a 100% NOL deduction.
(b) Carry-forward period extension
The current 9- year carry-forward period is extended to 10 years for NOLs accumulated in the fiscal years beginning on or after April 2017.
Tax credit for salary expense increases
The requirement of “Tax credit for salary expense increases” will be relaxed. For SMEs, if salary expense increases by 3% (currently 5%) or more than the base year, the company in principle, can apply for a tax credit on salary increases from the fiscal years beginning on or after April 1, 2016 through the fiscal years beginning on or before March 31, 2018.
Consumption tax rate increase
The second phase of the consumption tax rate increase from 8% to 10% has been postponed for 18 months until April 1, 2017.
Consumption tax on cross-border services
From October 1, 2015, provision of cross-border electronic commerce by foreign companies to Japanese customers, such as e-books, music and advertisements will be subject to consumption tax.
(a) B to B transactions
A reverse charge system will be introduced, which requires a service recipient in Japan to file a consumption tax return.
(b) B to C transactions
Under certain circumstances, a foreign service provider who does not have its offices in Japan is required to appoint a tax representative to whom tax documents can be delivered, and file a consumption tax return.
Individual Income Taxes
From January 1, 2016, employees who want to claim a family member residing outside Japan as a dependent for individual tax purposes are required to submit documents proving a family relationship and the wiring of living expenses to the dependent.
Update on Social Insurance Rates
Effective March and April 2015, some of the insurance rates have changed as follows:
| The Health
| The Foreign
| Tokyo Electronic
There are no changes to the employment insurance rates. Effective April 2015, the special insurance rate for employees assigned overseas decreased from 0.4% to 0.3%.
Introduction of “My Number” System
Notifications of “My Number” will be mailed from October 2015 and become effective from January 2016. Although many of the details are still being worked on, please take note of the three points below:
Tax related documents such as certificates of income tax, dependent forms and vendor statements, documents for health insurance, pension insurance and employment insurance will all change and will be required to complete My Numbers.
Employees (including directors, part-time workers) and dependent family members, payments for professional fees, payments for real estate rentals and dividend payments
(a) Clear indication of the use and handling of “My Number” (*)
(b) Confirmation of identification and how to confirm “My Number”
(*) Employers will be allowed to use the numbers only for purposes that they have been notified to the employees.
With the introduction of the “My Number” system, Okamoto and Company has launched the web-based “Employee Profile” system which will be post to WebHRManager (free service). This is a replacement of our current paper form called, “Notification for new employee” and we will record other employee data as well as “My Number” in this system. Maintaining data in the system will be in compliance with local laws and allow data to be kept online with appropriate security.
We plan to have a “My Number” seminar for our clients in September. We will provide a demo of the “Employee Profile” and discuss useful references such as how to handle “My Number” including confirmation of identification, how to confirm “My Number”, how to identify persons in charge of “My Number”. We will also go over a review of internal rules and regulations on maintaining “My Number” and leak prevention as well as ways of notifying employees.
FAQ regarding “My Number” (Cabinet Secretary website)
Nominal Representative Director
On March 16, 2015, the Ministry of Justice announced that the residency requirement that at least one of the representative directors of domestic corporations must have a Japanese address would be abolished. However, this requirement will not apply to representatives of foreign companies in Japan, as Article 817 (1) of the Companies Act which specifically requires that one or more of the representatives of foreign companies be domiciled in Japan.
Free Cloud Services (WebManager Series)
Please approach your in-charge for details if you have any interest in our cloud services. Two new features have been added to two of our systems:
We have added new management reports to allow easier analysis of T&E expenses by employee, departments and/or projects.
Log-in and log-off times of our portal can also be displayed next to the self-reported working hours. If your company has a fixed IP address, this would serve as reference for the employees’ work hours.
We established our first overseas subsidiary in Singapore in November 2014. Kazumichi Shimagaki is managing our office there. Our office is currently located within the offices of Kreston David Yeung LLP, also a member of the Kreston International Network. The office will allow us to directly serve our clients with shared service centers in Singapore as well as serve the Singapore subsidiary of the parent companies we already serve.
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.