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:

Corporate Taxes

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%

or more

(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

(2) SMEs

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%

or more

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%

or more

(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
Current Revised
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 Reporting

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

CbC report.

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.

Payroll/Statutory Benefits

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):


Employer Employee
Before Current Before Current
The Health Insurance


Health Insurance 4.955% 4.950% 4.955% 4.950%
Nursing Care
0.825% 0.785% 0.825% 0.785%
The Health Insurance Association
Health Insurance
Nursing Care
0.825% 0.785% 0.825% 0.785%
The Foreign Transportation &

Finance Health Insurance Association

Health Insurance
Nursing Care
0.50% 0.52% 0.50% 0.52%
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

is appreciated.

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.