Spring Newsletter (No. 37) as of



Accounting Standard for Leases

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) jointly developed a new accounting standard for leases. The IASB issued IFRS 16 “Leases” in January 2016 and the FASB issued Topic 842 “Leases” in February 2016. IFRS 16 is effective from fiscal years beginning on or after January 1, 2019.  Also, Topic 842 is effective from fiscal years beginning after December 15, 2018 for public business entities and years beginning after December 15, 2019 for other entities.
Although full convergence did not occur under IFRS 16 and Topic 842, both standards are consistent in many important areas such as how lessees recognize the right-of-use assets and lease liabilities. Subsequently, in March 2019, Accounting Standards Board of Japan (ASBJ) began developing an accounting standard for leases under which lessees should recognize assets and liabilities for all lease transactions. However, there has been no announcement on the target date for completion.


2019 Tax Reform

The 2019 tax reform bill was passed on March 29, 2019. Some of the relevant topics for our clients are:

Corporate Income Taxes

Definition of deemed large company

From fiscal years beginning on or after April 1, 2019, the scope of what is considered a deemed large company under the each special taxation measures law for SMEs has expanded. Accordingly, the following companies will now be included in the definition of a large company.
1. A subsidiary which is 100% controlled by a large company (a company whose share capital is at least 500 million yen)
2. A company within an organization in which issued shares or capital are owned by one or more large companies within the group
As a result, Company S2 below will now be categorized as a deemed large company, and will no longer be able to enjoy the tax incentives as an SME.

SME under Special taxation measures law
Company P
(Share capital of 500 million yen or more)
Not applicable

↓ 100%

Company S1
(Share capital of 100 million yen or less)
Not applicable

↓ 100%

Company S2
(Share capital of 100 million yen or less)
No longer applicable

Exception: Contrary to the above, independent on the amount of capital, for companies with fiscal years beginning on or after April 1, 2019, if the average taxable income during the past three fiscal years exceeds 1.5 billion yen there is an exception.  Under this situation, the application of special taxation measures law for SMEs will be suspended for the current fiscal year for such companies.

Consumption Taxes

The combined national and local consumption tax rate is expected to rise from 8% to 10% as of October 1, 2019. At the same time, a reduced tax rate is also anticipated.  In summary, the proposed scheme is as follows:
1. The breakdown between national and local taxes of the 8% reduced tax rate is different from the current 8% tax rate. Furthermore, in the accounting system, the reduced tax rate of 8% and the standard tax rate of 10% will be newly created.  Therefore, properly classifying transactions between the old tax rate of 8% and reduced tax rate of 8% is important.
2.  However, a reduced tax rate will be announced for food and beverage products and for newspapers and other similar subscriptions. Subsequently, when employees prepare their expense reports, they should properly make this distinction. In addition, for a company to claim a consumption tax credit, receipts with the consumption tax amounts separately listed need to be kept on file.

Payroll/Statutory Benefits

Social Insurance Rates

Effective March 2019, some of the Health and Nursing Care Insurance rates have changed. The current rates can be summarized as follows (The child benefits contribution rate has changed effective April 2019):

Employer Employee
Before Current Before Current
The Health Insurance Association
Nursing Care Insurance 0.785% 0.865% 0.785% 0.865%
The Health Insurance Association
Health Insurance 4.965% 4.955% 4.965% 4.955%
Nursing Care Insurance 0.785% 0.865% 0.785% 0.865%
The Foreign Transportation & Finance Health Insurance Association Health Insurance 3.900% 4.000% 3.900% 4.000%
Nursing Care Insurance 0.520% 0.560% 0.520% 0.560%
Child Benefits Contribution 0.29% 0.34%

Bonuses and Social Insurance

Additional guidance on how to treat bonuses under the Health Insurance Law and the Welfare Pension Law became effective as of January 4, 2019.

Normal compensation Salaries or wages paid monthly
Bonus payments of four more times In general, if bonuses are being paid four or more times a year as of each year starting on July 1, the annual amount bonuses divided by 12 is required to be allocated/added to each month’s compensation. In this situation, the bonus plan of four or more times is required to be clearly stated in salary policies or wage agreements.
(up to 3 times)
Up to three payments per year are considered “bonuses” and social insurance premiums are deducted.

Reform of Working Practices

The Act on the Work Style Reform Bill went into effect on April 1, 2019.  Here are some other relevant topics not covered in the previous newsletter:

Notification of industrial physician’s duties to employees

In order to effectively manage the health of workers in the workplace, access to specialized knowledge on medicine is essential. Therefore, companies who consistently employ 50 or more workers should retain an industrial physician (Sangyoi) and implement certain healthcare practices.
Accordingly, employers need to inform workers about the industrial physician’s duties by posting or sending notices, or through distribution mediums such as a PCs. In other words, the company should inform employees about the following:
1. Details of the responsibilities of an industrial physician (Sangyoi)
2. How to request a health consultation
3. How to handle information about a worker’s health and mental condition

Expanded requirements for doctor interviews

Requirements for guidance by doctors expanded as follows:

Before amendment After amendment
Normal workers Request from individuals who have over 100-hours of overtime per month and admits to compounded fatigue. Request from individuals who have over 80-hours of overtime per month and admits to compounded fatigue.
R&D workers Not applicable Require an interview, if overtime exceeds over 100 hours per month regardless his/her request.

Monitoring Working Hours

Employers need to be concerned about the health welfare of their employees, including managers, contract employees and others who may be deemed being employed. In addition, new regulations require the use of attendance tracking tools/applications to monitor the working hours of employees.  Furthermore, attendance records must be kept for a minimum of three years.


Employee Profile System (EPS) Update

As a result of the implementation of the electronic filings by the social insurance agency, the number of mandatory fields into EPS will increase slightly from June. Accordingly, HR Administrators are now required to input employee’s job type and employment style (permanent employee, part-time employee, etc.) before issuing EPS links to new employees.  Similarly, for new hires, there is now a question on the occupation of dependents.

A new sample form was created and can be accessed from the menu.  Furthermore, we added an FAQ button at the top of your screen which covers a broad range of HR topics.   In addition, employees already on board require no further action.

Bank Charges for Overseas Remittances

Effective June 3, 2019, MUFG Bank will raise their bank charges for over-the-counter overseas remittances.
https://www.bk.mufg.jp/info/pdf/20190301_soukin.pdf (Japanese only)

Accordingly, for companies who send money overseas consistently once a month or more, we recommend “Foreign Transfer Service.” This is an additional module in Biz Station online banking to save on bank charges.  In conclusion, please note our in-charges may contact you in situations where you may benefit from this change.

Consumption Tax Return Preparation Fee

The expected increase in consumption tax rates will result in three rates in 2019. The current rate (8%), new rate (10%), and reduced rate for foods and beverages (8%). Accordingly, these should be clearly distinguished and reported separately in the consumption tax return.

As a result of this additional effort, for the fiscal year ending on or after October 1, 2019, we respectfully request that we are able to bill an additional 10% on the normal tax return preparation fee based on our “Tax Return Preparation Fee Structure”.

Payroll Services Fee Structure Revision

Due to an aging workforce, the health insurance unions and government agencies are burdened with increased health care and pension costs. As a result, procedures to enroll employees and their dependents into social insurance schemes are becoming more complicated.
A revised service fee structure which adheres closer to the volume of work will be adopted. For instance, the 10% premium added to our monthly service fees resulting from 25% of more excessive employee movement will be replaced by one-time fees.   That is, employee registering/deregistering, and personal information changes which affect statutory benefits will now be a fixed fee.
Please approach our engagement team management for details.  In conclusion, the new fee structure will be effective July 1, 2019 and implemented as we renew our engagement letters. Your understanding is appreciated.


This newsletter is for private circulation only. Although care has been taken in the preparation of this document, contents have been highly summarized.  Therefore, 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. Furthermore, 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.