December 2015 FEW Women’s Start-Up Club Recap: Tax in Japan

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December 2015 FEW Women’s Start-up Club Recap: “Tax in Japan” with Yasuko Mori, Mori Tax Consulting

Recap by Carolyn Pieroway, Organizer of Women’s Start-up Club

The December 8 meeting of the FEW Startup Club focused on sobering, but essential, tax advice to business owners with a presentation by licensed tax account Yasuko Mori of Mori Tax & Consulting, and ended on a more festive, inspirational note, with a celebration toasting members’ success and accomplishments in the past year, and plans for action in 2016.

Mori, as she is more familiarly known, started her presentation with the sober reality of taxes, asking, “why tax?”, and quoted the American statesman Benjamin Franklin “In this life, nothing is more certain than death and taxes”. She reiterated that we should just “accept taxes as part of our business” and that not being diligent and conscientious about paying our taxes from the very beginning could create more “complex” problems later. At the same time she urged that we should be neither stupid nor ignorant, and that we should also be flexible in our approach in minimizing our taxes for maximum profit, something with which a tax professional could help greatly, especially as we are operating in a foreign country. She distinguished between a Certified Public Account, CPA: an accounting professional who audits -investigates and reports whether companies give due diligence with respect to accounting; and a tax accountant: a professional specializing in tax accounting who advises clients on how to maximize profits while keeping within taxation rules. She then explained, in detail and referencing small business owners, taxes in Japan under basic Japanese tax rules and tips to maximizing tax benefits, and finished by stating the simple rules of her business. Following are some highlights.

In outlining the types of taxes for small business owners Mori first explained details of

  • income tax
  • residence tax
  • business tax and
  • consumption tax

emphasizing the following points;

  • Only those who earn i) a salary from one company of less than ¥20 million per year, or ii) a salary from one company, and additional business income of not more than ¥ 200,000 are exempt from filing income taxes.
  • For sole proprietors of a small business, profit is combined with taxable income from any other sources of income such as salaries, to determine total taxable income. This could average to lower overall payable taxes if the business experiences a loss. Furthermore, losses can be carried to the following 3 tax years under condition that initial tax notifications are submitted appropriately.
  • Residence tax is calculated on taxable income and is billed in the June of the same year and can be paid in four installments throughout the year.
  • Business tax is applicable to small business owners after Yen 2.9 million profit.
  • Consumption taxes can be explicitly charged in invoices to clients, or is assumed to be added into the costs if not stated.
  • Business owners are liable to pay consumption tax charged on all goods and services to the tax office after exceeding domestic sales of Yen 10 million.
  • Employees pay withholding taxes by having taxes withheld from their monthly salary.
  • Business owners deduct employees’ withholding taxes monthly and pay to the tax office bimonthly.
  • If taxes paid in the previous year filing exceeded Yen 150, 000, then tax payers pay taxes in advance to the tax office in the present tax year (for the present year).
  • To determine whether someone doing work for a small business is an employee or a free lancer, the proprietor must judge if they contribute to the final result of the business and the time involved.

Mori went into further detail of how to calculate income tax, taxable profits, and annual taxes, but which would require a good tax accountant for maximum benefit for individual business.

She also gave several points in regards to the timing of taxation and strongly recommended to file all forms to get benefits, refunds, and to pay within deadlines to prevent paying penalties and raising red flags with tax investigators.

  • The fiscal year for calculating tax is between January 1 and December 31.
  • The deadline for filing and paying income tax is March 15, on taxes for the preceding tax year.
  • Payments after the deadlines incur penalties: 5%(10%) + 2.8% ( 9.1% ) per year (as of FY 2015)
  • New businesses owners should register their business with the tax office of their ward within two months of starting their business, to claim start up costs and receive a special minimum deduction of ¥100,000 which could be counted as a loss, or carried forward to the next year.

To minimize taxes and maximize profits, Mori also answered questions regarding expenses, which can be claimed within the Japanese tax rules. Some examples follow, but attendees were reminded that each business is unique, with unique claims, which a tax accountant could help identify.

  • Rent – a reasonable portion of your home rent based on the area of the dwelling
  • Utilities and phone – a reasonable portion
  • Commuting fees, entertainment, gifts, professional group membership, meeting and training (including language lessons) fees, office equipment (including computer) and office goods – can all be claimed if directly related to running your business
  • Income, residence, and penalty taxes, and expenses for everyday living such as groceries and clothing cannot be claimed as legitimate expenses

Mori concluded her presentation with three main reminders to new business owners;

  • submit your tax notifications within two months of starting your business
  • claim all expenses related to your business and
  • find a tax professional who can support your specific taxation issues.

She stressed that we need to find a trustworthy tax professional, and since each business and personal situation is different, we should be ready to be open and share with them all information they need to know to help us to the fullest. She also shared how her experience of living in the U.S. while working as a researcher with Proctor and Gamble, and worrying about tax issues in a foreign country has helped her to emphasize with foreigners in Japan who want to start and run their own businesses but are intimidated with Japanese tax. She endeavors to deliver a “feeling of security and relief to clients” and her mission is inherent in her message “give your stress of taxes to me so you focus on running your business”. Mori operates under her newly established SeifuCo. Ltd., located in Hiroo, four minutes from the metro station and it’s not surprising she is tax adviser to many of the WSC members, and her business is growing steadily with eighty percent of her clients operating as companies are foreigners, most of them startups of younger than three years.

Mori is a graduate of Tokyo University where she studied chemistry. Since having retrained for her new profession she feels she has the language to communicate simply with her clients. She starts her workday every morning with a workout / yoga at six o’clock at her sports club to be alert and ready for her clients, and takes pleasure in making home made cakes in her down time. She applies to her work the diligence and meticulousness of a scientist, along with conscientiousness, integrity and sincerity as she is lives her former dream of working as a tax accountant.

Mori can be reached for a tax consultation at Mori Tax & Consulting, 5-15-23 Minamiazabu, Minato-ku, Tokyo 4F Pic Blank Sasaki Building, Office 03-6277-1160, Mobile 080-1162-9674 Web

Following Mori’s enlightening presentation, the meeting continued with a toast of bubbly to FEW members Catherine Hourdou, Heike Geiling, and Divya Mari Kato who told of launching their own businesses in 2015. All attendees were then asked to share with the group what they did in 2015 towards starting a business. It was discovered that Few member Angela Ortiz also got her NPO off the ground, as well as two other guests who were also already operating a small business, creating the need for more toasts. Before finishing with festive socializing over more glasses of bubbly, everyone discussed with a partner and shared with the group what their goals for 2016.