OC & Associates International Accounting Office OC & Associates, English Site OC & Associates, Site Map OC & Associates, English Site OC & Associates, Japanese Site
about OC & Associates Our people in OC & Associates Professional Services of OC & Associates Information from OC & Associates OC & Associates, Links Careers, OC & Associates
OC & Associates
Latest Newsletter < Information < Top Page

Spring Newsletter as of May 31, 2018 (No. 35)

Accounting
New Revenue Recognition Standard
Taxes
2018 Tax Reform
Corporate Taxes
Individual Income Taxes
Country-by-Country Reporting
Payroll/Statutory Benefits
Update on Social Insurance Rates
Employing People with Disabilities
Health Insurance for Overseas Dependents
Out-of-Pocket Courier Fees
Tax Return Preparation Fees
Disclaimer

Accounting

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."

Taxes

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 circumstances.
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 deduction
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 follows:
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 Association
(Tokyo)
Health Insurance 4.955% 4.950% 4.955% 4.950%
Nursing Care
Insurance
0.825% 0.785% 0.825% 0.785%
The Health Insurance Association
(Kanagawa)
Health Insurance - - - -
Nursing Care
Insurance
0.825% 0.785% 0.825% 0.785%
The Foreign Transportation & Finance Health Insurance Association Health Insurance - - - -
Nursing Care
Insurance
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 relationships with dependents, dependents’ income and funding of living expenses to dependents, etc.)
  • Official certificates to confirm a family relationship with the dependents
  • Documents to confirm living on common living expenses (documents differ depending 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. Please refer to the URL below:
https://www.ocassociates.jp/taxfees.html

Disclaimer

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.
Access Disclaimer Privacy Policy Copyright 2018 OC & Associates K.K.