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Helping foreign business owners understand Japan's tax system—one topic at a time. In our last newsletter, we talked about the Blue Return. One important requirement is good bookkeeping. But what does that really mean? You do not need to be an accountant to understand the basic idea. Keep a Record of Your Business Good bookkeeping means keeping a clear record of what happens in your business. For example: How much did you sell? Who paid you? What did you buy? What business ex

Helping foreign business owners understand Japan's tax system—one topic at a time. In our last newsletter, we talked about the first steps when starting a business as a sole proprietor. One important question is:　Should I choose the Blue Return? For many business owners, the answer is yes.　But why? What Is the Blue Return? The Blue Return is a Japanese tax system that gives certain tax benefits to business owners who keep proper accounting records and meet the required condit

Helping foreign business owners understand Japan's tax system—one topic at a time. If you decide to start your business in Japan as a sole proprietor, what should you do first? There are several tax procedures, but you do not need to learn everything at once. Here are the main steps. 1. Notify the Tax Office When you start a business, you should submit a Notification of Opening a Business to the tax office. For businesses started from 2026, the deadline is generally the filin

Helping foreign business owners understand Japan's tax system—one topic at a time. When starting a business in Japan, one of the first decisions is: Should I operate as a sole proprietor or establish a company? There is no single answer. The best choice depends on the size and future plans of your business. Sole Proprietor Starting as a sole proprietor is generally simpler. The business profit is reported as part of your individual income, and you pay income tax on your taxab

Helping foreign business owners understand Japan's tax system—one topic at a time. Starting a business in Japan means dealing with several different types of taxes. You do not need to understand everything at the beginning. First, it is useful to know the basic tax map. 1. Income Tax If you operate your business as a sole proprietor, the profit from your business is generally included in your personal income and subject to income tax. 2. Corporate Tax If you operate through a

Helping foreign business owners understand Japan's tax system—one topic at a time. Over the past few weeks, we have introduced some important items in Japan's 2026 Tax Reform. The rules are complicated, but you do not need to understand every detail. The important thing is to know which changes may affect you and your business. If You Are a Sole Proprietor Check the changes to the Blue Return Special Deduction. From 2027, the maximum deduction will increase to ¥750,000, but a

Helping foreign business owners understand Japan's tax system—one topic at a time. What Is Required for the New ¥750,000 Deduction? Starting with income tax for 2027, the maximum Blue Return Special Deduction will increase from ¥650,000 to ¥750,000. However, the new ¥750,000 deduction will not be available automatically. To qualify, a taxpayer must generally meet the following requirements: Keep proper accounting records using double-entry bookkeeping File the tax return by e

Helping foreign business owners understand Japan's tax system—one topic at a time. What Will Change? Japan plans to revise the Blue Return Special Deduction starting with 2028 tax returns (for the 2027 tax year), subject to the final approval of the tax reform legislation. Currently, there are three deduction levels: ¥100,000 ¥550,000 ¥650,000 Under the proposed reform, there will be four deduction levels: ¥0 ¥100,000 ¥650,000 ¥750,000 (new) The biggest change is the introduc

Simple tax updates for foreign business owners and residents in Japan. This week, we look at important consumption tax changes included in Japan's 2026 Tax Reform proposals. Some measures are already scheduled, while others are still under discussion. 1. Changes to the Transitional Input Tax Credit Japan plans to gradually reduce the percentage of the input tax credit available for purchases from suppliers who are not registered as invoice issuers. Businesses should review th

This week, we look at several important corporate tax proposals in Japan's 2026 Tax Reform. Please note: Some measures are still proposals and may change before becoming law. 1. Changes to Tax Incentives for Employee Wage Increases Japan plans to revise tax incentives that encourage companies to increase employee salaries. If your company has employees in Japan, these changes may affect future tax planning. 2. New Tax Incentives for Business Investment The government plans to

Individual Income Tax – Three Important Changes This week, we look at three important income tax topics included in Japan's 2026 Tax Reform proposals. Please note: Some of these measures are still proposals and may change before becoming law. 1. Higher Income Thresholds ("Income Wall") Japan plans to raise several income thresholds that determine when income tax and certain tax benefits apply. For many employees and part-time workers, this means they may be able to earn more

Japan's 2026 Tax Reform Package includes several important changes for individuals and businesses. Over the coming weeks, we will explain the key topics in simple English for foreign business owners and residents in Japan. Some of the main topics include: Individual Income Tax Higher income thresholds ("income wall") Proposed separate taxation for crypto assets Changes to the Blue Return Special Deduction Corporate Tax Documentation requirements for related-party transactions

Electronic Records: Don't Forget Emails and PDFs In our previous articles, we explained what related-party transactions are and why supporting documents are important. This week, we focus on one more important point: How should these documents be kept? Electronic records are also tax records Today, many business transactions are handled electronically. Examples include: emails, PDF contracts, electronic invoices, cloud-based documents, online approvals. These records may be i

Why Are Supporting Documents Important? Last time, we explained what a related-party transaction is. This week, let's look at a simple question: Why does Japan require supporting documents for these transactions? The tax office wants to understand the transaction When two unrelated companies do business, the price is usually decided through normal market negotiations. However, when related companies do business with each other, the tax office may ask: Why was this price chose

Japan has special tax rules for transactions between related parties. A related-party transaction is a transaction between companies or persons that have a close relationship, such as: a parent company and its subsidiary, companies under common ownership, or other parties with significant control over each other. Examples include: licensing intellectual property, providing services, or selling goods between related companies. Why is documentation important? When a Japanese co

Japan will introduce a new filing simplification rule from January 1, 2027. This change affects: employers issuing salary withholding slips, and pension payment reporting. What will change? Currently, employers often need to submit: a withholding slip to the tax office, and a salary payment report to the local municipality. Under the new rule: 👉 If the required information is included in the salary payment report submitted to the municipality,　the withholding slip will be tr

Following past week’s topic about meal benefits, this week we look at other common employee benefits in Japan, including: commuting allowances, and parking support. These benefits can also receive favorable tax treatment. 1. Commuting allowance In Japan, commuting costs paid by the company are generally: not taxable for employees, if they stay within the tax-free limit. This includes: train or bus commuting, and in some cases, car commuting. The government plans to increase s

Japan will gradually reduce the temporary consumption tax credit for purchases from: non-invoice businesses, or tax-exempt suppliers. This is part of the transition rules under the Invoice System. What will change? Currently, businesses can still claim: 80% of the input tax credit for these purchases. However: From October 2026 → reduced to 70% Later, it will decrease further: 50% then 30% finally 0% Why this matters If your company buys goods or services from: freelancers, s

Last time, we explained the difference between the Simplified Tax Scheme and the General Tax Method . Now the key question is: Which one saves more tax? Simple answer Low expenses → Simplified is often better High expenses → General is often better Case 1: Simplified is better The Simplified Tax Scheme may save more tax if: Your business has low costs You mainly provide services You have few purchases 👉 You can keep more tax because the fixed rate may be higher than your ac

If you run a business in Japan, you may need to choose between: the Simplified Tax Scheme , or the General Tax Method This choice can affect how much consumption tax you pay. What is the difference? 1. Simplified Tax Scheme Available if your sales are JPY 50 million or less Uses a fixed percentage (deemed rate) No need to calculate actual purchase tax 👉 Simple and easy to manage 2. General Tax Method Calculates tax based on actual sales and purchases More accurate, but more