Newsletter #010 Starting and Running a Business in Japan – Part 6 Business Expenses – What Can You Deduct?

Helping foreign business owners understand Japan's tax system—one topic at a time.

One of the most common questions from business owners is:

“Can I deduct this expense from my business income?”

The answer is not always simple.

The first thing to understand is this:

Was the money spent for your business?

A Simple Example

Suppose you buy a computer for your business.

You use it to prepare documents, communicate with customers, and manage your business.

This is generally a business expense.

Now suppose you buy a new television for your home.

You may sometimes watch business-related programs on it, but it is mainly for your private life.

This is generally not a business expense.

The important question is not simply:

“Did I pay for it?”

The question is:

“Was it necessary for my business?”

What About Expenses Used for Both Business and Personal Life?

This is very common for small business owners.

For example:

• a mobile phone,

• internet service,

• electricity,

• rent for a home office, or

• a car.

These expenses may be used for both business and personal purposes.

In such cases, you may be able to claim the business portion as an expense if you can clearly separate it from the personal portion.

For example, if a phone is used 70% for business and 30% for personal use, the business portion may be treated as a business expense if there is a reasonable basis for the calculation.

The important point is to keep a record showing how you calculated the business portion.

Keep the Supporting Documents

When you claim a business expense, keep documents such as:

• receipts,

• invoices,

• contracts, and

• payment records.

These documents help explain what you bought, when you bought it, and why it was related to your business.

Business Expense Does Not Mean “Free”

There is another important point.

If you spend ¥100,000 on a business expense, it does not mean that your tax will decrease by ¥100,000.

The ¥100,000 is deducted from your business income when calculating taxable income.

For example:

Business income: ¥1,000,000Business expenses: ¥300,000Business profit: ¥700,000

This is the basic idea.

Key Takeaway

When you are not sure whether something is a business expense, ask yourself:

“What is the business purpose of this expense?”

If an expense is partly personal, you should be able to explain and support the business portion.

Good records and a reasonable calculation are important.

Coming Next

Starting and Running a Business in Japan – Part 7

What About Your Home, Car, and Phone?

Next time, we will look more closely at expenses that are used for both business and personal purposes.

Prepared by　Kyoji Yasui Tax Accountant Office

Helping foreign business owners understand Japan's tax system with clear, practical guidance.