Newsletter #013 Starting and Running a Business in Japan – Part 9 What About Your Car?

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

If you use your car for both business and personal purposes, can you deduct the car expenses from your business income?

Yes, but you need to separate business use from personal use.

Let's look at a simple example.

1. How Much Do You Use Your Car for Business?

Suppose you drive your car 10,000 km in one year.

• Business trips: 6,000 km

• Personal use: 4,000 km

• Total distance: 10,000 km

Your business-use ratio is:

6,000 km ÷ 10,000 km = 60%

This may be a reasonable starting point for calculating the business portion of your car expenses, provided the mileage reflects your actual use.

2. Which Car Expenses Can You Deduct?

Depending on the circumstances, car-related expenses may include:

• Gasoline

• Repairs and maintenance

• Automobile insurance

• Automobile tax

• Parking fees

• Depreciation of the car

For example, if your annual gasoline expense is ¥120,000 and 60% is reasonably attributable to business use, the business portion would be ¥72,000.

However, do not automatically apply the same percentage to every expense without checking the facts. Some costs may require a different calculation, depending on how the car is used and what the expense relates to.

3. What Records Should You Keep?

You do not need a complicated system to get started.

Try to keep the following records:

• The total mileage of your car

• The dates and destinations of business trips

• The purpose of each business trip

• Receipts for gasoline, repairs, insurance, and other car expenses

A simple mileage log or spreadsheet can help you explain how you calculated the business-use percentage.

4. What If You Buy a Car for Your Business?

Buying a car is different from paying for gasoline.

In many cases, the purchase price of a car cannot be deducted as an expense all at once. Instead, the cost is deducted over time through depreciation.

If you use the car for both business and personal purposes, you also need to consider the business-use portion of the depreciation expense.

The details depend on factors such as the purchase price, the type and condition of the car, and when you started using it.

We will look at business assets and depreciation in more detail in a future newsletter.

Key Takeaway

Using your car for business does not mean that all car expenses are deductible.

Start with the facts: how much do you actually use the car for your business? Keep reasonable records, calculate the business portion, and make sure you can explain your method.

The goal is not to claim the largest possible deduction. It is to claim the amount you can reasonably support.

Coming Next

Starting and Running a Business in Japan – Part 10: What Is Depreciation, and Why Does It Matter?

Prepared by

Kyoji Yasui Tax Accountant Office

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