Newsletter #014 Starting and Running a Business in Japan – Part 10 What Is Depreciation, and Why Does It Matter?

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

1. You Buy Something for Your Business. Can You Deduct the Full Cost?

Suppose you buy a computer for your business for ¥300,000.

Can you deduct the full ¥300,000 as an expense in the year you buy it?

Not necessarily.

In Japan, the cost of certain assets that you use for several years must generally be divided over their useful life. This process is called depreciation.

Common examples of assets that may be depreciated include:

• Computers and office equipment

• Cars and other business vehicles

• Machinery and equipment

• Buildings used for business

  
  

2. How Does Depreciation Work?

Let's use a simple example.

Suppose you buy business equipment for ¥300,000 and, for illustration only, assume its cost is deducted evenly over five years.

Year	Depreciation expense
Year 1	¥60,000
Year 2	¥60,000
Year 3	¥60,000
Year 4	¥60,000
Year 5	¥60,000
Total	¥300,000

Instead of deducting the full purchase price in the first year, you deduct part of the cost each year.

This is a simplified example. In practice, the applicable useful life and depreciation method depend on the type of asset and the relevant tax rules. The amount for the first year may also depend on when the asset was first used for business.

3. Why Does Japan Use This System?

A business asset may help you earn income for several years.

For example, a computer purchased today may be used for business over the next few years. Depreciation spreads its cost over the relevant period rather than treating the entire purchase price as an expense immediately.

This helps calculate business profit for each year.

Remember, depreciation is a way of recognizing the cost of an asset for tax purposes. It does not mean that you pay for the asset again every year.

4. Are All Purchases Depreciated?

No.

Some lower-cost assets can be deducted in full in the year they are first used for business, while other assets may qualify for special tax treatment.

The rules depend on the purchase price, the type of asset, and other conditions. The applicable rules can also differ between sole proprietors and companies.

Therefore, do not assume that every purchase must be depreciated—or that every purchase can be deducted immediately.

5. What If You Use the Asset for Both Business and Personal Purposes?

The same principle we discussed in our previous newsletters applies.

If you use a computer or car for both business and personal purposes, you generally need to identify the portion attributable to business use.

For example, if the annual depreciation expense for a computer is ¥60,000 and 80% of its use is reasonably attributable to business, the business portion would be ¥48,000.

The business-use percentage should be supported by the actual circumstances.

Key Takeaway

Depreciation is the process of deducting the cost of certain business assets over time.

Before recording a large purchase as an expense, check whether the full cost can be deducted immediately or whether depreciation is required.

Understanding this rule helps you prepare a more accurate tax return and avoid mistakes in your bookkeeping.

Coming Next

Starting and Running a Business in Japan – Part 11: Can You Deduct a Small Purchase All at Once?

Prepared by

Kyoji Yasui Tax Accountant Office

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