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Ins and Outs of Accounting in Japan

Start-up businesses that are small or medium-sized enterprises, as well as corporations wishing to open branch offices are needed in Japan to provide a boost to its economy.

Owners of small businesses, in particular, sole proprietorships, may feel that they can handle all bookkeeping and even tax accounting by themselves, but this is not feasible in Japan because of the host of regulations governing all aspects of businesses.

Any foreign entity establishing itself in Japan should, therefore, seek out an experienced accounting firm – knowledgeable about the country’s tax laws for foreign businesses – that will offer bookkeeping, accounting, and tax services.

It’s best to have such an accounting firm on your team before you even begin to file the paperwork to establish your business, as they can advise you every step of the way on all the documentation that must be filed first to establish that business, and then on a yearly basis in order to be in compliance with Japan’s financial regulations.

Such documentation includes:

  • Payroll setup
  • Enrollment into the government’s various insurance and pension plans for all employees
  • Setting up bank accounts
  • Corporate tax compliance

Just as with any company in any country, a staff of accountants within a firm may vary in experience. “Everyone has to start somewhere,” as the saying goes, but since your livelihood depends on your income and cash flow, it is essential that any foreign business in Japan hire the best accounting firm possible. This includes being a firm that has experience with the requirements of foreigners doing business in Japan. A company that specializes in the foreign business sector would be ideal.

Japan’s businesses must follow the Generally Accepted Accounting Principles (J-GAAP) which are issued by its Financial Service Agency and the Accounting Standards Board of Japan (ASBJ).

Japan’s fiscal year runs from the 1st of April through the 31st of March. This can be confusing for those individuals who expect the fiscal year to match the calendar year of the 1st of January to the 31st of December.

At the end of each fiscal year, financial documents must be filed. These are similar to what businesses must file in any country – the Balance Sheet, a Profit and Loss statement, and for corporations, a statement of changes in net corporate assets.

The Japanese Externa Trade Organization (JETRO), provides an overview of corporate income taxes on their website.

Because the Japanese government is working diligently to attract foreign entrepreneurs and foreign workers to the country in order to boost its economy, there are always plans to change the tax code with regard to businesses, to make things easier – or on occasion more difficult.

For this reason, accounting firms must always stay abreast of any annual changes in the tax codes, which can be complex. This is another reason why startups in Japan must be chosen with care.

In summary, when seeking out an accountant firm for your business, look for a company that meets the following requirements:

  1. Experienced in the tax laws regarding businesses owned by foreigners
  2. Multi-lingual staff available, or access to expert translators
  3. Documentation available on the cloud for ease of access
  4. In business for at least five years

An accounting firm that meets and exceeds the needs of a business – regardless of how many people it employs and the amount of income it generates – is mandatory for any foreign business looking to succeed in Japan.

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