Common Issues Found in Tax Audits in Japan

Hi, my name is Taisei Koshida, and I am a certified public accountant and tax accountant in Japan.

I assist foreign business owners with accounting and tax matters in Japan, including tax filings and tax audits.

During a tax audit in Japan, tax officers often focus on certain recurring issues, such as unrecorded revenue, consumption tax errors, and personal expenses recorded as business expenses. This article explains some common issues that may be examined during Japanese tax audits, based on my experience assisting clients with tax matters in Japan.

Common Tax Audit Issues for Both Corporations and Individuals

The following are common issues that may be examined during a tax audit in Japan:

– Failure to affix the required revenue stamps to contracts
– Errors in the consumption tax treatment of expenses, such as overseas expenses or land rent
– Unrecorded revenue, such as income from vending machines
– Self-consumption in restaurant businesses that should be recorded as sales
– Personal expenses recorded as business expenses, such as private travel costs

Tax Audit Issues Particularly Relevant to Individuals

One common issue is non-business expenses, including entertainment expenses, being treated as business expenses.

In the case of corporations, entertainment expenses are capped at 8 million yen for tax purposes, so tax officers are not particularly strict. Conversely, for individuals without such a limit, tax officers scrutinize these expenses more rigorously.

If you are preparing for a tax audit in Japan, it is also important to understand what can happen when serious problems are found during an audit.

What is The Worst-case Scenario in Japan’s Tax Audits?

Our accounting firm in Japan assists foreign business owners with accounting, tax filings, and tax audit matters in English. If you need support with accounting in Japan or have concerns about a Japanese tax audit, please feel free to contact us through the inquiry form.