What Happens If You Don’t File Taxes in Japan? Risks and Consequences

“One’s duty is to feel what is great, cherish the beautiful, and not accept all the conventions of society with the ignominy that it imposes upon us.”― Gustave Flaubert

Failing to file a required tax return in Japan can create problems beyond simply paying the unpaid tax later. Depending on the circumstances, it may affect your ability to obtain financing or subsidies and may also result in additional taxes and interest if the tax office identifies the non-filing.

This article explains some of the practical consequences of not filing taxes in Japan and what you should consider if you have missed previous Japanese tax return (kakutei shinkoku / 確定申告) filings.

My name is Taisei Koshida, and I am a Japanese certified public accountant and tax accountant. Through our accounting firm in Japan, we assist foreign individuals and business owners with Japanese accounting and tax matters in English, including tax returns and issues involving past non-filing.

Loss of Business and Financial Credibility

Properly filing tax returns and fulfilling tax obligations can be important for maintaining credibility in business and financial transactions.

In our experience, when a business applies for financing from a financial institution, it is common to be asked for financial statements and tax returns for the previous three years. If required returns have not been filed, it may therefore become more difficult to demonstrate the business’s financial history and tax compliance.

The same issue can also arise in certain business transactions where the other party wants to confirm the financial reliability of the company or business owner.

Problems When Applying for Subsidies and Grants

Proper tax filing is often an important requirement when applying for government subsidies or grants in Japan. Depending on the program, applicants may be required to provide tax returns, tax payment certificates, or other documents showing that their tax obligations have been properly handled.

Additional Taxes and Tax Audit Risks

The Japanese tax authorities can obtain and review information from a variety of sources, including information connected with business transactions and financial institutions.

If a required tax return has not been filed, the tax office may determine the amount of income and tax due. Filing after the statutory deadline may also result in additional tax for non-filing and delinquent tax, depending on the circumstances.

As the period of non-filing becomes longer, the amount of unpaid tax and related charges can accumulate. In practice, this can make the financial impact much larger by the time the issue is identified through a tax audit or voluntarily corrected.

If you would like to understand what happens after the tax office begins an audit, please see our related guide:

How Tax Audits Work in Japan: What Foreign Business Owners Should Expect

You may also be interested in our article on how frequently the Japanese tax authorities audit people who fail to file required tax returns:

How Often Does Japan Audit People Who Fail to File Tax Returns? Statistics and Practical Risks

Filing Tax Returns for Previous Years of Non-Filing

If you discover that you should have filed Japanese tax returns for previous years, it is generally better to address the issue voluntarily rather than leave the returns unfiled.

In our practical experience, reviewing the most recent five years is often the starting point when dealing with past non-filing. However, the period that actually needs to be considered depends on the circumstances, and longer periods may become relevant in certain cases.

Where complete records are no longer available, sales and costs should be reconstructed as accurately as possible from the available documents and other evidence. For expenses where complete documentation cannot be recovered, it may be necessary to determine reasonable amounts based on the facts and records that remain.

The appropriate approach depends on the particular case, so the filing period and method of reconstructing the accounting records should be reviewed before preparing the past returns.

If you are a sole proprietor and are reviewing how to file properly going forward, you may also find this guide useful:

Blue Form (Aoiro Shinkoku) in Japan: Benefits and Deadlines

Should You File Before the Tax Office Contacts You?

If you know that a required tax return has not been filed, dealing with the issue before a tax audit begins can be important.

The tax consequences of a late filing can differ depending on whether the return is filed voluntarily or after action by the tax authorities. More importantly from a practical perspective, filing voluntarily gives you an opportunity to organize the available accounting records, identify missing information, and calculate the income and expenses before responding under the time pressure of a tax audit.

For business owners, we generally recommend first identifying which years were not filed and what accounting records are still available, and then preparing the necessary returns in an organized way.

Frequently Asked Questions

I have not filed a Japanese tax return for several years. Should I start with the oldest year or the newest year?

The first step is usually to identify all years for which a tax return may have been required and determine what records are available for each year.

In practice, we normally look at the years together before preparing the returns because information from one year may affect another year, and the available bank records, invoices, bookkeeping data, and previous documents may differ from year to year.

It is better to determine the full scope first rather than preparing one year without checking the remaining periods.

What if I no longer have all of my receipts and accounting records?

Missing records do not necessarily mean that nothing can be done.

Depending on the business, it may still be possible to reconstruct transactions using bank statements, credit card records, invoices, sales records, contracts, emails, and other available documents.

The important point is to reconstruct the figures as accurately and consistently as possible rather than simply guessing an amount. The appropriate evidence and calculation method will depend on the nature of the business and the records that remain.

Can filing a late tax return result in a tax refund in Japan?

It is possible in some situations.

A late or previously unfiled return does not always mean that additional tax will be payable. For example, depending on the taxpayer’s income, withholding tax, estimated tax payments, and available deductions or credits, the calculation may sometimes result in an overpayment.

However, whether a refund can still be claimed depends on the applicable filing period and the circumstances of the return. A refund return can generally be filed within five years from January 1 of the following year.

Need Help With Past Unfiled Tax Returns in Japan?

Past non-filing can become more difficult to resolve as time passes, particularly when accounting records and supporting documents are no longer easy to obtain.

At Koshida Accounting and Tax Office, we provide accounting and tax services in Japan with English support for foreign individuals, entrepreneurs, and small business owners. We can assist with reviewing past accounting records, preparing Japanese tax returns (kakutei shinkoku / 確定申告), and responding to tax issues related to previous non-filing.

If you are unsure which years need to be reviewed or how to reconstruct the available accounting information, please contact Koshida Accounting and Tax Office.