How Are Tax Audits Conducted in Japan?

【Koshida Accounting Firm Column Date:

” The politician’s promises of yesterday are the taxes of today.” - William Lyon Mackenzie King

 

目標を指し示す男

 

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

 

I aim to assist non-Japanese business owners who struggle with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.

 

 

If you are unsure about Japan’s taxe audits, this blog can be helpful for you.

 

 

 

Self-Assessment System:

Both income tax and consumption tax in Japan operate under a self-assessment system, where taxpayers calculate their own taxes and submit them to the tax office. Tax audits are carried out to verify the accuracy of tax filings and ensure no errors.

 

Frequency of Tax Audits:

For small business corporations, tax audits are usually conducted once every five to seven years. In the case of individual taxpayers, tax audits are conducted once every decade, or sometimes they may never occur at all.

 

The Cases Where Tax Audits Are More Likely To Occur:

Tax audits are more likely to be conducted when there are significant fluctuations in the financial statements, like below.

When there is a rapid increase or decrease in sales.
When there is a rapid increase or decrease in profit.

 

Additionally, inconsistencies in the financial statements can trigger tax audits.

For example, when sales increase but inventory decreases.
Or when purchases decrease but accounts payable increase.

 

This theme is continued in the following.

How are tax audits conducted in Japan? part 2

 

 

Our accounting firm has been actively assisting foreign business owners in Japan with accounting and tax matters. Please feel free to contact us through the inquiry form.