Japan’s Electronic Record Keeping Law: A Practical Guide for Businesses
【Koshida Accounting Firm Column Date:】
The law isn’t justice. It’s a very imperfect mechanism. If you press exactly the right buttons and are also lucky, justice may show up in the answer. A mechanism is all the law was ever intended to be. ー Raymond Chandler
Hi, my name is Taisei Koshida, and I am a certified public accountant and 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.
Japan’s Electronic Record Keeping Law requires businesses to retain certain electronic transaction records in electronic form. If you operate a business in Japan, understanding these requirements is essential for tax compliance and for responding smoothly to future tax audits.
This article explains the key requirements and practical compliance steps for small businesses.
Overview
The Electronic Record Keeping Law became fully mandatory on January 1, 2024. However, the revised rules themselves came into force earlier, and from 2024 businesses are generally required to retain qualifying electronic transaction records in electronic form.
Record Retention Requirements
Taxpayers are required to retain books, issued invoices, received invoices, receipts, and other relevant documents for seven years. If they undergo a tax audit, they must present these documents. If these records are not properly retained, a business may lose certain tax benefits, including Blue Return privileges, and it may become more difficult to support its tax position during a tax audit.
Key Changes
Electronic Storage Requirements
The most significant change is that invoices, receipts, contracts, and other transaction data received electronically—such as by email, cloud services, or online platforms—must generally be retained in electronic form. Simply printing these documents and discarding the original electronic files does not satisfy the legal requirements.
Organizing Electronic Records
During a tax audit, businesses should be able to locate electronic records quickly and present them in an organized manner. A practical approach is to save documents as PDF files and use consistent file names that include the transaction date, supplier or customer name, and transaction amount. Proper folder organization also makes it easier to retrieve records when needed.
Maintaining Record Integrity
Businesses must ensure that electronic records remain unaltered after they are created. If any changes are made, a record of those changes should be preserved. While this may sound burdensome, the National Tax Agency (NTA) allows small businesses to comply through practical operational procedures without necessarily introducing expensive document management systems.
https://www.nta.go.jp/law/joho-zeikaishaku/sonota/jirei/word/0021006-031_e.docx
What Happens If You Keep Printed Copies?
In practice, simply printing electronic records does not automatically result in the loss of Blue Return benefits. During a tax audit, tax officers will generally consider the overall circumstances. In many cases, businesses are instructed to improve their record-keeping procedures rather than being subject to immediate penalties. Nevertheless, retaining electronic transaction records in the required electronic format is the safest and most compliant approach.
Although the rules may appear complicated at first, compliance is relatively straightforward for most small businesses once an appropriate record management system is in place.
Which Businesses Must Comply?
Japan’s Electronic Record Keeping Law applies to almost all taxpayers engaged in business activities. This includes corporations, sole proprietors, freelancers, and foreign-owned businesses operating in Japan.
If you receive invoices, receipts, contracts, or other transaction documents electronically—such as by email, through cloud services, or from online platforms—you are generally required to retain those records in electronic form. Simply printing them and discarding the electronic files does not satisfy the legal requirements.
The rules apply regardless of the size of your business. Even small companies and self-employed individuals are expected to comply. Fortunately, most small businesses can meet the requirements by establishing practical internal procedures and organizing their electronic records appropriately, without investing in expensive document management systems.
For information on another complex tax reform, the Invoice System, please refer to the following.
https://kotsicpafirm.com/an-easy-explanation-of-japans-invoice-system/
At Koshida Accounting and Tax Office, we regularly assist foreign business owners with bookkeeping, tax compliance, electronic record keeping, and tax filings in Japan.
If you need assistance complying with Japan’s Electronic Record Keeping Law, please feel free to contact us.