Japan’s Electronic Record Keeping Law: A Practical Guide for Businesses

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 digital format. If you operate a business in Japan, understanding these rules is important for tax compliance and future tax audits.

This article explains the key requirements and practical steps for small businesses.

Overview

Japan’s Electronic Record Keeping Law took effect on January 1, 2023, and businesses are now required to comply with its electronic record retention requirements.

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 major change this time is that data transacted via email, web systems, and other electronic tools, which don’t involve any paper documentation, should be preserved in their electronic format and not be printed and saved.

Organizing Electronic Records

During a tax audit, businesses should be able to locate electronic records quickly and present them in an organized manner. One practical approach is to save documents as PDF files and use consistent file names that include the transaction date, supplier or customer name, and amount.

Maintaining Record Integrity

You must ensure that data remains unchanged, and if modifications are made, their history should be preserved. However, this can be burdensome for small businesses. The National Tax Agency provides practical guidance that many small businesses can follow to satisfy these requirements without 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?

Presenting some electronic data as printed documents during a tax audit does not typically result in immediate cancellation of the blue tax return status. It is more likely that you’ll be advised to comply in the future, or the tax officers may not comment on it.

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.

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/

Our accounting office regularly assists foreign business owners with Japanese bookkeeping, tax compliance, and accounting procedures.

If you need advice on Japan’s Electronic Record Keeping Law or other Japanese tax requirements, please feel free to contact us.

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