How to Comply with the Electronic Record Keeping Law in Japan?

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.

If you are unclear about the Electronic Record Keeping Law in Japan, you might find this blog helpful.

Start Date

This law will take effect from January 1, 2023, and all taxpayers must comply.

Record Keeping Obligation Until Now

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 most of these documents are discarded, the option for the blue form declaration is revoked, and presumptive taxation will be applied, meaning taxes will be calculated in a manner that favors the tax office.

Key Changes This Time

Retaining Data in Electronic Format

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.

Ensuring Data Overview

In case a tax audit should conduct, it’s essential to maintain an overview of the data so that tax officials can easily understand it. The simplest method is to store the data as PDF files on computers or cloud folders, naming the files with three attributes: date (year-month-day), counterparties, and amounts.

Preserving Change Records

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. Adhering to and implementing the internal guidelines disclosed by The Tax Agency, as detailed below, is deemed as fulfilling this requirement. This method is the simplest for small businesses.

https://www.nta.go.jp/law/joho-zeikaishaku/sonota/jirei/word/0021006-031_e.docx

What Happens if You Preserve Printed Electronic Data?

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.

In conclusion, small businesses do not need to be overly concerned about this amendment.

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/

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