Business Expenses in Japan: What You Can and Cannot Deduct

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

I assist foreign business owners and entrepreneurs with accounting and tax matters in Japan, including tax filings and accounting support in English.

One of the most common questions when doing accounting in Japan for a small business is whether a particular payment can be treated as a deductible business expense.

In general, expenses that are necessary for earning business income can be deductible, while personal expenses are not. Expenses used for both business and personal purposes generally need to be allocated based on their actual business use.

This article gives some practical examples.

1. What Business Expenses Are Deductible in Japan?

Business expenses that are necessary for earning your business income can generally be deductible.

Typical examples include:

– Transportation costs for business
– Telephone and communication costs related to the business
– Restaurant bills for business-related meetings
– Computers, devices, and other equipment used for the business
– Other expenses directly related to your business activities

On the other hand, purely personal expenses are not deductible.

For example, restaurant or entertainment expenses incurred only for socializing with friends cannot be treated as business expenses.

2. Expenses That Are Usually Not Deductible

A typical example is the cost of ordinary business suits.

Because ordinary suits can also be worn for private purposes, the tax office generally does not accept them as deductible business expenses merely because they are worn for work.

The key point is whether the expense is clearly necessary for the business and can be distinguished from ordinary personal living expenses.

3. Expenses That Must Be Allocated or Depreciated

Some expenses are partly business-related and partly personal. In these cases, only the business portion can generally be deducted.

Home Rent

If you use part of your home as an office, a portion of the rent may be deductible.

The business portion should be determined using a reasonable method, such as the percentage of floor space used for the business or the actual time the space is used for business purposes.

Automobile Costs

If a car is used for both business and personal purposes, expenses such as fuel, insurance, parking, and depreciation should generally be allocated according to the actual business-use ratio.

The purchase price of a car is generally not deducted in full in the year of purchase. Instead, the business-use portion is usually deducted over time through depreciation.

4. A Simple Rule for Business Expenses in Japan

When deciding whether an expense is deductible, ask whether the payment is genuinely necessary for earning business income.

If an expense is partly personal, keep a reasonable basis for allocating the business portion and retain supporting documents such as receipts, invoices, contracts, and records of how the expense was used.

This is particularly important if your tax return is later reviewed during a Japanese tax audit.

Accounting and Tax Support for Small Businesses in Japan

Koshida Accounting and Tax Office provides accounting and tax services in Japan for foreign entrepreneurs, sole proprietors, and small businesses.

We provide English support for accounting in Japan, tax filings, business expense reviews, and tax planning.

If you are unsure whether a particular payment can be treated as a business expense, or if you are looking for an accounting firm in Japan, please feel free to contact us through the inquiry form.