Entertainment Expenses in Japan: What Foreign Business Owners Need to Know

A man’s friendships are one of the best measures of his worth. － Charles Darwin

Many foreign business owners are surprised to learn that not all client meals, gifts, and entertainment expenses are fully deductible in Japan.

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 entertainment expenses in Japan, you might find this blog helpful.

Understanding the rules can help reduce tax risks and avoid unnecessary adjustments during a tax audit.

What Are Entertainment Expenses in Japan?

Entertainment expenses generally include meals, drinks, golf outings, gifts, and other expenses incurred to maintain or develop business relationships.

Examples of Entertainment Expenses

Examples of entertainment expenses include:

• Meals with clients
• Business dinners
• Networking events
• Gifts to business partners
• Company social gatherings

Common Misunderstandings

Common misunderstandings include:

• Assuming every business meal is deductible
• Failing to keep records of participants
• Treating personal meals as business expenses
• Forgetting documentation requirements

Entertainment Expense Rules for Corporations

For many small and medium-sized corporations, entertainment expenses may be deductible up to certain limits under Japanese tax law. Any amount exceeding this is not considered an expense for tax purposes. This is not limited to only the entertainment expenses account, including those that essentially possess the nature of entertainment expenses like meeting expenses and fees, all of them are considered entertainment expenses for tax purposes.

Entertainment Expense Rules for Sole Proprietors

For individual businesses, there is no limit on entertainment expenses like there is for corporations. On the other hand, during tax audits, tax officers will suspect that entertainment expenses are not business-related. If the amount of entertainment expenses is high, there is a high possibility of being questioned about meal expenses near your home on weekends.

However, the responsibility to disallow expenses lies with the tax office. Taking into consideration the trouble that tax officers go through, in an actual audit, in many cases, tax officers often encourage taxpayers to voluntarily disallow a certain amount of expenses to settle the audit.

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