Starting a Company in Japan: 3 Essential Tax Steps for Foreign Entrepreneurs

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

I support foreign entrepreneurs and small business owners with accounting and tax matters in Japan, with support available in English.

If you establish a company in Japan, some important tax decisions need to be made soon after incorporation. Waiting until the first corporate tax return is due can be too late.

In particular, I recommend checking these three matters at the beginning:

• the Blue Form (Aoiro Shinkoku) application
• the amount of director’s compensation
• whether to register for consumption tax and Japan’s Qualified Invoice System

These decisions can affect your corporate tax, future tax planning, and accounting from the first fiscal year.

This article focuses on these three practical tax steps.

For a broader overview covering company setup, accounting, payroll, consumption tax, corporate tax, and ongoing tax compliance, see Starting & Running a Business in Japan: Tax and Accounting Guide for Foreign Business Owners.

1. Submit the Blue Form Tax Return (Aoiro Shinkoku) Application

For a newly established company in Japan, applying for the Blue Form (Aoiro Shinkoku) is one of the first tax procedures you should consider.

The Blue Form provides important corporate tax benefits, including:

• Carry-forward of tax losses for up to 10 years
• Certain tax benefits relating to depreciation and business assets
• Other tax advantages available to qualifying Blue Form filers

Important deadline: For a newly established corporation, the application for the first fiscal year must generally be filed by the day before the earlier of three months after incorporation or the end of the first fiscal year.

This deadline is particularly important when the company has a short first fiscal year.

For the benefits, accounting requirements, and application deadlines in more detail, see Blue Form (Aoiro Shinkoku) in Japan: Benefits and Deadlines.

2. Decide Your Director’s Compensation Within Three Months

For a newly established company in Japan, you should determine the director’s compensation within three months after incorporation.

Under Japanese corporate tax rules, director’s compensation generally needs to meet specific requirements to be deductible for corporate tax purposes. Once the monthly amount has been determined, freely changing it during the fiscal year can cause part of the compensation to become non-deductible.

In practice, this means that you should decide the amount early rather than waiting to see how much profit the company makes.

The amount also affects the director’s individual income tax and social insurance, so both the company and the individual should be considered when determining the appropriate amount.

For more details, see When Launching a Company in Japan, Determining the Director’s Compensation Amount Is Crucial.

3. Decide Whether to Register for Consumption Tax and the Qualified Invoice System

A newly established company in Japan may not immediately be required to pay consumption tax, depending on its circumstances.

However, the company may still need to decide whether to become a taxable business and whether to register as a Qualified Invoice Issuer.

These are important decisions because voluntary registration can create a consumption tax filing and payment obligation even when the company might otherwise have been exempt.

On the other hand, registration may be useful or necessary in practice when your main customers are Japanese businesses that need qualified invoices for their own consumption tax credits.

The decision can also be important when the company expects substantial initial investments and may be in a consumption tax refund position.

For that reason, I do not recommend deciding based only on whether someone tells you that every company needs an invoice number. The company’s customers, expected sales, expenses, investments, and future plans should be considered first.

For more details, see Should a New Business in Japan Register for Consumption Tax?.

4. These Three Decisions Are Connected

Your fiscal year affects the Blue Form deadline. Director’s compensation affects both corporate and individual taxes as well as social insurance. Consumption tax registration can affect your cash flow, pricing, accounting, and relationships with business customers.

For these reasons, I recommend reviewing the basic tax and accounting structure soon after a company is established rather than waiting until the first corporate tax return.

For the wider picture, including fiscal year selection, bookkeeping, payroll, withholding tax, corporate tax, tax audits, and international transactions, see Starting & Running a Business in Japan: Tax and Accounting Guide for Foreign Business Owners.

Accounting and Tax Support for Foreign Business Owners in Japan

My main areas of expertise are accounting and taxation.

I assist foreign entrepreneurs and small businesses with accounting in Japan, corporate tax returns, consumption tax, payroll-related tax matters, and corporate tax planning, with support available in English.

I do not try to handle every professional field myself. When necessary, I work with judicial scriveners for company registration, administrative scriveners for visa matters, social insurance specialists, and other professionals.

If you are planning to establish a company in Japan, or have recently incorporated one and want to review the initial tax and accounting procedures, please contact me through the inquiry form.

Contact Koshida Accounting and Tax Office