Starting & Running a Business in Japan: Tax and Accounting Guide for Foreign Business Owners

Starting a company in Japan is only the beginning.

After incorporation, foreign business owners need to deal with tax registrations, accounting, payroll, withholding tax, social insurance, consumption tax, the Qualified Invoice System, and annual corporate tax filings.

These matters are connected. Decisions made when the company is established can affect your accounting and taxes later. It is better to think about the whole process from the beginning rather than dealing with each procedure separately after a problem appears.

I am a Japanese certified public accountant and tax accountant, and I assist foreign business owners with accounting and taxation in Japan. My main work is accounting and tax, but I also work with other professionals when company registration, visas, social insurance, or legal support is required.

1. Starting a Business in Japan: Incorporation Is Only the Beginning

Before starting a business in Japan, you first need to decide how you will operate. Depending on your circumstances, this may be as a sole proprietor, a Japanese company such as a Kabushiki Kaisha (KK) or Godo Kaisha (GK), or in some cases through a Japanese presence of an overseas company.

The right structure depends on more than registration costs. Your visa status, expected profit, business partners, future plans, accounting requirements, and tax position can all matter.

For an overview of the main tax decisions immediately after incorporation, see Starting a Company in Japan: 3 Essential Tax Steps for Foreign Entrepreneurs.

If you are still deciding what type of company to establish, see Which Type of Corporation Should You Establish in Japan?.

2. Choose Your Fiscal Year-End Before You Start

A Japanese company does not have to use December or March as its fiscal year-end. You can choose the fiscal year when establishing the company.

This is not just an administrative decision. The fiscal year-end affects the timing of accounting, corporate tax filings, tax payments, and tax planning. It can also affect how much time you have in your first fiscal year.

For more details, see When Establishing a Company in Japan, Which Month Should You Set as the Fiscal Year-End?.

3. Complete the Tax Registrations After Incorporation

After incorporation, the company needs to submit tax notifications to the relevant authorities. Some filings have relatively short deadlines, so they should not be left until the first tax return.

Depending on the company, the procedures may include:

• Notification of Corporation Establishment
• Application for approval of filing a Blue Form tax return
• Notification of the establishment of a salary-paying office
• Withholding tax-related applications
• Consumption tax and Qualified Invoice System registrations where appropriate

The Blue Form is particularly important because missing the application deadline can mean losing important tax benefits.

For the Blue Form system and its deadlines, see Blue Form (Aoiro Shinkoku) in Japan: Benefits and Deadlines.

4. Decide the Director’s Compensation Early

One Japanese tax rule often surprises foreign business owners: you cannot freely change a director’s compensation during the year and expect the full amount to remain deductible for corporate tax purposes.

For that reason, director’s compensation should be considered early. The amount affects both the company and the individual director, including corporate tax, individual income tax, and social insurance.

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

5. Accounting in Japan for Small Businesses

Proper accounting in Japan starts from the first year of business. Waiting until the corporate tax return is due and then trying to reconstruct one year of transactions usually creates unnecessary work.

At the same time, accounting in Japan for a small business does not always require producing perfectly detailed monthly financial statements.

After working with foreign business owners in Japan, I have seen many entrepreneurs spend too much time trying to make their monthly accounting perfect even when they rarely use those monthly statements for management decisions.

Unless a bank, investor, parent company, or management team requires detailed monthly reporting, I generally prefer to keep the monthly bookkeeping practical and make the necessary adjustments before preparing the annual tax return.

For a detailed explanation of this approach, see Cash Basis vs. Accrual Accounting in Japan: Which Is Better for Small Businesses?.

Businesses also need to keep invoices, receipts and electronic transaction records properly. See Japan’s Electronic Record Keeping Law: A Practical Guide for Businesses.

6. Payroll, Withholding Tax and Social Insurance

Once a Japanese company starts paying directors or employees, accounting is only one part of the process.

The company may also need to handle:

• Payroll calculations
• Income tax withholding
• Year-end adjustment
• Social insurance procedures and payments
• Annual payroll-related reporting

Japan’s withholding tax system requires businesses to withhold income tax from certain salaries and professional fees and pay it to the government. This is separate from the company’s own corporate tax.

For more details, see Understanding Taxes When Starting a Business in Japan: Withholding Individual Income Taxes.

My office handles tax and accounting matters. When specialist social insurance support is required, I work with a social insurance and labor specialist. This keeps the responsibilities clear instead of trying to handle every professional field through one person.

7. Consumption Tax and the Qualified Invoice System

Consumption tax is one of the areas where new business owners in Japan often make decisions too quickly.

A new company is not automatically in the same consumption tax position as every other company. Whether you should become a taxable business or register as a Qualified Invoice Issuer depends on the company’s circumstances, customers, expected sales, expenses and future plans.

Registering simply because someone tells you that every business needs an invoice number is not a good way to make the decision.

These articles explain the main issues:

• An Easy Explanation of Consumption Tax for Doing Business in Japan
• Should a New Business in Japan Register for Consumption Tax?
• An Easy Explanation of Japan’s Invoice System
• Understanding Japanese Consumption Taxes: Simplified Consumption Tax System

What if your customers are outside Japan?

International transactions create another layer of consumption tax issues. The answer cannot be determined only by the currency on the invoice or the bank account receiving the payment.

If you provide services to customers outside Japan, see Is Consumption Tax Required for Consulting Services Provided to Foreign Clients by Japanese Businesses?.

8. Corporate Tax and Tax Planning in Japan

A Japanese company may be subject to several corporate taxes, including national corporate tax and local taxes. The actual tax burden depends on factors such as taxable income, capital, company size and location.

For an overview, see Japan Corporate Tax Rate Explained.

Corporate tax planning in Japan should be done before the fiscal year is over. Once a transaction has already happened or the year has closed, many options disappear.

Accounting and tax reduction in Japan for a small business are therefore connected. Tax reduction does not mean creating artificial expenses. It means understanding the available choices early enough to make a proper business decision.

For several Japanese rules that foreign owners often encounter for the first time, see 5 Japanese Tax Rules Every Foreign Business Owner Should Know.

9. Foreign Companies Entering Japan

Not every foreign business operating in Japan starts with a new Japanese company. An overseas company may establish a subsidiary or branch, send employees or directors to Japan, or begin conducting business here before its structure is fully settled.

That can create international tax and accounting issues in Japan, including questions about where income is taxable, whether the foreign company has a taxable presence in Japan, payroll, consumption tax, and transactions between the Japanese operation and the overseas company.

These issues should be considered before simply treating the Japanese operation as an ordinary domestic small business.

For more information, see Taxes Payable in Japan for Foreign Companies and Others Conducting Business.

If you are personally moving to Japan to operate a business, see Moving to Japan as a Small Business Owner: Company, Visa, and Tax Considerations.

10. Keep Records With a Future Tax Audit in Mind

Good accounting is not only about producing a tax return. The accounting records also need to explain what actually happened if the tax office reviews the company later.

For foreign business owners, this can be particularly important when invoices, contracts, bank accounts, payment services or supporting documents are maintained partly outside Japan or in another language.

I prefer to deal with unclear transactions while preparing the accounting records rather than several years later during a tax audit.

For an explanation of Japanese tax audits, see How Tax Audits Work in Japan: What Foreign Business Owners Should Expect.

11. Accounting and Tax Support in English

My main areas of expertise are accounting and taxation. I provide accounting and tax services in Japan with English support for foreign individuals and business owners.

I do not try to perform every procedure myself. I work with a network of professionals, including judicial scriveners for company incorporation, administrative scriveners for visa matters, social insurance specialists, and other professionals when necessary.

This is particularly useful for foreign entrepreneurs because starting and running a business in Japan often crosses several professional fields. Company registration, accounting, taxation, payroll, social insurance and immigration are connected, but they are not all the same professional service.

My office focuses on accounting, taxation consulting in Japan for small businesses, corporate tax planning, tax filings, and international tax and accounting in Japan.

12. Practical Questions from Foreign Business Owners

Do I need an accountant immediately after establishing a company in Japan?

You do not need to hire an accountant simply because you incorporated a company. However, some important tax decisions and filings come soon after incorporation. If you plan to use an accountant, discussing these matters early is usually more efficient than asking the accountant to correct them later.

Do I need a perfect monthly closing for a small company?

Not necessarily. If a bank, investor, headquarters or management team needs accurate monthly financial statements, a proper monthly closing is important. For a small owner-managed company that mainly needs reliable annual accounts and tax filings, an unnecessarily complicated monthly process can waste time and money.

Should I register for the Qualified Invoice System immediately?

Not automatically. Registration can affect your consumption tax position. The right decision depends on your customers, expected sales, expenses and whether your customers require qualified invoices. This should be decided based on the actual business rather than simply because the company is new.

Can I reduce Japanese tax simply by putting more expenses through the company?

No. A payment does not become a deductible business expense merely because the company paid it. There must be a proper business reason and the accounting treatment must follow Japanese tax rules. Good tax planning is mainly about making legitimate choices at the right time, not creating expenses for the sake of reducing tax.

Can you provide accounting and payroll services in Japan in English?

Yes. My office provides accounting and tax support in English. I can also coordinate with other specialists when payroll, social insurance, company registration, visas or legal matters require support outside my own professional field.

What if my company has both Japanese and overseas transactions?

Do not assume that receiving money from overseas automatically makes the transaction tax-free in Japan. The treatment depends on what the transaction actually is, who the parties are, where the service or business activity takes place, and the relevant Japanese tax rules. This is where international tax and accounting in Japan becomes important.

13. Need Help Starting or Running a Business in Japan?

Koshida Accounting and Tax Office supports foreign entrepreneurs and foreign-owned small businesses with accounting, Japanese tax filings, corporate tax planning, consumption tax, payroll-related tax matters, and international tax issues.

If another specialist is required, I can also work with professionals in company registration, visas, social insurance and other related fields.

If you are starting a business in Japan or already operate a company here and need accounting and tax support in English, please contact me.

Contact Koshida Accounting and Tax Office