The Tax Consequences of Claiming Family Trips as Business Expenses 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 the tax consequences of claiming family trips as business expenses in Japan, you might find this blog helpful.

Summer vacation season is here. What do you think happens during a tax audit if a family trip is mistakenly claimed as a business expense?

Mistakenly Booking a Family Trip as an Expense

Suppose you unintentionally claim a family trip as a business expense. If this is discovered during a tax audit, you’ll need to amend your tax return, excluding that expense. As a result, additional taxes will arise. For sole proprietors, the rates range from 5% to 45% for income tax, a flat 10% for residential tax, and 5% for business tax. The additional tax amount is determined by applying these rates to the excluded expenses. For corporations, the combined rate is roughly 30%. Additionally, you’ll face penalties for underreporting, which can be an extra 10% or 15% of the additional tax.

If you intentionally claim a family trip as a business expense knowing it’s incorrect

For instance, if you persuade a travel agency to provide documents that make it appear like a business trip, you are manipulating the truth to reduce taxes. Such actions are seen as deceitful and an attempt to conceal, leading to severe penalties. The penalty rate increases by 20%. Additionally, the likelihood of subsequent tax audits rises. Tax officers are often suspicious of high travel expenses during summer vacations and the start of the year. Hence, at the slightest suspicion, they might investigate travel agencies and quickly uncover the truth.

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