What Are the Advantages of Incorporation for Sole Proprietors in Japan?

【Koshida Accounting Firm Column Date:

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 advantages of incorporation in Japan, you might find this blog helpful.



You Can Pay Your Salary as Expenses

For proprietors, paying yourself is not considered an expense. On the other hand, in the case of corporations, paying yourself is considered an expense. Of course, the president’s salary is subject to individual taxes. However, the corporate tax rate is roughly a flat thirty percent, but the highest individual tax rate is fifty-five percent, including inhabitant tax, due to progressive taxation. A certain portion of salaries, like executive compensations, are deducted as salary deductions, therefore the amount is deducted from taxable income. For example, If your annual salary is five million yen, the salary deduction is 1,440,000 yen. If your individual taxable income is eight million yen, considering incorporation might be worthwhile.


Salaries to Your Family Are Considered Expenses Flexibly

Also for proprietors, paying salaries to your family is considered an expense, but there are many limitations under Japanese tax law. On the other hand, after incorporation, salaries to your family can be considered expenses more flexibly.


You Can Pay a Retirement Allowance

For proprietors, paying a retirement allowance is not considered an expense. However, corporations can pay a retirement allowance to the president as an expense. Under Japanese tax law, taxation on retirement allowances is relatively light.


Travel Allowances, an Executive’s Company House, and Other Expenditures Are Considered Expenses

Compared to proprietors, corporations can claim a wider range of expenditures as expenses.


Losses Can Be Carried Over for Ten Years

Corporations can carry over past losses for up to ten years, while proprietors can do so for only three years.




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