When Launching a Company in Japan, Determining the Director’s Compensation Amount is Crucial
【Koshida Accounting Firm Column Date:】
Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.
I aim to assist non-Japanese business owners who need help with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.
This blog may help if you are unclear about determining the director’s compensation.
How much profit can you expect in the first fiscal year?
A major consideration in setting your compensation is the anticipated profit before deducting said compensation. Given considerations like visa renewals, bank loans, and potential clients, it’s often preferable to have a profit in the first year. Hence, it’s advisable to set the compensation amount in a way that avoids deficits.
How much money do you need to live?
Another consideration is determining how much you need for your living expenses. If you set your compensation at 100,000 yen when you actually need 500,000 yen and then withdraw the shortfall from your company, it could give a negative impression to banks when you seek financing.
The deadline to determine your compensation is within three months of establishing your company
You must decide on your compensation within three months after founding your company. If you decide after the fourth month, the compensation for that fiscal year won’t be recognized as deductible expenses under Japanese tax law. I explain the reason for this in this blog.
Under Japanese Tax Law, Director’s Compensations Must Be the Same Each Month
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