Monthly Archives July 2020

Incorporating in Japan: Avoid These 5 Common Pitfalls

Incorporating in Japan
weConnect Resources

Incorporating in Japan: Avoid These 5 Common Pitfalls

The decisions you make when incorporating in Japan can cost you big time (and we mean BIG)

Quick! Before you move too fast with incorporating in Japan…

When new businesses are incorporating in Japan, they often aren’t aware of the impact of how they fill out company registration forms. They typically complete the minimum information required for filing and decide to “figure out the rest, later”. 

Down the line? Problems. Obstacles. Hindrances. There’s a host of challenges that can arise based on how the forms are completed. And Japan is a country where the process of refiling is a long, drawn-out pain, so fixing the forms won’t happen quickly. Yikes.

Here’s an example: 

Let’s say you decide to register a branch. Legally, you’re not required to register an address when incorporating in Japan. So, the professionals you hire for incorporation go ahead with the filing process without the branch address. 

But then, you decide to open a bank account and find out that you can’t open one without having a registered address. You’ll have to wait for ages to amend your branch registration documents with your registered address just so you can move forward with opening a bank account!

But wait…you’d think this wouldn’t happen if you hired professionals when incorporating in Japan, right? “They should have warned me!”

Well, incorporation professionals can help you establish your business, legally. But they might not be aware of how the way you fill out the forms can affect topics outside of their specialty – like banking requirements. And it doesn’t stop there.

You need someone to help you have a holistic understanding of all aspects of your business, not just incorporation (“someone” = us!).  

Here are 5 common pitfalls we see when you’re not guided beyond incorporation, during incorporation (and these can really, really hurt, so let’s save you a ton of time and money!): 

1. Not thinking through your capital amount

When you incorporate your business in Japan, you have to set a capital amount (and the number can be anything). 

Depending on your business, you might want to set it to a number lower than 10 million JPY. This will allow you to keep Japanese consumption tax as additional revenue for a period of time. 

Here’s what happened to a client: they made 500 million JPY in their first year of business. They collected 40 million JPY in consumption tax (8% at the time). Because they had set their initial capital to above 10 million JPY, they had to pay that consumption tax to the tax office. Had they set their initial capital to below 10 million JPY, they would have been able to keep it. Ouch.

The capital amount also affects your ability to apply for visas. If you need to get your staff a visa, we recommend setting your initial capital to at least 5 million JPY. Here’s what happened to another client: they set their initial capital to 500,000 JPY.  When they went to apply for a visa for one of their employees, the application was rejected. 

Your capital amount can even affect leasing office space, contracting for phones, and working with certain vendors. So needless to say, you’ll want to think through your capital amount!

2. Not knowing what happens when you pick a Japan-based Director

Having a Japan-based Director has its benefits: the director can set up your bank account, sign visa applications, and make your business look as domestic as possible. 

But you might want to avoid appointing a Japan-based employee to be your Director. Why? Because compensation will need to be paid in fixed monthly increments in order to be a tax-deductible expense for the company. 

For example, a client appointed their lead sales employee as director of the company. The employee received quarterly bonus incentives totaling 20 million JPY over the course of the year. The entire 20 million JPY was not tax-deductible for the company, so the company had to pay an additional 7 million JPY in taxes. 

Plus, if your employee is using company housing, then only 50% of the housing amount can be recognized as tax-free compared to 90% for non-Directors.  Be careful when thinking of appointing a local Japanese as a Director!

3. Only registering one seal

When you’re incorporating in Japan, you’re required to register one company seal with the legal affairs bureau, which represents the company’s Power of Attorney. Later, you’ll also have to register a seal for the bank and social insurance offices. But by only having one seal, you can’t segregate duties between legal, banking, and HR functions. 

One of our clients only had one seal. Each time a contract needed to be stamped, the documents had to be sent to the one person who had the seal. Because the seal was also registered with the bank, the person with the seal went rogue and accessed company accounts without permission and the company lost millions.

4. Getting a banned address (oops!)

It’s pretty common nowadays for new businesses to use a virtual address in the registration process. But what you might not know is that many addresses like these are banned by Japanese banks. Banks won’t reveal which addresses are banned, nor will they tell you why you’ve been rejected, so you won’t know that your address was the culprit! 

We had a client that got rejection after rejection from multiple banks. When they started working with us, we told them to change their address. Problem solved.

5. Registering a Board of Directors when you don’t really need one

Most people think that it’s required to have a Board of Directors when you’re incorporating in Japan. But it’s actually not needed. By registering a Board of Directors, you’ll be required to draft quarterly Board of Directors meeting minutes and file an annual audit report. If you don’t have a business purpose for a Board of Directors, then you can save yourself time and energy by not registering this section. 

Want to avoid any kind of mistake?

One of the easiest ways you can avoid any kind of mistake is to have one provider like us. We’ll help walk you through a 360-degree view of your business so that your company gets registered the right way. 

Plus, we can also help with other aspects of your business set up, like visas, taxes, seal and address registration so you don’t have to look for additional help. Feel free to contact us here to learn more!

How to Streamline Your Year-End Tax Adjustments (Nenmatsu Chosei) in Japan

Year-End Tax Adjustments
weConnect Resources

How to Streamline Your Year-End Tax Adjustments (Nenmatsu Chosei) in Japan

Save yourself time and headaches during the year-end tax adjustment period!

Let’s start with a story about Ami, a payroll specialist in Japan. 

One day, Ami made a mistake.

She was double-checking her colleague’s work on year-end tax adjustments and accidentally sent the data to the wrong client. Needless to say, the client who received the data was confused, called her manager, and questioned their professionalism. 

When Ami sat down with her manager to discuss what went wrong, she admitted that she’s been overwhelmed with work. She spends most of her time chasing employees for data, sifting through mountains of paperwork to fix and approve, and answering questions from employees. By the time she has all of the info she needs, she’s short on time to meet her fast-approaching deadlines which makes it harder for her to focus.

Her manager empathizes, but can’t let another mistake like this happen.

So, he decides that all procedures need to be triple checked! The last thing Ami and her colleagues want is more work during this high-pressure time, but no one could think of any other way to ensure their work would be perfect.

Moral of the story? No matter how good their intentions, people make mistakes

But when it comes to payroll – especially the year-end tax adjustment period –  mistakes are a no-no. So how can you make this process error-free, without adding more work?

You digitize it!

If you think about it, ninety percent of payroll is data collection. The rest is using your expertise to approve and handle exceptions. 

Introducing SmartHR: the digital tool we implement for year-end tax adjustments that’ll save you a ton of time (and hair). 

It’s a dynamic self-serve platform that guides employees and collects all the data you need. Here are 6 ways that digitizing your year-end tax adjustment process will make your life easier:

1. You don’t need to prep a crazy amount of paper-based packets

Traditionally, payroll specialists send all employees a thick packet of documents that employees need to fill out to update their information for year-end tax adjustments. This is a labor-intensive process for the payroll specialists who have to prepare all of the packets and check all of the employee’s submissions, and for the employees who have to complete so many forms. When your company uses a digital platform, all payroll specialists have to do is send a link to employees!

2. You don’t need to chase employees for responses (for two whole months!)

Payroll specialists typically spend all of October and November gathering data from employees. Employees procrastinate, there are delays in receiving forms, issues with communications, and other obstacles that get in the way of data collection. 

With our system, it’s easy to ping employees with reminder notifications and our team at weConnect can follow up with them to make sure that everything is taken care of. 

3. You don’t need to answer endless amounts of questions about how to fill out the forms (even though you’ve already briefed everyone thoroughly)

Let’s be real. Traditional Japanese forms are confusing. There are questions and checkboxes cluttering each page, and it’s hard for employees with no HR knowledge to understand what needs or doesn’t need to be filled out. It’s no wonder why people have so many questions!

Our digital application process has a dynamic workflow that guides employees through the information they need to submit based on how they’ve answered previous questions. Because the platform guides each individual, it helps cut down on the volume of questions people typically ask. 

The process for each employee to complete the forms? Start to finish, 5-10 minutes. 

4. Here’s the big one: you can dramatically reduce your margin of error

Data migration – the process of each payroll specialist inputting information from each employee’s form –  is where errors happen. To make matters worse, most forms are handwritten and payroll specialists are under a lot of pressure with deadlines, which makes it even harder to work without cutting corners. When you use a digital platform, all of the information has directly been inputted into the system by the employee so there’s no need for data migration.

5. You can store all of your data in one spot (and we mean ALL)

This same platform is also our electronic payslip platform and My Number platform. It’s how we collect data for social and labor insurance filings. So when you work with us, not only will you gain support with year-end tax adjustments but also with these other features.

6. You don’t have to worry at all about security

Our system enables a secure way to disclose private information for each employee. Employees get links to answer questions and can securely provide information like their My Number, so this whole process is safe and worry-free. The platform is fully compliant with Japan labor and privacy law requirements. 

We make year-end tax adjustment a DREAM

You can try to come up with your own system (like many HR teams have), but the odds of it matching the capabilities that have been produced by technology companies are slim. Our value is using the latest and greatest technology to help make your work processes easier, and we’re the masters of administering all-things SmartHR.

Ready to stop pushing those paper packets around? Contact us here and we’re happy to talk with you about how to implement this system for your company.