Monthly Archives October 2020

The Best Time to Upgrade Your Tax Accountant in Japan

weConnect Resources

The Best Time to Upgrade Your Tax Accountant in Japan

In an ideal world, we’d love to see new business owners start off on the right foot with their tax filings by hiring a partner who can properly advise them.

But when companies are starting out, they typically look for the most inexpensive tax accounting service. And that’s understandable, especially when every yen, dollar, euro, etc. matter.

And at first, everything with your tax accountant can seem great

“My tax accountant can prepare my tax returns in a day!” 

“I can send them a doggy bag of loose receipts and they just take care of it!” 

“They never ask me any questions, it’s so smooth!”

You feel so well taken care of that you don’t even realize what’s about to happen to you.

Because things will go wrong. Really, really wrong.

For starters, there’s likely a gap between the expectation you have for what a tax accountant will do for you as a baseline and the services that you’ve actually hired them to complete. 

Here’s what everyone assumes their tax accountant will help with (no matter how inexpensive the service)…

  1. Proactively advise on what is needed for full compliance
  2. File all necessary documents, correctly, on time
  3. Review and catch mistakes

To put it simply, you probably assume that since you don’t know anything about tax filings in Japan, the professional you hire will take care of everything for you.

…but here’s what you’re actually getting

If you’re paying your tax accountant for their bare minimum service, what they’ll do is take the data you give them and drop them in only the filings you have specifically engaged them for. That’s it.

They won’t review and check all of your bookkeeping records. They won’t proactively advise you on everything you need to do to be compliant as a business. 

So, if you make a mistake with the information you provide and it gets filed in the return? Not their problem.

If your business situation changes which will trigger additional filings you didn’t realize you have to file? Not their problem.

If you miss the filing deadline because you weren’t aware that you needed to provide information to them by a certain date? Not their problem.

If you get audited and are penalized for an accounting error you missed? 

You guessed it! Not. Their. Problem.

When any of these things happen (which they will under these circumstances), you’ll throw your up your hands and think, “They know I don’t know anything about tax compliance in Japan! How could they expect me to take any responsibility for this?! It’s their fault!”

Bottom line? Many tax accountants only do what you’ve specifically engaged them to do. Even though you assumed they would provide a holistic, proactive service to ensure you never have a problem.

Find out for yourself

After reading this, if you’re now unsure whether your tax accountant has been following through with each of the points listed above, then send them this message and see what they say: 

“As you know, I don’t know anything about Japan tax, so I’m relying completely on you to make sure I don’t have a tax issue. Can you please confirm that the following is part of your service:

  1. Proactively advising on what is needed for compliance
  2. Reviewing and catching mistakes
  3. Filing all necessary documents, correctly, and on time.”

You need to ask them in exactly this way in order to receive a clear answer. 

You might be surprised by their response!

By the way, we’re not harpin’ on tax accountants’ services here; we just mean to explain to you there is often a gap between expectations in service delivery that can get people into trouble. 

So when will you upgrade your tax accountant? 

After hearing all of this, you must be super motivated to confirm that you have a good tax accountant, right?

Probably not. In our experience, even if you know the risks, you’re not going to want to think about tax until you actually have a “pain event”. 

A “pain event” is an event that pulls your attention to tax matters, and annoys the hell out of you because it distracts you from building your business. 

In most cases, businesses have a “pain event” when they’re audited, which happens randomly once every 3-5 years. So, unlike payroll where an angry employee will bang on your door as soon as a mistake is made with their salary payment, with tax, everything seems fine until all of a sudden it isn’t and you have a mess on your hands that could go back years.

So when this “pain event” happens, you have two choices: 

You can either put a band-aid on the problem and kick the can down the road, which will ensure that you’ll have a larger pain event later. 

Or, you can bite the bullet and change to a proper, long-term tax partner who will actually be proactive, hold your hand through all tax-related matters, get your accounting and taxes cleaned up, and make sure issues never happen again.

Here’s what it’s like to have long-term tax partner:

At weConnect, “pain events” are not okay. We’re all about being proactive and aligning with our clients to ensure we meet their expectations. If you’ve experienced your own “pain event” (or two or three) and want to make sure it doesn’t happen again, contact us here and we’re happy to help!

The Two Biggest Lies that Your Accountant in Japan Will Tell You

weConnect Resources

The Two Biggest Lies that Your Accountant in Japan Will Tell You

Whether you’ve been working with an accountant in Japan or are planning on hiring one, make sure you understand this insight before you run into issues!

Let’s say you walk into a meeting with your accountant in Japan for the first time. You’re looking for insight on how to streamline your bookkeeping and file your taxes. Once your accountant hears about your business’ accounting policies, they may say something like this:

“In Japan, your taxes have to be filed a certain way. Since you need monthly financials based on your company policy, you [the client] will need to handle that. Additionally, we’ll need to record everything in a separate statutory accounting book to ensure that filings are handled properly. Also, because of this thing called JGAAP, your records will need to be kept in Japanese, so we’ll need to use Japanese software.”

This sounds reasonable to you. Japan has a different way of operating, so it makes sense that you’ll need to be compliant with Japanese ways. (Plus, you have no clue about JGAAP requirements).

But your accountant has lied to you. Twice. Did you catch the lies?

Here they are in detail – don’t fall into these traps!

Lie #1: You need to keep a separate statutory accounting book for the purpose of your tax return

You don’t need to maintain a separate accounting book for tax purposes. In fact, there’s no problem with you attaching your normal financials to the tax return and have your tax accountant make off-book adjustments at the end of the year for the tax calculations.

When companies agree to have a second accounting book, they wind up doing all of their accounting on their own, then paying a monthly fee to have their accounting done twice by their accountant in Japan. It’s a frivolous expense with zero benefits.

And to make matters worse, having a second accounting book can lead to problems.

The problem with having a separate accounting book is that you’ll wind up having a gap between what your company’s financials are and the financials that have been filed with the tax office. 

Why? Because your accountant in Japan is focused on making sure that the financials are compliant for Japan tax purposes, and typically won’t think about the need to reconcile the financials with your company’s financials. 

From the tax office’s perspective, your financials are only the financials attached to the tax return. When you’ve finally realized that there is a discrepancy, it could be years later. That means years of returns that don’t match the company books that you can’t tie back. 

At that point, you can either refile for all of the previous years (a huge pain and not recommended unless absolutely necessary) or manage the gap between your tax financials and company financials, forever. That’s right, forever!

Lie #2: You need to use Japanese accounting software

Many accountants in Japan tell you that your accounting needs to be recorded in Japanese software, but this is not required. You don’t have to maintain your books in Japanese, which means you can take comfort in knowing that it’s perfectly fine to continue keeping your records in English. 

Now, you do however need to attach your financials in Japanese to your tax return. But all you have to do is simply translate and reformat your documents. There’s no need to maintain your records separately on a monthly basis in Japanese; you can just do a translation of the year-end financial reports and make adjustments to align with the financials with the tax code at the end of the year. 

Wait…but how come accountants in Japan mislead people? Why would they do that?

Well, the reason is pretty innocent, actually. Many accountants learn that these are the ways to handle accounting in general, so they assume that it must be done in this way for people who handle their accounting in English. Many have no clue that a separate accounting book and using Japanese software is not required. 

Plus, Japan is a culture known for people following procedures to a T. So, they might not think to consider if their procedure is the most effective for your situation.

Accounting services that actually are accounting services 

Here’s how we at weConnect have designed a solution to be perfect for you, that’s compliant, and that actually provides you with real services for the money you invest: 

We will do your full accounting (bookkeeping, payments, and reporting) on a monthly basis according to your company policies, closing requirements and consolidation schedule. We’ll do it in English, and use the accounting systems that make sense for your business. 

We’ll actively communicate with you on a monthly basis to ensure that all records are updated properly for a smooth transition to doing the tax filings. We do your tax adjustments. And at the end of the year, we use your accounting books as the basis for the Japanese financials attached to the tax return. 

That means you’ll never have discrepancies between two books (because there’s only one!), and you can keep track of your accounting in English while still ensuring full compliance. Ready to make your accounting process as smooth as butter? Contact us here to learn more!

What to Include in Your Employee Benefits Package in Japan

weConnect Resources

What to Include in Your Employee Benefits Package in Japan

Need to know what’s required, customary, and unnecessary? Here’s an overview of Employee Benefits in Japan

In most countries, “employee benefits” is a buzzword. It’s a high priority on candidates’ checklists during the interview process and could make or break whether they’ll accept a job. Want to be attractive to top talent? You have to stand out with your benefits. 

But in Japan, benefits don’t work the same way. 

The government offers comfortable statutory employment benefits (a.k.a. “social benefits”). In fact, because of this, 90% of individuals in Japan have no practice of maintaining their own health insurance, retirement funds nor protection coverage (such as for work-related injuries or job loss). 

Plus, employees in Japan have a different value system in which they expect a combination of statutory and non-statutory benefits. These can shake up what you need in your packages because the demands might not be anything like what you hear from candidates in your home country. 

Knowing your obligations can improve your budgeting, recruitment, and compliance. Here are the benefits you need to consider to set you on the path to success in Japan: 

Japanese Statutory Employment Benefits

Social & Labor Insurance

All companies in Japan hiring full time or eligible employees must enroll in all of the social benefit schemes you see here in this chart (information accurate as of April 2020):

*Rates are based on the assumption that the company is in Tokyo
**Premium rate for Workmen’s Accident Compensation Insurance is 0.25% minimum. Depending on the job risk, the rate may increase.

Costs of Social and Labor Insurance

Social benefit premiums are split between the employee and employer. And every month, employee premiums are deducted from their paycheck (gross salary). 

As an employer, you’ll have to pay an additional ~16%* of the employee’s gross salary towards employee benefits. It’s good to keep this number in mind when you’re budgeting salaries during the hiring process. Example: Let’s say you pay someone 500,000 JPY per month in gross salary. The total company cost including social benefits is around 580,000 JPY (the actual calculation is more complicated, but this is a good enough estimate for budgeting purposes).

Some additional things to consider: Once an employee turns 40 years old, the premium rate increases to ~17%* to include Nursing Care Insurance. It could increase to 18% or more depending on how dangerous the job is.

*Information as of Spring 2020 – please reach out to us for up-to-date rates.

Paid Leave

Employees in Japan are granted additional days of paid leave that are added to their annual balance, based on the table below, which shows the statutory minimum. The leave is effective for two years from the date awarded. 

The company can grant more paid leave days if it chooses, which can be a differentiator in the market when recruiting. 

The amount of paid leave days might seem low compared to other countries. However, Japan has a high number of public holidays over the course of the year so it would be good to take those into account when making your final offers to candidates.

Non-Statutory Benefits that your Employees will Expect

Candidates will likely expect you to offer commuting allowance, sick leave, Obon and New Years holidays (non-official holidays). Traditional companies also sometimes provide small allowances.

Commuting Allowance

Most Japanese companies will provide a commuting allowance to employees to cover travel between the home and the office. This is a really helpful benefit given that many employees in Japan commute for an hour or longer to work. The expense will be based on the most economic route between an employee’s home and the workplace. Commuting Allowance is not subject to income tax up to a certain amount.

Private Pension

Many employees expect this benefit from large companies in Japan. Because new companies are not able to offer this benefit in Japan (mainly because of low headcount), except for a few specific programs, foreign subsidiaries new to the market usually pay more salary to compensate. If you’d like to have a more in-depth discussion about this, please reach out to us here.

Other Supplemental Benefits

Most Japanese talent will not expect anything more than the above. However, some Japanese companies will offer some additional allowances such as housing allowance, car allowance, and paid leave on unofficial holidays.

Benefits you don’t have to provide (even though they’re attractive outside of Japan)

Anything we haven’t listed above – 401k, life insurance, disability, unlimited vacation days – are often not benefits that are important enough to employees in Japan who are joining foreign companies. 

Japanese talent joining foreign subsidiaries new to the market tend to place a higher value on a salary increase or an upgrade in title and authority than they do on supplementary employee benefits. So whether or not you offer additional benefits, it may not affect their decision-making process when they’re thinking of joining your company.  

We can help you learn the ins and outs of each of these benefits and how to incorporate them into your employment and HR documentation, regardless of whether or not you have an entity. Plus, we can also explain what needs to be done to avoid issues both internally and with the Japanese government.

Want to talk it through? Reach out to us, here.