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The Consequences of Not Submitting Your Initial Tax Filings in Japan On-time

Get started with initial tax filings in Japan the right way

Let’s say you’re building a home for the first time. You hire a builder to lay the foundation, and they pour the cement to create a solid base. Nice.

But once the cement dries, you discover that you have a problem: you hadn’t figured out where to put the toilet! You realize you should have consulted with a plumber to figure out where the pipes needed to go, but it’s too late…you’ve got solid concrete. So now, you’ve got this state-of-the-art home…plus an outhouse. 

Starting a business in Japan can come with similar consequences if you’re not careful. If you don’t “dot your i’s and cross your t’s” before building the company, you might wind up with an unfixable issue later that you have to live with day by day.

Only in this case, a mistake like not submitting your initial tax filings in Japan on-time can cost you millions. Seriously.

Your status depends on your ability to submit on-time

You need to submit your initial tax filings in Japan within 3 months of establishing your business, or before your fiscal year-end, whichever comes first. 

When you submit your tax filings in Japan on time, you will receive “Blue Form Status” which shows that your company is in good standing. When you do not submit on time, you’ll receive “White Form Status”, which means that you’re not in good standing. 

In other words, this simple mistake of not meeting the deadline can label you as a red flag in the eyes of the Japanese tax office. 

Unfortunately, this happens to a lot of businesses, and the reason is simple: they weren’t aware that there was a deadline. Most companies expect their incorporation professional to advise them on these crucial filings when setting up the business. But incorporation professionals are not tax professionals, in the same way that a builder is not a plumber.

The consequence? You can’t carry your losses forward. 

If you miss the deadline and end up with “White Form Status”, you can’t carry losses forward nor enjoy various tax benefits.

The benefit of being able to carry losses forward is that if you make a loss in your first year (which most start-ups typically do), you can apply your losses to your future profit which will minimize your tax. 

But in Japan, if you have “White Form Status”, you can’t do that. And if you’re investing heavily in Japan, you definitely want to be able to carry forward losses.

Here’s an example:

Company A got the Blue Form. Company B got the White Form. 

Both spent a million dollars in year 1.  Both made a million dollars in year 2. 

Company A paid no tax. Company B paid lots of tax.

Be Company A. 

So what exactly do you need to do? Here are the 7 tax filings in Japan that need to be completed within 3 months of establishing your business:

  1. Application for Blue Form Status
  2. Withholding income tax submission time special approval
  3. Notification of establishment to the national tax office
  4. Notification of establishment to the local tax office
  5. Application for extension of tax filing due dates to the national tax office
  6. Application for extension of tax filing due dates to the local tax office
  7. Establishment of salary paying office to the local tax office

Need someone to walk you through this?

We’re happy to help explain what these items are and ensure the most strategic filings with the tax offices are submitted on time! Feel free to contact us, here.

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