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OC & Associates Newsletter No.25 (October 31, 2013)

Japanese Taxes

Consumption Taxes

The increase in the consumption tax rate from 5% to 8% was formally announced by Prime Minister Shinzo Abe on October 1, 2013. The new tax rate will apply to taxable transactions from April 1, 2014. Some common transaction types are as follows:
(1)   Purchase and Sale of Goods
For goods purchased before April 1, 2014 and sold on or after April 1, 2014, the current tax rate (5%) will apply to the purchase and the new tax rate (8%) will apply to the sales.
<Example>
Purchased on March 15, 2014:
Pre-tax price 100,000 yen
Consumption taxes 5,000 yen (5%)
Sold on April 10, 2014:
Pre-tax price 100,000 yen
Consumption taxes 8,000 yen (8%)
(2) Returned Goods
If goods sold before April 1, 2014 are returned on or after April 1, 2014, in principle, the current tax rate will apply for refunds.
(3) Services
In principle, service contracts, which include April 1, 2014, the tax rate of 5% or 8% will apply proratably depending on when the services are to be rendered (*).
<Example>
Aggregate amount of contract: 1,260,000 yen
Contract period: From Jan. 1, 2014 through Dec. 31, 2014
Services rendered before March 31, 2014:
Pre-tax price 100,000 yen
Consumption taxes 5,000 yen (5%)
Services rendered on or after April 1, 2014:
Pre-tax price 97,223 yen
Consumption taxes 7,777 yen (8%)
or
Services rendered before March 31, 2014:
Pre-tax price 97,902 yen
Consumption taxes 4,895 yen (5%)
Services rendered on or after April 1, 2014:
Pre-tax price 97,902 yen
Consumption taxes 7,832 yen (8%)
(*) If the annual revenue of the contract is received and recorded in lump sum on a continuous basis from prior periods, applying the tax rate of the date when the revenue is recorded is also acceptable.
In addition, there are transitional measures for the following expenses; careful attention needs to be paid in recording these business expenses:
(1) Fares
The current tax rate will apply for passenger travel rendered on or after April 1, 2014 if the tickets were purchased before April 1, 2014.
(2) Recharge of IC Cards (e.g. Suica and PASMO)
For use of IC charge cards on or after April 1, 2014, the new tax rate will apply.
(3) Utility Charges
For electricity, gas, water and telephone etc. being provided from before April 1, 2014 on a continuous basis and if the billing statements are issued on or before April 30, 2014, the current tax rate will apply.
(4) Periodical Sales
For weekly or monthly newspaper and magazines purchased on or after April 1, 2014, whose original release dates are before April 1, 2014, the current tax rate will apply.

Individual Income Taxes

Effective January 1, 2015, the highest income tax bracket will rise from 40% to 45%. As a result of this change, the highest income tax rate including inhabitant tax and special income tax for reconstruction will reach 55.945%.
Taxable income (Yen) Tax rate
National Local Total
Income
tax
Special
tax
Inhabitant
tax
- 1,950,000
5% 0.105% 10% 15.105%
1,950,001 - 3,300,000
10% 0.210% 10% 20.210%
3,300,001 - 6,950,000
20% 0.420% 10% 30.420%
6,950,001 - 9,000,000
23% 0.483% 10% 33.483%
9,000,001 - 18,000,000
33% 0.693% 10% 43.693%
18,000,001 - 40,000,000
40% 0.840% 10% 50.840%
40,000,001 -
45% 0.945% 10% 55.945%

Payroll

Update on Social Insurance Rates

Effective September 2013, the welfare pension insurance rates have increased as follows:
Employer contribution - from 8.383% to 8.560%
Employee contribution - from 8.383% to 8.560%
The rates will increase annually by 0.177% until it reaches 9.15% for both employer and employee in 2017.

Social Insurance Premium Exemption during Maternity and Childcare Leaves

Currently, an employee taking childcare leave under the Childcare and Family Care Leave Act to raise his/her child who is under the age of three are exempt from both health insurance (including care insurance) and pension insurance premiums. The exemption starts from the day the childcare leave begins and continues until the previous month of the following day of the day when the childcare leave ends.
In addition, commencing April 2014, an employee who takes maternity leave (i.e. before and after the childbirth) is also exempt from social insurance premiums similar to childcare leave. The objective is to support future generations.
As a result of these laws, from April 2014, both the employer and employee are exempt from health insurance and pension insurance premiums for the period from the beginning of maternity leave through the end of childcare leave.

Introduction of "My Number" System

"The bill to use specific numbers to identify individuals for administrative procedures" was enacted in the Diet session on May 24, 2013. This would allow the Japanese government to control the Japanese individuals' personal information such as their earnings, tax payment records and social security with a single number.
From October 2015, My Number notice cards will be mailed to every Japanese individual who has been registered under the Basic Resident Register.  An IC chip which contains your name, address and a photo can be inserted in the card if requested. Foreigners who will be staying in Japan for more than three months will be also subject to the My Number system.
My Number will integrate the current personal information under each administrative agency on information such as pension, medical, nursing care and taxes. The Japanese government’s objective is to improve social security services tailored to specific needs. Also, it aims for convenience in the application process for items such as residency certificates and certificates of tax payment.

Future Changes to Social Insurance

The following major changes to social insurance are expected during the next three years:
From April 1, 2014 - Exempt social insurance premium during maternity leave
From October 1, 2015 - Shorten eligible period for pension from 25 years to 10 years; Distribute notice cards with "My Number"
From January 1, 2016 - Start "My Number" system in administrative procedures
From October 1, 2016 - Expand social insurance application for part-time workers
From September 1, 2017 - Welfare pension insurance rate reaches 9.15% for both employer and employee

New Tax Practices!

In order to ensure continuity in our tax services for years to come, two of our directors, Fumihisa Shimono and Michiya Akuzawa will each be establishing their own Certified Public Tax Accountant tax practices within Okamoto & Company's offices. Over the next several years, Hiroko Hanato will be transitioning over her clients to them as she focuses more of her time on HR matters. Your understanding is appreciated. We will do our best to make this seamless from your perspective.

New Firm Logo

The current Okamoto & Company logo has been in use for over 15 years. In conjunction with the establishment of the new tax practices, we are working on a new firm logo which is a simpler and has a more refreshed look. You should be seeing it gradually from next month. We hope you like it and will get accustomed to the new logo soon.

First Publication

Fumihisa Shimono and Richard Okamoto have co-authored a book titled "English Emails in Accounting." The book was published by Chuo Keizaisha and was released on September 20, 2013. The primary readers of this book are intended to be the accounting departments for Japanese companies with overseas subsidiaries as well as accountants for multi-national companies in Japan.

Office Manager Seminar

We will be holding our annual seminar to highlight the topics of the latest tax and payroll developments. We will invite Mr. Ichiro Otsuka, a lawyer from Tokyo Roppongi Law & Patent Offices to speak on labor issues such as dismissing employees in Japan. In addition, Mr. Atsushi Shibata, a specialist in customs clearance such as import consumption taxes will speak on issues inherent in import customs clearance. If you are interested in participating, please send an email to the following email address by noon on Wednesday, November 6, 2013. Space is limited so please register early.
distribution@ocassociates.jp
Date: Monday, November 11, 2013, 1:30 pm - 3:30 pm
Location: Training room within Okamoto & Company (http://www.ocassociates.jp/map.html)
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