It is important for any business to monitor the money that flows in and out of the company. One kind of cash outflow that, legally, should be unavoidable, is the payment of one’s taxes and government dues.
In Japan, this holds the same. For business owners in Japan, we give you a three-part rundown of what you should now about your corporate taxes and some ways we can manage them.
First, we will talk briefly about what kinds of taxes do companies pay, and how they differ from the tax individuals pay. Later on, we will also talk about the nature of social insurance covered by the company. Finally, let’s look at the payment schedule for your company’s taxes and dues.
What kind of taxes do companies pay?
Companies pay different taxes compared to the tax a regular employee would be required to pay.
There is a general idea that taxes take away what the company has worked hard to earn, but this isn’t the case at all. It is important to change one’s mindset about how tax payments affect company profits.
To begin with, “profits = net after tax” shouldn’t be the mindset you should have. A company should profit, pay their dues, and use the remaining money after paying to keep the company running. With this kind of flow, money (and subsequently, profit) would increase.
How are taxes incurred when it comes to companies?
To understand better the company’s profits and capital, one should also the tax they need to pay and when they need to pay them.
For example, corporate tax is paid in relation to company profits. If you have employees, the company needs to shoulder part of their social insurance, and at the same time deduce an employee portion. There are also duties and taxes such as stamp tax for official documents, fixed assets tax for assets, and even a golf facilities tax for company-sponsored golf events. In other words, there is almost always an associated tax whatever economic activity your company engages in. In fact, even before the company itself is up and running, one must pay a registration tax when putting up their business.
Considering the variety of taxes businesses need to pay, it would be much easier if the government would just dictate and deduct whatever was due. However, this is not the system Japan has in place, so it important to monitor and manage your tax payments.