After registering a company in Japan, similar to the process in your home country, the first step is to complete the tax registration procedures with the tax office. Typically, when registering for tax purposes, the “Blue Return” is also submitted. So, what are the benefits of the Blue Return? Here’s a brief introduction.
Table of Contents
- Loss Carryforward
- Loss Carryback
- Deduction for Small Depreciable Assets
- Corporate Tax Deduction System
Loss Carryforward
The advantage of submitting a Blue Return in Japan is the ability to reduce tax burdens, with the most notable benefit being loss carryforward. Loss carryforward allows a company’s losses in one fiscal year to offset income in the next fiscal year. If the next fiscal year’s income is insufficient to cover the loss, it can be carried forward each year, with a limit of up to 10 years. If you have any questions regarding the accounting treatment of this, please feel free to consult with our company.
Loss Carryback
After submitting the Blue Return, as mentioned earlier, it is possible to carry losses forward to the next fiscal year. In addition, Japan’s tax law also allows for the retroactive refund of corporate taxes already paid. For example, if a company paid corporate tax in the previous fiscal year due to a surplus in finances, and then incurs a loss in the current year, the current year’s loss can offset the taxable income of the previous year, and the paid tax can be refunded. The loss carryback period is one year. Additionally, the loss carryback can only apply to the previous fiscal year. For losses in the same accounting year, both the loss carryback and carryforward cannot be applied simultaneously. If you’re unsure which option is more advantageous, feel free to consult with us.
Deduction for Small Depreciable Assets
If the company qualifies as a small or medium-sized enterprise, there is a special provision for small depreciable assets. The special provision for small depreciable assets in Japan’s tax law refers to a rule that allows small assets (valued at less than 300,000 yen) to be fully expensed in the current year, instead of depreciating over multiple years.
Corporate Tax Deduction System
When purchasing new machinery and equipment, small and medium-sized enterprises that file a Blue Return can deduct 7% of the purchase price from corporate taxes. This policy was set by the Japanese government to encourage investment by small and medium-sized enterprises. The assets eligible for this deduction include software over 700,000 yen, machinery and equipment over 1.6 million yen, and trucks with a load capacity of more than 3.5 tons. This tax incentive is very beneficial for manufacturing enterprises that make large equipment investments at the time of company formation. Moreover, it’s important to note that this tax benefit applies to small wholesale and retail businesses, but not to real estate or leasing companies.
For companies applying this system from the first fiscal year, the application must be submitted within three months of company establishment. If the three-month period crosses over into a different fiscal year, the application must be submitted before the end of the previous fiscal year. For already established companies, the application must be submitted before the fiscal year in which the Blue Return is planned to be applied.
The application for Blue Return approval is not a mandatory document when establishing a company. However, submitting this application at the time of establishment ensures that you can enjoy all the benefits related to the Blue Return for corporations.
If you entrust us with your company registration, we will submit the Blue Return application along with the tax registration procedures. For foreign investors who lack knowledge of Japan’s tax system but are investing in Japan, we believe our professional services will maximize your investment benefits. Feel free to contact us whenever you need assistance!
