When You Need Incorporation for a Tax Advantage

Start Your Business Simply

Most people start their business as sole proprietors and run their business for some years. That is not a bad idea. Rather, that is still a good idea because you could start your business without paying the incorporation taxes and because you could complete your tax return by filing just your individual income tax return. You also could try your business without a large amount of initial investment.

However, you need a company for your tax advantage when you get your business growing enough. I will explain here how and where you could get tax advantages in Japan tax practice. Those advantages are to;

  1. Make to file a Japan Consumption tax in later year
  2. Use a deduction of salary income
  3. Make social insurance cost lower

Incorporation Gives You Another Account

For Consumption Tax

A taxpayer of Japan consumption tax is a business person and a business entity that has more than JPY 10 thousand of taxable income on the consumption tax. If you incorporate a KK that is a Kabushiki-Kaisha of a stock company in Japan with the capital amount equal to or less than JPY 10 thousand, the new incorporated KK is subject to the criteria of the consumption taxpayer. Therefore, you could make the beginning of the consumption tax filing 2 years later, when you incorporate your new company just before the calendar year when you would earn more than JPY 10 thousand of the consumption taxable income.

A Fixed Deduction on Salary Income

If you run your business as a sole proprietor, you have to calculate your individual income tax from all our business income on the individual income tax in Japan. Then you could deduct just business expense on the calculation of taxable business income. However, if you run your business on your company, all business income is accounted on the company and the company could pay your salary. You could deduct the fixed deduction from your salary when calculating your individual income tax. Your company would also calculate the corporate income tax recognizing your salary as a business expense. Therefore, you could get advantages of salary deduction on your individual income tax and of use lower tax rate if your individual income tax rate is higher than the corporate income tax rate.

For Social Insurance Tax

You do not have to get so much salary because you could charge your business expense on your corporating company. That makes your salary lower than your income without a company. If you do not have a company, you have to charge all business income on your individual tax calculation. If you have a company, you could get your salary as much as you just need for your daily life, and that would also make your individual tax lower and the calculate social insurance tax is set lower.