GUEST POST: Easily filing your taxes in Japan as a freelancer or small business

Today’s guest post is for people who might need help filing their taxes: freelancers, small business owners, etc. Robert runs a service helping people learn to use software to do this easily and reduce the time and stress involved with filing taxes.

Personally I also need to get better at this kind of thing, so found today’s post very interesting. This is not a sponsored post, I just thought the topic was great and Robert’s service may be useful for members of the RetireJapan community. Take it away Robert!

---

I had been working for a large company in Japan for 12 years before I decided to strike it out on my own. I always imagined that you need a large amount of money to start a company or a small-scale business. I was pleasantly surprised to find out that all you need is customers and premises, and that a company can be made with as little as 1 yen (although it’s generally recommended to have at least 1 million yen before starting in order to make a corporate bank account).

I guess when most people want to start a company they go to a judicial scrivener or an accounting firm. I went to Google. By searching for “会社設立” I came across a few sites which walk you through setting up a company by yourself. It seemed like a fairly straightforward process, so I went ahead and set up my company using their easy to follow steps. I enjoyed the process of deciding my company’s name – Marigold – its purpose and the number of shares I wanted it to have. To be honest, the hardest part about setting up the company was deciding on the name. After that, it just took a little bit of time and effort to go to various government institutions, but since I was excited about making my company it didn’t feel like a burden.

Again, at this stage, perhaps many would seek an accountant to do their books. I’ve always been into tracking my personal finances, and I really like the feeling of being 100% in control of my own numbers. I didn’t like the idea of outsourcing that to someone when I felt I could probably do it by myself. I also felt the process was really interesting. It was a good opportunity to learn more about how the tax system works. To be honest, I used to be very intimidated by even doing a final tax return for myself personally. Now, I enjoy the process of doing both my personal and corporate taxes by myself.

If you have a side business, you’re a sole proprietor or a corporation owner then this article could help you.

Especially if you currently either do all of your accounting in a simple spreadsheet, or you pay high monthly fees for an accountant plus an exorbitantly high amount around tax filing season when your accountant is suddenly too busy to return your calls. If you feel you might be able to file your taxes by yourself, it might be worth looking into cloud based accounting software. I’m sure many readers of this website are very meticulous about their personal finances, so why not be more independent and take charge of your business finances as well?

But isn’t it difficult to do your own accounting? Double entry bookkeeping, depreciation schedules, endless forms to submit to various institutions… it’s totally different from your personal expenses, right?

Cloud based accounting software can handle all of that for you. You would be surprised how easily you can handle all of your daily tasks once you get the hang of it.

There are various types of software available. The most popular ones are Freee, Money Forward and Yayoi. Personally, I find Freee to be the most intuitive and user friendly. You can check it out at https://www.freee.co.jp/

So, what can accounting software do for you?

Even before starting your business, if you are a sole proprietor it can create the documents notifying the tax office that you will be starting business and using the blue form, as well as signing up to be a qualified invoice issuer, if applicable. For corporations, they will walk you through establishing your company step by step, including all of the documents necessary to submit to the legal affairs bureau, tax office, pension office, municipal office etc. It will provide you with details about what paperwork you should take to which institution in an easy to understand list format.

The accounting software can be linked with your bank accounts, credit cards and payment platforms to automatically manage your income and expenses. Of course, you can input transactions manually as well. They have their own AI system which is pretty good at guessing what kind of expense something is, such as rent, utilities, advertising, supplies, transportation, etc. Even if it is wrong, it is easy to choose the correct category from a simple drop-down list. You can also upload photos of your receipts for easy storage and reference.

Payments you receive through services such as Square, Stripe, Amazon, Yahoo, PayPal etc. can be linked to your Freee account and imported automatically.

All transactions are logged using double entry bookkeeping as standard, but it is displayed as a simple list of transactions which are easy to navigate. One advantage of having double entry bookkeeping as standard is, if you are a sole proprietor and you are able to file with the blue form, you can receive an extra 650,000 yen deduction as opposed to the 100,000 deduction when you file with the white form.

This service can also produce estimates, invoices and receipts for your customers with an easy to use app. After you have registered someone’s details, you can easily create professional documents for them from simple drop down boxes.

If you have any assets which need to be depreciated over a number of years, this software can also automatically calculate your depreciation schedule for you.

If you are a sole proprietor, you can file your final tax return through this software, including any other employment income, miscellaneous income etc. at the same time. There are a series of simple yes/no questions, so it’s arguably even easier to use than the NTA’s tax preparation tool. You can also file your taxes from the comfort of your home using your MyNumber card and your phone, so there’s no need to wait at the tax office for hours.

If you are a corporation owner it can also file your taxes, with 90% of the work done for you automatically through your daily transaction input. They publish an easy to follow step by step guide as to how to file your corporate taxes, and you just have to check that the numbers are correct and fill in a few boxes manually.

Of course, this software can also declare consumption tax, which it calculates automatically from your daily transactions. If you are a regular consumption tax payer, it will deduct the consumption tax you have paid from the consumption tax you have received. You can also file the simplified consumption tax form whereby you will pay a lower rate depending on your industry, for example 5% for service based industries. As of the time of writing, there is also the 2割特例 system whereby businesses that were previously exempt from consumption tax became consumption tax collecting businesses due to the start of the invoice system are eligible to pay just 2% in consumption tax. Which category you are eligible for is a simple matter of selecting the correct information from dropdown boxes or check mark boxes.

This software will also provide you with a profit and loss statement as well as your balance sheet, and a range of other reports.

For corporate users, there are other pieces of available software such as HR and personnel software. As well as calculating employees’ salaries, it can also perform a year end tax adjustment, submit various pieces of paperwork to the pension office, city hall or ward office and Hello Work, submit paperwork to the tax office regarding bonuses, and anything else related to employees (including yourself, even if you are a one-person company).

Also for corporations, there is a service which allows you to change any of your details with the legal affairs bureau, such as a change in directors, change of address, addition to capital stock, renewing the term of the director and many more. They will even create documents relating to the minutes of the meeting from your board meeting, which is necessary for the submission of such documents.

The software for sole proprietors costs as little as ¥11,760 per year, and the corporate version of the accounting software costs as little as ¥23,760 at the time of writing. The sole proprietor version includes tax filing, but the corporate version charges for tax filing separately. The HR software for corporations is also separate.

This is much cheaper than the hundreds of thousands that an accountant would charge over the course of a year. It is also a lot more convenient than trying to do all of your accounting in an Excel sheet.

Please note that as these services are aimed at the Japanese market, they are all in Japanese. They can be translated through google translate, but sometimes it is lacking in quality. I have even seen 円 auto-translated as “circle”! It may be better to get used to the terminology in Japanese in order to make sure you understand the situation fully. Admittedly, there is a bit of a learning curve when you start out, but after you have gone through it for a few months, and once you have experienced filing taxes one time, you can get the hang of it quickly.

Where to get help with the Freee tax filing software

I run a service which supports businesses run by English-speakers to navigate this software. We can help with translating the terminology and supporting you with how to navigate the website. Please note that we are not an accounting company and we cannot provide accounting services or submit any documents on your behalf. We can provide you with the tools to be able to understand this software and handle your bookkeeping by yourself.

I have had clients who had no previous knowledge of bookkeeping terminology in Japanese or English. Some had a small scale business and felt an accountant would eat up a large percentage of the profit they were about to make. Some felt that they could file their taxes by themselves but didn’t know where to start. Some already knew about Freee and had made an account, but their numbers weren’t balancing (the challenges of working in a foreign currency and keeping track of FX gains and losses can be a headache, admittedly). Some of them even had multiple bank accounts, all mixing personal and business expenses, further complicating their bookkeeping. I helped them both navigate this site, and simplify their finances. Once you start using accounting software by yourself and you know every purchase will have to be accounted for, you suddenly become a lot more cautious about over-complicating your system of bank accounts and credit cards.

My customers have told me that they felt my support helped them get more organized and that they understand the finances of their business much more clearly. They also say that filing their own taxes is not as intimidating as they first thought, and that they were surprised by how smoothly they could file.

If you would like to learn more about how you this software works or need any support, please feel free to contact me. My website is https://www.marigold-japan.com/information, my email address is contact@marigold-japan.com and my official Line account is @marigold.

I hope to help more people to be more independent when it comes to handling their own business finances.

---

Thank you so much for taking the time to write this post for us Robert. I will certainly be taking a look at Freee both for RetireJapan and also for my wife’s business.

How about you? Are you currently using Freee or one of the other tax-filing solutions?