The Medium-Small Business Association Saving Plan

For self-employed or small business owners

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This post is for self-employed or small business owners who find themselves paying a lot in income tax and local inhabitant taxes. I am not an expert in this matter and may have missed important points in this post, so please consult your tax advisor and do your own research before deciding to join this scheme.

If you are not self-employed or a small business owner you won’t be able to use this product, and if you are not paying a lot of tax it probably won’t make sense for you to do so.

Before considering the Medium-Small Business Association Saving Plan (中小企業共済), also known as the Small Enterprise Mutual Aid Plan, I believe you should max out your iDeCo contribution. This will allow you to contribute 68,000 yen a month to your account, and reduce your taxable income by 816,000 yen a year.

iDeCo is superior to the MSBASP because it allows you to invest in mutual funds and therefore benefit from capital gains. The MSBASP, on the other hand, is mostly a cash savings plan so returns will be much lower.

The main (only?) benefit of the MSBASP is to reduce your taxes. You can avoid paying income and local inhabitants taxes now, and pay a lower rate later when you are retired and not earning as much.

The Medium-Small Business Association Saving Plan is run by a government or quasi-governmental organization, the Organization for Small & Medium Enterprises and Regional Innovation (中小機構). It has a variety of roles to support small business, including the savings plan.

The website describes the plan as a ‘retirement bonus for self-employed and small business owners‘ (退職金). If you have already arranged your expenses, etc. and paid into iDeCo so that you are not paying high income taxes, I would not bother with this scheme.

If you are paying a lot of tax, the MSBASP allows you to pay in up to 70,000 yen a month (840,000 yen a year) into the scheme. This amount is taken off your taxable income. The higher your tax bracket, the more valuable this saving will be. This payment can be done alongside iDeCo, for a total reduction of 1.656 million yen a year in your taxable income.

Who can join the scheme?

Basically small business owners or self-employed people. You can see all the conditions here.

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What are the payouts like?

They are fairly poor compared to what you might expect from iDeCo, and broadly in line with the pension insurance we discussed a few weeks ago.

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You can do a simulation here, and there are three types of payout, depending on the circumstances under which you cash out of the scheme.

共済金Ａ is the best type, paying a small premium on the money paid it. It is paid after selling/shutting down the business, passing it on to a family member, or incorporating as a fully-owned business(?).
共済金Ｂ is second best, and pays a smaller premium. It is paid upon retiring after paying in for 15 years.
準共済金 is third best, and basically just gives you your money back. It is paid upon incorporating in other ways.

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If you don’t meet the conditions for the three types of payout, you may not get the money you paid in back in full. Please make sure you understand how the system works before you join to avoid unpleasant surprises later.

So that is a brief overview of the Medium-Small Business Association Saving Plan. To recap:
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  • if you are eligible, and
  • you pay a lot of income tax, and
  • you are willing to put the money away for the medium- to long-term, and
  • you are likely to meet the conditions for a payout

Then it might be worth looking into this.

What do you think? Is anyone paying into this? Did I get anything wrong or miss anything? Is this a good idea for eligible business owners?

4 Responses

  1. I’ve been paying into this for about four years now, and my wife has been paying in for about two, so we are reducing taxable income by 140k a month. Technically, I am the business owner and my wife is an employee but they did allow us both to sign up for this. I think it’s worth doing.

  2. I have been using this plan for 2 years, 800,000 JPY/ year tax exemption is great. You can also use Kyosai’s similar plan, 倒産防止共済 (Bankruptcy prevention Kyosai) for the small enterprises. You can contribute up to 2,400,000 JPY / year tax exemption, but up to 8,000,000 JPY total. You can use both plans at the same time.
    http://www.smrj.go.jp/tkyosai/index.html
    iDeco requires a monthly fee, so I am not using it.

    1. Thanks EJ! Do you have any more info about the bankruptcy protection scheme? I had a quick look at it but didn’t really get a good grasp 🙂
      The iDeCo monthly fee is 167 yen a month: http://www.dcnenkin.jp/search/commission.php
      If you are paying in 68,000 yen a month that quickly becomes less than a rounding error 😉
      I recommend taking a look if you are eligible -the returns should be much better than the kyosai version for non-US citizens, and similar (ie more allowance) for US citizens.

      1. Tosan boshi kyosai is a bit tricky, if you withdraw the money in less than 40 months, you do not get 100% refund. But you can contribute from 5,000 JPY/ month, so if the business is not going well, you can reduce the monthly contribution.
        Also, this plan is to prevent bankruptcy. If you have a cash flow problem, you can borrow money from Kyosai.
        Eligibility:
        – Owner / Freelancer for more than 1 year
        …This is pretty much it.
        You need papers, like kakutei shinkoku forms (P/L statement and balance sheet) with a stamp of tax office, shotokuzei statement from tax office.
        Haha, I did not know that the fee for ideco is that low. But I buy only J-bonds for a retirement account, because I do not want to take risk for that account. So even a low fee kills the current low interest.
        I miss the time of 5% interest rate on CD…