Tag Archive blue tax return

What is a Blue tax return system for income tax purposes in Japan?

Blue tax return system in Japan is intended to improve accounting practices of taxpayers and encourage honest self-assessment. Those who maintain proper accounts as required under the blue tax return system are given certain privileges for tax purposes. Basically, there are two types of income tax returns which taxpayers can choose from: White Form or Blue Form. Blue tax return is usually preferable because it offers some extra tax benefits, including special deductions.

 

Blue tax return system for individuals

When sole traders start a business in Japan, they can take advantage of income deduction by filing an application form for approval of filing blue return. White filing is the default, so if you do nothing you are automatically considered as a White-form filer. The tax authority requires the following for the blue return taxpayer:

1. Filing the application form by March 15.
2. Filing the application form within 2 months of business commencement if taxpayers start a business after January 16 of the year.
3. Taxpayers are required to keep correct accounting records and journals.
4. The blue tax return must be filed together with the balance sheet, income statement, and other documents indicating the items necessary for calculating the income amount.

 

What is the tax merits for blue tax return filing status?

Once a taxpayer obtains approval, he or she is entitled to file a blue return for all subsequent years. If the taxpayers meet the above requirements, the blue tax return system provides the following benefits:

1. A deduction of up to JPY650,000 is available if the taxpayers keep double-entry accounting records, and attach the income statement and the balance sheet on the return.
2. A deduction of up to JPY100,000 is available if the taxpayers keep single-entry records for their business.
3. A net loss for a year can be carried forward to the next 3 years.
4. A net loss for a year can be carried back to the preceding year.
5. The taxpayer is allowed to treat the payment of wages as deductible expenses when it is paid to relatives living in the same household (family employees).

Please note that JPY100,000 is deducted from the taxable income for property owners. If they operate more than 5 houses or a building with more than 10 rooms, JPY650,000 is deducted. If you plan to apply for JPY100,000 deduction, you need to prepare a spreadsheet which includes the detailed amount of revenue, expenses and cash balance. Using accounting software is recommended when you apply for JPY650,000 deduction.

 

Blue tax return system for corporations

If the company has blue-form tax return filing status, tax losses can be carried forward and utilized against taxable income for the following periods:

①9 succeeding years – tax losses incurred in fiscal years ending on or after April 1, 2008 and beginning before April 1, 2018
②10 succeeding years – tax losses incurred in fiscal years ending on or after April 1, 2018

Submission of an application should be done by whichever is earlier, either 3 months from the establishment of the company or the end of the first fiscal year. Generally, corporations file the application for blue tax return filing status together with a notification of commencement of business establishment to the tax office.