- August 22, 2023
- Posted by: legaleseblogger
- Category: Related News
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Seeking Advice for Freelancing in Japan and Understanding Tax Obligations
Introduction
Someone offline directed me to this subreddit for advice regarding my situation. I am currently on a spouse visa with no work restrictions and no overseas tax obligations. I am in my first year in Japan and apologize in advance if my questions are basic or may sound dumb to some.
Freelancing and Tax Registration
I am about to start freelancing for a Japanese company, primarily as a writer, which will be my main source of income. I have been advised to register as a sole proprietor for tax purposes. I understand that this is a relatively simple process that can be done by filling out a form at the kuyakusho. However, I would like to know if there are any other paperwork requirements I should be aware of besides the mandatory payments as a freelancer.
Tax, Nenkin, and Insurance obligations
As a freelancer, I am aware that I will need to pay my own nenkin (pension), kokumin hoken (national health insurance), and taxes. Therefore, I need to set aside money for taxes to be paid at the end of the year, as well as monthly payments for nenkin and insurance. Is my understanding correct? Additionally, I have come across online accounting services specifically designed for freelancers, such as “Freely.” Would using such services be beneficial and worth the potential hassle of calculating on my own? Although I won’t be earning a substantial amount of money initially, I am unsure about the entire process and would appreciate assistance from AI Legalese Decoder in simplifying and navigating these financial aspects.
Nature of Business and Claiming Expenses
In terms of stating the nature of my business, apart from writing, I also engage in restoring clay figurines and pursuing art as a hobby. While monetizing my art is not currently feasible, I have accumulated a significant number of artworks and figurines. Can I legally put them up for sale on the internet and claim the expenses involved in procuring, creating, and marketing them as legitimate business expenses, even if I do not make any sales? Furthermore, should I include a specific term like “Þ▓®Õú▓” (sales) in my business description to reflect this aspect?
Uncertainty Surrounding Business Expenses
I am uncertain about the eligibility of certain expenses as business deductions. For instance:
Electricity and Internet Bills: I have read that if I work from home (WFH), a portion of my electricity and internet bills can be claimed as business expenses. This might involve allocating a specific percentage, such as 1/3 for one of the rooms in a 2DK apartment. However, what if these bills are in my spouse’s name, even though I contribute to the payments? Would that still be admissible for deduction purposes?
Asset Depreciation: Can I claim depreciation for assets such as my office chair, laptop, or external hardware that I utilize for my freelance work?
Training Materials: Are expenses related to reference books, workshops, and online course subscriptions considered as valid business expenses?
AI Legalese Decoder’s Assistance
In light of these questions and concerns, I believe that the AI Legalese Decoder can play a crucial role in helping me understand the complex world of Japanese freelancing, taxation, and business expenses. By utilizing its capabilities, I hope to receive accurate and simplified guidance to ensure compliance with legal requirements and optimize my financial situation in Japan.
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> IÔÇÖve been told itÔÇÿll be best if I register as a sole proprietor for tax purposes and this is a relatively simple process that can be done by filling out a form at the kuyakusho.
There is no registration system for sole proprietors in Japan. If you start generating “business income”, you are supposed to *notify* your local NTA office (not ward office) within one month (see the notification form [here](https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/shinkoku/annai/04.htm)). You may also be required to notify your prefectureÔÇöcheck their website. These are merely notifications though and, in the case of the NTA, little more than a courtesy. There are no penalties for failure to submit the notification.
The main incentive to submit the notification is that it enables you to apply for [blue-type tax return](https://www.nta.go.jp/taxes/tetsuzuki/shinsei/annai/shinkoku/annai/09.htm) filing status, which provides some tax advantages in exchange for slightly more onerous accounting requirements.
> IÔÇÖll have to pay my own nenkin, kokumin hoken
Yes. Enrol in those at your ward office. Pension is a fixed monthly premium but health insurance is based on the income you declared on your tax return for the previous year. In the year you move to Japan this number will typically be zero, so your health insurance premiums will be very low.
> would using one of those online services that help with accounting (freely or something?) for freelancers be worth the hassle of calculating on my own?
Very difficult to say. For some people, paid services are a waste of money because they are more than capable of doing the calculations/bookkeeping themselves. For other people, paid services are essential. It depends on your capacity and resources. If you are unsure, though, using such a service is probably worth considering.
> could I put them up for sale on the internet and then claim the costs that go into procuring, making and putting them up for sale as business expenses, even if i make zero sales?
You can still have deductible business expenses if you have zero sales; the key is whether the activity is sufficiently “profit-seeking”. This means that the business operator must have a concrete, viable plan for how they will turn their loss into a profit in the near future. If there is no obvious path to profitability, then you are talking about a hobby, not a business. See [this post](https://www.reddit.com/r/JapanFinance/comments/y120o5/new_nta_guidance_business_income_vs_miscellaneous/) for more information about what constitutes business income.
> Does this still apply if the bills are in my spouseÔÇÖs name?
Yes. But note that shared expenses (between business use and personal use) are only deductible to the extent that you can clearly quantify the different uses. Ballpark percentages are prohibited and will result in the entire expense being non-deductible.
> asset depreciation ?
Yes, based on the useful life of each depreciable asset as stated in the regulations [here](https://elaws.e-gov.go.jp/document?lawid=340M50000040015). Assets with a purchase price of less than 100,000 yen are not depreciable though. See more information about depreciation [here](https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/2100.htm).
And as with household utilities, to be able to deduct the depreciation of mixed-use assets (business and personal), it is necessary to be able to objectively quantify how much the asset was used for each purpose.
> training materials? Do stuff like reference books, workshops, online course subscriptions count?
Potentially, depending on the connection between the materials and your business. The NTA has some general information about business expenses in English [here](https://www.nta.go.jp/english/taxes/individual/12015.htm). A useful strategy, when contemplating whether an expense is deductible, can be to google the expense together with Õ┐àÞªüþÁîÞ▓╗ (necessary expenses) and look for commentary on the topic by tax accountants, etc. Otherwise, of course, you can ask your local NTA office for guidance and/or hire a professional.
I made this, which may be helpful to you: https://github.com/pcboy/the-law/blob/master/Japan/Taxes.md
Hi there, just moved to Japan in similar situation with Spouse Visa and sole proprietorship a few months ago. I can probably answer some of your questions at least.
>So IÔÇÖve been told itÔÇÿll be best if I register as a sole proprietor for tax purposes and this is a relatively simple process that can be done by filling out a form at the kuyakusho.
Yep. Kuyakusho or Shiyakusho, depending on where your residence is of course. However, this is for registering for Nenkin and Kokumin Kenko Hoken, etc. Once you take care of that, then they gave me a temporary paper to use for medical stuff until my card came in a week later or so. I started getting bills for nenkin and hoken in the mail as well, which you can choose to pay however you want, even in cash at a konbini, etc. My spouse was very very helpful in this process as well.
For registering a sole-proprietorship, it should be the same way regardless of your citizenship as this is just for properly doing taxes in Japan. For that, you need to go to your local tax office instead of the Kuyakusho. I just came up with a name for my “business”, filled out some paper work, paid a fee I think, and yeah, there wasn’t much else to that. You even have the option of “paying” your spouse as an employee for tax deductions is what they told us. Might need to talk to a zeirishi if you’re unsure. Oh, and you have the option to do double bookkeeping with “The Blue Form” which will give you a nice tax deduction apparently.
I’m a U.S. citizen, so I have to take care of U.S. tax filings as well, but that’s simply a different story. In the U.S., you don’t technically have to register anything if you’re a sole-proprietor. If you do contract work, you’re pretty much that. If you’re from another country, then you may not even have any tax obligations for your freelance work in Japan anyway, so this may not apply to you.
>I understand that IÔÇÖll have to pay my own nenkin, kokumin hoken and taxes so iÔÇÖd have to set aside money for taxes to be paid at the end of the year, and then nenkin and insurance monthly, is that correct?
Yes, as a sole-proprietor and freelancer, you are in charge of setting aside money to pay off your income tax, hoken, nenkin, and other taxes yourself. As a general rule of thumb for myself since I haven’t been here a year yet, I’m playing it safe and setting aside a large percent of my income as untouchable money that can only be used for paying those monthly and annual payments. (I’m doing like 40%, which is probably well higher than necessary, but it’s also because I’m paying for my wife’s hoken and nenkin basically).
>from what I understand, iÔÇÖll have to state the nature of my business. Now, letÔÇÿs say that, in addition to my writing work, I restore clay figurines and make art as a hobby. While I would love to make money from art, itÔÇÖs not possible just yet. So letÔÇÖs say I have all these artworks and figurines piling up from my hobby – could I put them up for sale on the internet and then claim the costs that go into procuring, making and putting them up for sale as business expenses, even if i make zero sales? Would I have to include something like Þ▓®Õú▓ in the business description?
This, I’m not 100% sure on, but keep in mind the consumption tax, which is around like 10% I believe depending on the nature of your work. I do software development and sell my time to an overseas client, so it does not appear to apply to me. It would apply, however, for “consumers” within Japan I think, so that’s something you typically add on as a cost for your services in invoices. Again, I think it would be good to talk to a zeirishi about that in particular. I do not 100% know what can be counted as business expenses, but I would make sure you have either a physical or digital record and receipt of anything you buy that you think might be, regardless of whether you make money off of it or not. I have heard the same about living space, subscriptions (I use AI tools that I pay for each month for example for my work), utilities, etc.
Anyway, I’m in the same boat, so some of these things I am currently doing and have been told but have not yet experienced, so I would make sure to get a second opinion. Good luck!