GK spare money and taxes

[zela]

Hi everyone,

I've been lurking in this forum for quite a while but thought it was time to ask a few questions of my own.

Of course, I am not expecting any professional advice (as according to the rules) but simply wonder what other people in similar situations might have done and/or if someone might hint me in the right direction.

Anyways, to the questions:

I'm currently running a business in Japan and am finding myself in a situation where the company has a decent amount of liquidity laying around. With that said I am quite curious as to any methods of spending spare cash that a GK (合同会社) might have as that would possibly affect how much I pay myself in the form of executive salary and so on. I'll try to list a few question marks below:

1. If I buy stocks (投資) as a company, is it considered an expense for the company?
2. If I buy stocks (投資) as a company, how is the tax calculated? On the profits when I sell? On the initial cost when I buy them and then again on ex. dividend or profits when I sell?
3. Is there a difference between buying stocks, and other investments, for example real estate, as a company? Is that seen as an expense for the company (effectively lowering your profits for that fiscal year)?
4. Any other suggestions of good methods to invest extra cash that a company might have?
5. Regarding 4. can this be done prior to calculating the company profits and expenses? Or does any investments has to be done after calculating profits and expenses?
6. Below follows a simplified example:
   
   A company:
   
   * Has 10,000,000 yen in cash from the previous fiscal year.
   
   * Makes 11,000,000 in sales (for example exports)
   
   * Has 1,000,000 in operating expenses.
   
   - Can the company, for example through stocks, real estate or any other investments, invest the remaining 10,000,000 (11,000,000 - 1,000,000) to defer/delay the tax payment to e.g. when selling the stocks/real estate, receiving dividend, receiving rent etc?
   
   OR
   
   - Does the company have always have to pay profit taxes before any investment can be made?
7. The company currently reports on a yearly basis. Is there any way to report less frequently e.g. by remaking the company from a GK to some other type of entity which reports maybe every 3, or 5 years?
   
   If yes, are there any benefits or drawbacks to doing so?
8. Is there an upper limit to the corporate tax? (percentage wise)
9. Any good references to how corporate tax is calculated?
10. Any other good advice?

I appreciate any and all answers, feedback and food for thought!

Thanks!

 

[phillev]

@zela

1. No, stocks are not an expense. It’s considered like just moving money from one account to the other (more specifically, you turn your cash, 流動資産, into stocks, 無形固定資産, which can’t be amortized). Therefore, you’ll need to be careful to leave yourself enough cash to pay taxes. For example, if you have 10 million in profit, then your taxes would be roughly 2.7 million (and don’t forget about the mid-term taxes for the next year, too, you’ll need another 1.35m 6 months later). Therefore, if you invested the 10 million and it happened to go down, you’d be forced to sell at a loss in order to pay your taxes. I’d roughly calculate how much you need for taxes first and safely set that aside.
2. Tax for stocks is calculated when you sell. Stocks for corporations are kept in an 一般口座, not a 特定口座. When you buy, you’ll need to keep a record of your purchase price and write it on your balance sheet and list of assets. There’s also an extra sheet for a list of your stocks on the corporate tax filing forms. Note that if you make a loss, you can count it against against other profit your company makes in a year, but if you make a profit, with all the other taxes like corporate residence tax and so on the effective tax rate for selling stocks is actually more expensive than stocks held in your personal account. Dividends are counted as miscellaneous income for the company, so again you need to keep track of that and report it.

To be honest, buying stocks in a company is a real pain, and not really worth it unless you have 100m or more in extra cash in your company. A tax accountant would also charge you like 100k extra if you have complicated stock filing for him to do.

If you buy mutual funds denominated in yen with no dividends and hold them for a long time, it’d be much simpler, though.

1. If you buy real estate, you have to amortize it (減価償却). There are differing lifespans depending on the build. You can see that here. So let’s say you buy a new concrete house to be used as an office, you have to amortize it over 50 years. Accounting software can figure out how much should be amortized each year.
2. Personally, I think the best investment would be in your company. Depending on what kind of company that is, you might do advertising, building a better website, hiring extra staff, something like that. The returns on building out your own business are far greater than stock or real estate investing.
3. Depends what you do. Advertising and salaries are of course expenses.
4. As above, you can invest before you pay your taxes, but you should make sure that you set aside enough for taxes so you don’t screw yourself over.
5. No, corporations and sole proprietors have to report at least yearly.

8 and 9. Referring to just corporate tax, there are only 2 levels. 15% on profit up to 8 million, 23.2% on profit above that. Then there’s your 地方法人税、法人事業税、法人住民税 which roughly puts another 10% on top of the corporate tax. There’s no upper limit for how much corporate tax you’d have to pay. Just for fun, I calculated if your profit were 1,000,000,000,000, your taxes would be 382,498,974,200.

1. My non professional advice is, if you have a spare 30-50 million lying around I think it’s an OK idea to purchase real estate to be an office and if you still have another 30-50 million you can buy more real estate to be company housing. I think buying stocks in a corporation is a pain. If you have excess cash that you don’t know what to do with or can’t be invested back into the company, I’d consider just raising your salary and investing in your personal accounts. Investing in individual accounts is so easy.

Edit: oh, and this site is good for a very quick / rough estimation of how much taxes would be, if you just put your starting capital in the 資本金額 drop down box and a rough number for profit in Aプラン you’ll get a reasonably accurate estimate. Note that it’s not possible to choose the prefecture or city, so just consider it as a very rough estimate.

TLDR: invest in your business, or raise your salary.

 

[zela]

@phillev Great, informative and detailed answers, thank you very much!

 

[zela]

@phillev With all of these great answers in mind I thought of another question, would buying of other companies be considered expenses before or after tax?

So if the company is about to make say 10,000,000 (still not reported) and decide to spend say 8,000,000 to buy e.g. an already up and running e-commerce business, would this be considered an expense that can be done before tax? The company would effectively be buying a homepage (simple expense?) which happens to be capable of generating revenue.

 

[phillev]

@zela If you buy another company, i.e. purchase all (or some) of the stocks of a private company, that is the same as buying stocks of a public company for accounting purposes.

If you make an e-commerce website by yourself, or outsource the work for someone to do it for you, that can be expensed. The domain and server fees etc can be categorised as 通信費, and the creation of the site, SEO and so on could be categorised as 広告宣伝費.

To be honest, I'm not sure about the other choice, buying a site which someone has already made but it's not a company and you didn't make an order for them to create it. It seems like a grey area. Clearly using an outsourcing company to create your original site is much better.

By the way, don't forget that the scope of your business is limited to what is written in your 定款 (articles of incorporation / company statute). If "e-commerce site" isn't already included, you'll have to add that in there by going to the 法務局 (legal affairs bureau) before you start any new business.

 

[zela]

@phillev Excellent, this sounds like a plausible way to expand in then. My current business is very specialized so expanding in its current form is a bit rough but the e commerce route would open up for possibilities. Luckily I happened to add e commerce to my business scope when I set up the company.

 

[phillev]

@zela Oh nice, ok then, presuming you don’t specialize in building websites yourself, it would be good to find a company that builds websites and have them start designing something for you. Good luck with it all! Don’t forget that Google ads or Facebook ads can also be counted as advertising expenses. Especially, I’d pay up for Google ads.

 

[alannaor]

@zela Your best bet is to buy things your company will use in the future like materials or computers. The only substantial money saving 'hack' I'm aware of is to buy an expensive asset like a 3+year old used car. However, a car costs money to store and maintain, and you will very likely lose a lot of money on both ends of the transaction unless you are or have good contacts in that industry. Let's say after all this crap you manage to only lose 20% of your money on the car, congrats you've effectively saved a few % on corporate tax, with a shit load of time and hassle. Is it worth it?

 

[phillev]

@alannaor A 4 year old car can be counted as an expense in one year. Less than 4 years and it has to be amortized.

 

[zela]

@alannaor Ahh yeah sounds like too much hassle to be worth a few %.

 

[skupi]

@zela I found PWCs site has a useful high level starting point for some of this.

https://taxsummaries.pwc.com/japan/corporate/taxes-on-corporate-income

I’m not experienced with how to deal with additional capital (sadly never got our business off the ground lol) but I did get as far as learning that property is a useful tool for reducing your tax burden, particularly due to the fact you can use it as a depreciating asset here.

The best course of action would be to talk to your accountant and work out how you can maximise this. If you need an accountant then take a look at the thread I started a while ago - we went with the one recommended and he has been helpful.

 

[zela]

@skupi thanks, I'll check the site out and might give the accountant a go too!

 

[skupi]

@zela Good luck. Is in this thread

https://www.reddit.com/r/JapanFinance/comments/qfa9yg

 

[zela]

@skupi thanks!