Choosing the Best Fiscal Year-End for Your Japan Business
Yoshio YamaguchiShare
When establishing a company in Japan, you’ll need to decide on your fiscal year-end date. This date will be recorded in both the company’s articles of incorporation and in the registration documents submitted to the tax office. Below, we outline key considerations when determining the optimal fiscal year-end for your company.
What Is a Fiscal Year-End Date?
The fiscal year-end is the final day of your company’s business year. In some countries, regulations mandate that the fiscal year-end be set on December 31. In Japan, individual income tax reporting is indeed tied to a December 31 year-end, but companies have more flexibility. Japanese companies can choose their own fiscal year-end date, with the option to modify it later if necessary.
March or December Year-End Dates
For Japanese companies, March 31 is by far the most common fiscal year-end. This timing aligns with the fiscal year of public institutions, schools, and other government organizations, which run from April 1 to March 31. For companies with close ties to public agencies, a March 31 year-end often makes business planning and budget alignment more efficient.
Many foreign-affiliated companies in Japan choose December 31 to align with the fiscal calendar of their parent company, facilitating consolidated financial reporting. For these firms, using the same fiscal year-end as the parent company simplifies the process of preparing group financial statements.
However, both March and December year-ends come with potential drawbacks. For example, March 15 is the individual income tax filing deadline, making March, April, and May especially busy months for Japanese accounting firms. Consequently, their services may be more costly during this period, and it might be challenging to receive comprehensive support during consultations.
Avoiding Peak Periods
Fiscal year-end brings an increased workload, particularly for the accounting department. In addition to accounting staff, employees across departments may be involved in inventory counts, invoice processing, and performance reporting. Choosing a fiscal year-end that avoids your company's busiest periods can help ease the workload during this time.
Considering Cash Flow
Corporate tax payments are typically due two or three months after the fiscal year-end. Significant funds may be required for these payments, potentially causing a substantial cash outflow. To avoid cash flow challenges, you might consider choosing a fiscal year-end that does not coincide with major expense periods, such as employee bonus distributions.
Maximizing the Consumption Tax Exemption Period
If your business registers as a qualified invoice issuer to comply with Japan’s new invoice system, it will be subject to consumption tax from its first fiscal year.
For small businesses with annual revenue below 10 million yen that do not plan to register as qualified invoice issuers, choosing a fiscal year-end to maximize the consumption tax exemption period might be advantageous. In such cases, setting the fiscal year-end for one year from the establishment date, rather than for one month from the establishment date, can extend the maximum exemption period over the first two fiscal years.
Conclusion
Selecting the right fiscal year-end date is a critical decision for any company establishing itself in Japan. By carefully considering factors such as your business’s peak periods, cash flow needs, and potential tax benefits, you can choose a fiscal year-end that aligns with your company’s strategic goals and operational demands.
A well-planned year-end date not only eases administrative burdens but also supports smoother financial operations, helping set a solid foundation for your business’s future growth in Japan.
