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Director’s salary, bonus and tax of Japan

Difference between Salary and Bonus

How to allocate Director’s salary as a deductible expense

Alternation to the amount of Director’s salary

When should your company pay the salary to its director ?

In the case your company can not pay its director determined amount of salary

Receive money from the company as a welfare expense

Difference between Salary and Bonus

Here I will explain the difference between the director’s salary ( 役員報酬 = Yakuin Hoshu ) and bonus ( Yakuin Shoyo = 役員賞与 ).

Assumed that you are managing a company (you are a director and owner of the company) in Japan.

When the company pays a certain amount of money to its employee or director every month, the money is called “salary=Hoshu or Kyuyo”.

Example. The company pays 100 yen to its employee and 1,000 yen to its director on every 25th of the month.

In the case your company pays money to its employee or director, at end of the year or every 4 months etc., the money is called “bonus =Shoyo”.

Example. The company pays 200 yen to its employee and 300 yen to its director on the end of August of every year.

In tax implication, in general, you can not deduct the amount of the Director’s salary ( 役員報酬 = Yakuin Hoshu ) and Director’s bonus from the Company’s income.
(However there is a solution.)

Because if it is granted, the company can reduce the amount of its taxable income and try to reduce the amount of corporation tax.

So, when XYZ Corporation earns 100 million yen and pays 100 million yen to its director as a salary or bonus, the company still has taxable income ( Kazei shotoku ) of 100 million yen.

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How to allocate Director’s salary as a deductible expense  

However, as for Director’s salary ( 役員報酬 = Yakuin Hoshu ), if the payment meets the following conditions, your company can deduct the amount of the Director’s salary from the taxable income of the company and reduce the amount of the corporation tax, etc.

Your company pays the money periodically and the same amount.

For example, when XYZ Corporation pays 100 yen to director Mr.D on April 25th, the company should pay 100 yen to director Mr. D on May 25th, June, 25th, July 25th, August 25th… 


Assumed that fiscal year-end of XYZ Corporation is the end of May. Then if a new director is appointed on 25th, October 2019.

In this case, as far as she receives the same amount of salary from November every month, this company can allocate the amount of her salary as a deductible expense.


Assumed that the fiscal year of XYZ Corporation is from 1st June 2021 to the end of May 2022. 

This company was incorporated on 1st June 2021.

30 June 2021, XYZ Corporation pays the salary of 100 yen to director X.

In this case, XYZ needs to pay 100 yen at end of every month.

So, when you start management of the company, you need to decide the amount of salary for one year in advance

(You may hope to change the amount of director’s salary depending on the amount of sales amount of the company. However, it is not granted.)

Alternation to the amount of Director’s salary 

However, if XYZ Corporation hopes to change the amount of salary for the director midst the fiscal year, it can do within 3 months from the commencement of the business year.

So, XYZ Corporation (Fiscal year : from 1st June to the end of May) can change the amount of salary for the director by end of August.

When XYZ Corporation decides the amount of salary for directors,  it should be decided by a shareholders meeting or general meeting of members.

And XYZ Corporation’s annual general shareholder’s meeting should be held by end of August (within 3 months from fiscal year end. Fiscal year end is end of May).

So,  XYZ Corporation will decide the amount of salary at the general meeting of shareholders that is held on 25th August.


Assumed that  XYZ company does not follow above stipulation and it pays a salary to the director as below.

June 50 yen.
July 50 yen
August 50 yen (until this month, within 3 months from commencement of fiscal year)
September 100 yen.
October 200 yen
November 200 yen
December 10 yen
January 200 yen
February 100 yen
March 100 yen
April 100 yen
May 500 yen

In this case, only 10 yen × 12 months = 120 yen can be a deductible expense.

Because 10 yen is the minimum amount of salary paid to its director.

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When should your company pay the salary to its director ? 

In the above case, XYZ Corporation decides the amount of the director’s salary in August 25th.

It can decide that “This company will pay 10 yen to Mr.D from September.” and it needs to keep minutes of general meeting of shareholders (It does not need to submit the minutes to tax office).

And Mr.D will receive his salary on the 25th of September.

 In the case your company can not pay its director determined amount of salary 

Assumed that XYZ Corporation (Fiscal year : from 1st June to the end of May of the next year) has determined that the amount of Mr.D (Director)’s salary is 10 yen. (Monthly salary is 10 yen).

It has been determined on shareholder’s meeting held on 28th August 2022.

It paid 10 yen in September, October, November and December. However after that, the company could not pay 10 yen to Mr. D.

I am writing this article…

Receive money from the company as a welfare expense 

As I mentioned above, you can not change the amount of your salary during fiscal year. I guess it is not conveninet for you. Because at the time of beginning of the fiscaly year, you may not be able to foresee the amount of sales of your company.

If you couldn’t predict the company’s sales for the year, you couldn’t predict the amount of salary you should receive for the year either.

In that case, you do not receive any money from the company as salary (or you will receive only a very small amount). And you would like to receive welfare expenses to cover your living expenses.

Instead of receiving 10,000 yen as salary, you receive 10,000 yen as welfare expense and use the 10,000 yen to buy food.

As a result, your income tax will not increase. And the company’s corporate income tax will decrease because of the increase in the welfare expense.

I will explain whether this method works or not.

A welfare expense (福利厚生費=Fukuri Koseihi)is a benefit (e.g., money) given by a business proprietor or company (employer) to an employee in addition to his or her salary.

For example, the following payments may be included in welfare expenses

Payments for an employee’s lunch or drinks at the office
(e.g. If an employee eats a 500 yen lunch box during lunch break, the company pays 250 yen to the employee)

Cost of year-end party

Cost of vaccinations

Partial payment of rent

Wedding gift money

Cost of company trip

Part of social insurance premiums (legal welfare expense)

🛩In principle, if it becomes a welfare expense, it will be a deductible expense for the company and the company’s corporate income tax will be reduced.

It is not treated as a salary of the employee receiving the benefit. (If the money were treated as salary, the employee’s income taxes would go up.)

To qualify as a welfare expense, the payment must be paid equally to all employees and the amount must be reasonable.
(Spending 2 million yen on a company trip cannot be a welfare expense.)

If the payment is made to a particular employee and is not a welfare expense, then it would be a salary to that particular employee, or entertainment expense, etc.

♥But suppose your company has no employees, only board members. In this case, your company pays part of your lunch money or pays for a company trip (actually your trip).

That money will not be a deductible expense for your company.

Welfare expenses are a provision for employees.
Company officers are not employees.

In addition, it is difficult to distinguish a welfare expense paid to an officer from an officer’s salary. Both are monies received by the officer from the company. If welfare expenses paid to officers (e.g., rental assistance) will be a deductible expense, you can easily manipulate the taxable income of the corporation.

This would make the provision that, in principle, the compensation of directors and officers cannot be changed during the fiscal year meaningless.

(However, the social insurance premiums paid to the directors could be considered as welfare expenses and it can be deductible expense.)

♥If your spouse is an employee

Even if you are the president of the company and your spouse is an employee, as a general rule, welfare expenses would not be allowed.

If you go on a trip with your spouse, it is difficult to distinguish whether it is a family trip or a company trip. So it would be impossible to treat the cost of that trip as a welfare expense (company’s deductible expense).

♥If there is an employee who is not a relative of yours.

Suppose your company has an employee (who is not your relative) in addition to you and your spouse. You and your spouse and the employee go on a company trip together. The company pays for the trip equally for all three of you. And the cost of the trip is reasonable. In this case, the cost of the trip will be a deductible expense as a welfare expense for the three persons (including the director).

akiyama@japan-law-tax.com