Director’s salary (= remuneration) , bonus and Japanese tax
Difference between Salary and Bonus
Here I explain about difference between director’s salary ( 役員報酬 = Yakuin Hoshu ) and bonus ( Yakuin Shoyo = 役員賞与 ).
In the case your (you are director and owner of company) company pays certain amount of money to its employee or director every month, the money is called “salary=Hoshu or Kyuyo”.
In the case your company pays money to its employee or director, at end of year or every 4 months etc., the money is called “bonus =Shoyo”.
In tax implication, in general, you can not deduct the amount of Director’s salary ( 役員報酬 = Yakuin Hoshu ) and Director’s bonus from Company’s income.
So, When Company XYZ earns 100 million yen and pays 100 million yen to its director as salary bonus, the company still has taxable income ( Kazei shotoku ) of 100 million yen.
How to allocate Director’s salary as deductible expense
However, as for Director’s salary ( 役員報酬 = Yakuin Hoshu ), if the payment meets following condition, your company can deduct the amount of Director’s salary from taxable income of company and reduce amount of corporation tax etc.
1) Money paid periodically and same amount.
For example, when Company XYZ pays 100 yen to director B at April 1st, the company should pay 100 yen to director B at May 1st.
Assumed that fiscal year end of company XYZ is end of May. Then if new director is appointed on 25th, October, 2017.
In this case as far as she receives same amount of salary from November every month, this company can allocate amount of her salary as deductible expense.
Fiscal year of company XYZ is from 1st June 2019 to end of May 2020.
This company was incorporated in 1st June 2019.
30 June 2019, company XYZ pays 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 company, you need to decide amount of salary for one year in advance.
However if company XYZ hopes to change amount of salary for director, it can do within 3 months from commencement of business year.
So, XYZ can change amount of salary for director by end of August.
When company XYZ decides amount of salary for directors, it should be decide by shareholders meeting or general meeting of members.
And XYZ company’s annual general shareholders meeting should be held by end of August.
So, XYZ company will decide amount of salary at the general meeting of shareholders.
Assumed that XYZ company does not follow this stipulation and it pays as below.
June 50 yen.
July 50 yen
August 50 yen (until this month, within 3 months from fiscal year end)
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 deductible expense.
When your company should pay salary for director
In above case, XYZ company decides amount of director’s salary in August.
It can decide that amount of Ms.Nancy’s salary is 10 yen from September.
And Ms.Nancy will receive salary on 25th or 30th of September.
Regarding Director’s Bonus and Japanese tax ➡
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