Tax Saving by Incorporation of Company in Japan
System of employee’s health insurance
System of National Health Insurance
How to reduce amount of health insurance tax ?
Conclusion
If you are a self employee and a member of National Health Insurance, National Pension, by incorporation of company, you may be able to reduce National Health Insurance premiums enormously.
Assumed that you are operating your business as a sole proprietor Or as a representative director of your company and annual sales amount is 6,960,000 million yen.
You are 39 years and have a wife a child.
System of employee’s health insurance
In the case you operate your business as a representative director of your company.
When you operate a company and receive salary, even if there is not employee, director other than you, your company needs to join Social insurance (Employee7s health insurance and Employee’s pension.
(Pension office will send you a letter to join social insurance.)
Monthly salary : 580,000 yen * 12 months = 6,960,000 million
Gross rate of social insurance is 30% of salary (employee’s health insurance 12% + employee’s pension 18%) !!
6,960,000 million * 30% = 2,088,000 yen / year.
(835200 yen + 1,252,800 yen)
(This amount can be shared by employee and your company)
System of National Health Insurance
In the case you operate your business as a sole proprietor and annual profit is 6,960,000 million.
In this case, you need to pay National Health Insurance tax of 630,000 yen/year(in the case of company, 835200 yen)
So there is not big difference.
As for National Pension (Kokumin Nenkin)
You and your wife pay National Pension Premium. 16,000 yen * 2 persons * 12 months = 400,000 yen/year
(In the case of company, 1,252,800 yen !! Big difference !!)
Total
630,000 yen +400,000 yen = 1.03 million yen.
So if you incorporate a company and receive this kind of salary from your company, you will make loss of 1,058,000 yen.
(2,088,000 yen – 1.03 million = 1,058,000 yen)
This loss of 1,058,000 yen is made mainly by Pension
How to save amount of your social insurance tax ?
Answer : You can incorporate a company and make small amount of sales and receive small amount of salary.
(sale made by “side business”)
In the case you operate a company, you need to join Social insurance (employee’s health insurance and employee’s pension).
You will incorporate a company and start another business. Your company will make sales (Not profit ! ) of 50,000 yen / month.
And you will receive director’s monthly salary of 50,000 yen from your company.
You are employee (employee includes director) of your company. So you can leave from national health insurance and national pension.
(Even if you have profit of 6,960,000 from your main business)
In this case amount of social insurance (employee’s health insurance + employee’s pension ) is about 22,000 * 12 months = 264000 yen.
Though you earn 6,960,000 from your main business, you do not need to pay national health insurance premium and national pension premium.
Because you are a member of employee’s health insurance + employee’s pension.
So you can pay employee’s health insurance + employee’s pension of 264,000 yen instead of 1.03 million yen.
Hurdle of this scheme
In order to avail this scheme, you need to prepare side business.
Assumed that you are operating language teacher as sole proprietor.
Then you incorporate a company and you will pay consulting fee to your company (50,000 yen / month).
In this way, your company can make sales amount.
And you will receive salary from your company (50,000 yen / month).
In this case when persons of tax office find you, they will think there is not substance of your company and it is just thoughtless tax evasion.
You need to start a business with substance.
If you (language teacher) purchase a detached house and operate hotel business, it will be included in a business with substance.
If you purchase bags from Bangladesh at 100,000 yen and sale them in Japan at 110,000 yen, your company can not make sufficient profit to pay you monthly salary, the business of your company has substance.
Anyway, your side business (operated by your company) should be completely different one from your main business.
Even if your company is in the red, it is fine.
If you need to find a business that can sustain your life, it will not be easy to find it.
However in this scheme, as far as the company can make sales amount with substance, it is OK.
So you will start a side business that is easy to start.
My Side Business
Even if the side business does not need to make sufficient profit, it will not be easy to determine your side business.
So on your behalf, I have determined my side business.
(My main job is a kind of lawyer as sole proprietor).
I have decided to start rental space business.
I have applied for renting an office space where I can rent it out to other person. (sublease = てんたい)
In most of office space, sublease is not allowed by owner of the building.
So there was not enough options.
I do not have this kind of business experience.
However in the case of this scheme, the earlier, the better.
A real estate broker (of course, licensed person) found an office space where I can sublease.
It is about 30 minutes from my office by bicycle, located in Minato-ku, Tokyo.
Monthly rental fee is 99,000 yen of 19 square meters.
Due to covid-19, some workers do not commute to their office.
However it may not be convenient for them to work at their residence.
They may not be able to concentrate on their work at their residence.
If they use share-office space like wework, they will care about leak of information. They will hesitate to speak on the phones.
So customers may prefer exclusive room.
However in the case of wework etc. monthly fee will not be affordable (though their facilities are nice).
If I provide this room to such workers, it may be good.
But 19 square meters will be too large for one person.
If I can find smaller room, I might decided to sublease this room as such office space (like wework).
On the other hand, some persons do not have enough chance to exercise, engage in sports due to covid-19.
From pandemic of covid-19, some persons started running, gym athletics.
However they may be lookin for other options.
So I have decided to provide this room to persons who hope to play Table Tennis.
19 square meters room is not sufficient to play Table Tennis in this room.
But it is not impossible.
Anyway, if I have a time to deliberate, I should move now.
So I have asked the real estate broker to acquire permit from owner of the building and I have obtained it.
The owner of the building permitted me to sublease this room to play table tennis.
Next week, I will enter into lease contract.
And I have purchased table tennis table at Amazon. (it costs 31,000 yen).
In order to avail this scheme, I need to incorporate a company.
So I have already filed registration of incorporation of LLC. (amount of registration tax is 60,000 yen).
Once the registration process has been completed, I will join social insurance (employee’s health insurance and employee’s pension).
At last I can resign from National Health Insurance.
I should have found this scheme earlier. (I am working as a sole proprietor for about 20 years).
From 1st September, I will advertise my rental space for playing table tennis at https://www.spacemarket.com/ or https://www.instabase.jp/
If I have found that this rental space for table tennis does not go well at all (no one is interested in playing table tennis) and shows a lot of deficit, I need to terminate lease contract of this office space.
Anyway, I can not know the result until I try it out.
Regarding Social Insurance Premiums and Japanese Accounting Books, you can see this page, too.
