Tax Reduction: Business Travel Expenses Rule

This article was written by HeiKin Wong.

Even though the pandemic somewhat changed how Japanese businesses connect, in-person meeting remains the primary method of how business to business operation is done in Japan. This is especially the case if your business requires your employees to travel to different parts of Japan and beyond. Doing that will, of course, generate additional expenses for your company. Here we will show you how setting up a business travel expenses rulen 出張旅費規定 could help your company recover some of this cost.

If you wish to know more about the techniques of reducing corporate taxes, then visit our main page to see more articles on how you could reduce your corporate taxes this year.

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Crafting an effective business travel expenses rule can be a game-changer for companies in Japan, offering both tax benefits and streamlined operations. However, the nuances of setting up and maintaining such a rule, especially in the context of Japan’s tax landscape, can be difficult. To ensure you’re not only compliant but also maximizing your tax advantages, consider collaborating with a knowledgeable accountant. Learn more about how an accountant can be an invaluable asset in our Ultimate Guide to an Accountant in Japan.

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What is the business travel expense rule 出張旅費規定?

As the term suggests, a business travel expense rule is a budget guideline that a company can establish for its employees to follow during business trips. These may include rules on what types of transportation and accommodation they can use and how much they can spend.. For example, a company could create rules on the maximum an  employee can spend on taxis oron hotels per day. 

The business travel expenses rule also includes per diem 日当 clause, which is a compensation given to employees for fees other than transportation and accommodation. These are usually paid before the business trip so employees could allocate the money as they see fit. This may include food, daily necessities and other miscellaneous fees.

Why should I establish a business travel expenses rule for my company?

One of the most notable advantages of setting up a business travel expenses rule is for reducing taxes. Without creating a business travel expenses rule, per diem 日当 clause could not be counted towards a company’s accounting loss. With the business travel expenses rule in place, the company can claim the per diem 日当 clause expenses as an official expense, thus reducing the company’s net profit and corporate tax. Finally, having an expense rule could cut down the man hours and paperwork from confirming and handing out per diem and other travel expenses. 

Having a business travel expenses rule also benefits your employees. The per diem 日当 clause given by the company will not be counted under income tax, which means the employee could take the full amount of per diem 日当 clause without giving parts of that back to the government. All in all, a travel expenses rule is often a win-win situation for you and your employees. For more details on how travel expenses can be exempted from taxes, consult this article from the national tax agency (in Japanese) to learn more.

What’s the process of creating a travel expenses rule?

There are no specific requirements on how a company needs to set up its business travel expense rule. That being said, there is a process a company needs to go through in order to set up a business travel expenses rule recognized by the government. 

First, you will need to identify the objectives and rules of the business travel expenses rule. What labor rules do the travel expenses operate under? It needs to be clearly defined in the rule. Then you will need to state the people that the rule applies to. Generally speaking, all employees will need to be covered under the rule except for executives and board members. Finally, you will need to define what exactly counts as “business travel” 出張. Usually, this is determined by how far away an employee is from their place of work. For example, you can set 100km from the place of work to be a short business trip while anything beyond that to be a long one. Depending on how you draw up the rules, having this distinction could save a considerable amount of cash for your business over long periods of time.

Obviously what’s written above is a drastically oversimplified version of what you would actually need to do. It is highly recommended for you to consult a tax accountant 税理士 if you want to set up a business travel expenses rule. Alternatively, you can also check out this article (in Japanese) to learn more about creating business travel expenses rules before going to a tax accountant. 

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What are some limitations / trade offs when creating the travel expense rule?

While having a business travel expenses rule 出張旅費規定 can often benefit your company, it also has its downside. For some companies (especially if business travel is not a regular occurrence) it might actually cost the company more after setting up a travel expenses rule. This is because before the rule you would only need to pay 日当 to selected employees on a case by case basis. After creating a rule, you will have to pay 日当 to all employees for their business trips and expenses. Therefore, whether your company will benefit from a business travel expenses rule is entirely situational and it is highly recommended to get the advice of a tax accountant before setting one up.

Another crucial point to note is the risk of not having these expenses count as a loss. Some companies have utilized the rule to make a large reduction in their corporate tax. Therefore large travel expenses (specifically per diem 日当 clause) are often subject to tax audits and there’s a chance these business expenses will not be deemed as a loss by the government. This is also the case for accommodation fees 宿泊費, where there’s a strict convention on how high you could set daily accommodation fees for (check out this article in Japanese if you want to know more)  You must make a judgment on whether the expenses listed in the rule is actually reflective of the actual travel expenses. 

Finally, it is important to note that sole proprietors cannot set up a business travel expenses rule and are exclusive to corporations only.

Videos on Business Travel Expenses Rule

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Concluding Thoughts

Setting up a business travel expenses rule could not only reduce your taxes, but also help with improving your company’s efficiency (if business travel is a common operation in your business). While this is just a small tool in the vast arsenal of techniques that could better your business, every little trick helps your business to get through these trying times. 

Want to know more about how you could reduce taxes and improve your business? Check out our article on the Top 10 Japanese Business YouTube Channels to see what other tricks you can learn to better your business!

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