Three types of officer pay that can be deducted as an expense: fixed-amount periodic pay, pay with advance notification, and performance-linked payIf a president’s pay is “the same every month,” it counts as a company expense
Pay a corporation gives to its officers is not deductible as an expense (sonkin) to the extent that it falls under none of fixed-amount periodic pay, pay with advance fixed-amount notification, or certain performance-linked pay. Even if it falls under one of them, any unreasonably high portion is not deductible. For mid-year changes and for how bonuses are paid, the requirements and notification deadlines need attention.
Key points
- Fixed-amount periodic pay (teiki dogaku kyuyo): pay given at fixed intervals of one month or less, with the same amount (or the same amount after withholding tax, etc.) at each payment.
- Even with a mid-year change, a revision made by the day three months after the start of the business year (or until the time allowed due to special circumstances), an extraordinary revision event, or a decrease due to a business deterioration event may still be treated as the same amount, within limits.
- A business deterioration event does not include a temporary cash flow reason or simply not reaching a performance target.
- Pay with advance fixed-amount notification (jizen kakutei todokede kyuyo): pay based on a rule to pay a fixed amount at a set time. As a rule, the notification deadline is whichever is earlier of the day one month after the shareholders’ meeting resolution date and the day four months after the start of the accounting period.
- For performance-linked pay to be deductible, a family-owned company must be one that is wholly owned by a corporation that is not a family-owned company.
What to do in practice
- For revising officer remuneration, check the schedule so that it is resolved and implemented within three months of the start of the business year.
- When paying an officer bonus, submit the notification of pay with advance fixed-amount notification by the deadline, before payment.
A company can treat the money it pays to its president or other officers as an expense only when it is paid in a set form. The most basic form is paying the same amount every month. If it is paid on set days like a bonus, you must report it to the government office beforehand. If the amount is changed on a whim, it is no longer accepted as an expense.
Points
- If you pay the same amount every month, it can be a company expense
- If you pay a bonus on a set day, you report it to the government office in advance
- The part that is too high does not count as an expense
What the words mean
- Sonkin (deductible expense)
- Money you may subtract as an expense when calculating a company’s tax
- Officer
- A person involved in running the company, such as the president or directors
- National Tax Agency (NTA): National Tax Agency (NTA): No. 5211 Salaries paid to officers (for payments resolved on or after April 1, 2017, Heisei 29)
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This article summarizes and explains materials published by government agencies and is not advice on any individual case. Rules can change, so for actual procedures and decisions always check the latest original materials and consult professionals such as tax accountants or labor and social security attorneys. English, Simplified Chinese and Traditional Chinese versions are translations prepared from the Japanese articles for convenience. If anything differs, the Japanese text and the original source take precedence.