Topic of focus : What is the preservation method for designated-classification billings and bookings, etc.?

What is the preservation method for accounting records, invoices, etc., under the designated-classification billings & bookings system which is to be implemented starting in October 2019? We will explain this using comparisons to the current system.


Currently, regarding consumption tax, the “preservation of accounting records/invoices method” is required for claiming purchase tax credits. However, from October 2019, a “designated-classification billings & bookings method” (preservation of accounting records/invoices including information by tax rate) will be initiated. Subsequently, in October 2023, a “preservation of accounting records/tax-qualified invoices method” (a so-called invoicing system) will be introduced.

Understanding Purchase Tax Credits

The consumption tax payment amount is calculated by deducting the amount of consumption tax paid during the period from the amount of consumption tax received during the period.

This ‘deduction of the amount of consumption tax paid’ portion is called “purchase tax credits”.

When calculating the consumption tax payment amount, in order to deduct the amount of consumption tax paid (claim a purchase tax credit), both the ledger book listing the fact of a taxable purchase (consumption tax paid) and invoice(s) need to be preserved.

Though there are a few exceptions, in most cases, if both the ledger book and invoice(s) are not preserved, the paid consumption tax amount will not be deductible (a purchase tax credit cannot be claimed). So the “preservation of accounting records/invoices method” requires preserving the invoices, etc. issued by a counter-party in a transaction in order to claim a purchase tax credit.

The Designated-Classification Billings and Bookings Method

The “reduced tax rate system”(*) for consumption tax will be implemented from October 1, 2019. With the change, enterprises involved in selling and purchasing (expensing) items subject to the ‘reduced’ (actually unchanged) tax rate will be required to add classifications for the different tax rates to entries made when doing accounting such as issuing invoices, etc., or making ledger entries (designated-classification entry billings, etc.). This is called the “designated-classification billings & bookings method”.

(*) Translator’s note: The “reduced tax rate system” name may be somewhat misleading, because the tax rate for applicable items is actually being maintained at the pre-October 2019 level of 8% (i.e., neither reduced nor increased to 10%).

The following table describes the current system for ledgers and invoices, etc., compared with what will be required under the new method.

Period Ledger Entry Description on Invoice, etc.
To September 30, 2019
【Current system】
①Name of counter-party in taxable purchase
②Transaction date
③Transaction content
④Amount of consideration paid
①Name of invoice issuer
②Transaction date
③Transaction content
④Amount of consideration paid
⑤Name of invoice recipient
October 1, 2019 -
September 30, 2023
【“Designated-classification billings & bookings method” 】
(in addition to the above)
⑤ Indication of the items subject to the reduced tax rate
(in addition to the above)
⑥ Indication of the items subject to the reduced tax rate
⑦ Total consideration paid, including tax, for each tax rate

Furthermore, under the “designated-classification billings & bookings method”, as with the current system, in the case where there was an unavoidable reason for the filer not receiving an invoice (e.g., a transaction being small in size {less than 30,000 yen in value}, a purchase made from a vending machine, etc., then just the retention of the books/ledgers containing the required entries will be sufficient to meet the requirements for claiming a purchase tax credit.

Also, in a situation where an invoice issued by a vendor lacks a description regarding, “⑥ Indication of the items subject to the reduced tax rate” and/or “⑦ Total consideration paid, including tax, for each tax rate”, etc., the business which received the invoice will be allowed to append the missing information, based on the facts of that transaction, for these categories only.

If you wish to discuss the “designated-classification billings & bookings method”, please contact our office.

Special : Employment of Foreign Workers


The revised Immigration Control and Refugee Recognition Act was issued and implemented on April 1, 2019. With interest growing in increasing the number of foreign employees in Japan, we will explain about the current situation.

Below is a summary of essential information, and items for prior consideration when small or medium-sized enterprises (SMEs) wish to employ non-Japanese (NJ) adults or foreign students in Japan.

Differences between Managing Foreign and Japanese Employees

If considering hiring foreigners, it is necessary to understand the following points which are quite different from when hiring Japanese nationals:
①There are far more documents required to be submitted to administrative authorities compared to the hiring of Japanese, ②there are more things to get employees to understand, ③things may not go well if NJ are dealt with in the same way as Japanese. Specifically, please see the following:

Situation NJ (Foreigners) Japanese
When hiring It is required to certify (employment visa) if NJ have credentials to work legally. (If working illegally, employers are also penalized.) If employee has Japanese nationality, there is no need for the certification in the left column.
While employed Employers can be punished for violations of immigration control law if they continue to employ a worker despite that employee’s employment visa no longer being valid. Same as above
Employment of a student part-time Working hours of up to 28 hours per week in principle Up to 40 hours
Considerations during employment ・NJ tend to change jobs more frequently if they judge a current job offers little career benefit.
・There can be trouble if employers don’t provide necessary care.

Regarding the handling of social insurance and taxes, Japanese and foreigners are basically treated equally.
Also, presuming their abilities and experience levels are equivalent, salaries and working conditions for NJ and Japanese should be the same.

Types of Employment of Foreign Workers

There are various employment patterns of foreign (NJ) workers, as follows:

  1. Full-time employees
  2. Working for brief durations of less than a year、in special projects
  3. Workers through dispatch agencies
  4. Part-timers
  5. Interns - under the new visa category “Designated Skilled Labor”, from April 2019
  6. As outsourcing help

When it comes to hiring non-Japanese (NJ) as outsourcing help, or through dispatch agencies, it is probably not necessary to be concerned with workers’ residency qualifications. (It is the responsibility of intermediary organizations to take care of such matters.)

However, for the other cases listed above, regarding the following matters, the employer needs to not only certify the residency qualifications, but also manage the situation when changes occur.

  1. Does the current residency qualification need to be changed or updated?
  2. Does what the employee studied in university match up with her/his current work?
  3. Is it necessary to adjust working hours, so as to be within the fixed limit? (Can verification about other part-time job(s) be obtained?)
  4. If the NJ qualifies as a spouse, (s)he hasn’t divorced?

What is an “Operating Officer"?


In relatively large companies, it seems that more such firms have created the position of “operating officer”. What is an operating officer’s role and position?

In the Companies Act (corporate law), operating officers are not “officers”, but rather employees.

An “operating officer” carries out business based upon the decisions of the board of directors; like a division manager or section chief, the post is an honorific title, used both within and outside the company.

Often mistakenly said to be a “officer”, like other positions such as a board director or auditor, the post of operating officer actually differs from other titles.

Operating officers, though often included when generally “officers” are mentioned, shall be understood to be employees (rather than officers) under corporate law. In usual cases, as not considered to be engaged in management, an operating officer will not be recognized as an officer.

According to Japanese corporate tax law (the Corporation Tax Act), “officers” shall be stipulated as directors, advisors, auditors, board chairpersons, supervisors and/or liquidators, as well as others engaged in the actual management of a corporation.

How are Operating Officers Treated under Corporate Tax Law?

Senior/Executive advisors and others in similar positions, who are deemed to be practically engaged in the management of a corporation from the point of view of position and duties, shall be considered “officers” under corporate tax law.

On the contrary, as stated above, generally “operating officers” are not considered “officers” according to corporate tax law. The following are the two main reasons:

  1. Not deemed to be officers under the Companies Act due to not being appointed as directors; operating officers do not have the right to vote in meetings of boards of directors.
  2. They are not be deemed to be engaged in the management of business, as they instead serve as administrators in charge of daily business delegated by boards of directors.

Therefore, generally employers need not take into account fixed amount and intervals requirements corresponding to “officers” in corporate tax law. However, recently we have heard of cases in which operating officers were indeed deemed to be “officers”.

Corporate tax law emphasizes substance over form. Therefore, even in a case in which the employee bears the title of “operating officer”, that individual could be deemed to be involved in management. In such a case, the employer will be restricted in areas such as fixed amounts and intervals.

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