Outline of Tax Relief Measures Regarding COVID-19 Decided
Introduction
The outline of tax support measures in response to the spread of the new corona virus (COVID-19) has been determined. Let’s examine it.
Outline
On April 7, 2020 the Cabinet approved taxation measures associated with the COVID-19 emergency economic response plan (draft).
Considering how COVID-19 had seriously impacted society and the economy, the new tax measures were seen as urgently necessary for taxpayers in difficult situations as a result of steps taken against the virus, and steps taken to prevent its further spread.
One-Year Moratorium Period Without Penalties on Belated Tax Payments
Under the existing Act on General Rules for National Taxes and the National Tax Collection Act, there is a tax moratorium system that stipulates a tax payment grace period.
However, under the current tax moratorium setup, as a general rule, fines for delinquent taxes are levied, and tax deferral amounts are limited. So a new special system for tax moratoriums will be introduced which doesn’t include tax penalties, and with increased tax deferral amounts.
This special system shall apply to national tax returns with filing due dates on or after February 1, 2020. It will apply not only to corporate taxes for the fiscal year ending March 2020, but also for monthly income taxes.
The exceptions will be allowed after that same date (Feb. 1) if the filer’s income during a specific period of time has decreased by approximately 20% or more compared to the same period of the previous year, resulting in the filer having difficulty in paying their taxes due.
To receive such exceptions, it is required to apply at a tax office. Though documents recording sales amounts are necessary to show the requisite decrease from the previous year, it is expected that this will be handled in a flexible manner - such as accepting verbal statements - when preparation of such documents is difficult. Furthermore, provision of collateral, which is generally necessary for tax grace periods, will be unnecessary.
Expansion of Eligibility for Refund Carrybacks of Losses
Regarding refund carrybacks of losses due to corporate tax paid by small and medium-sized enterprises through the prior year, the range of eligible organizations will be expanded. While the current system includes enterprises whose amount of stated capital is 100 million yen or less, the new one will cover enterprises with capital up to 1 billion yen. Also, when small and medium-sized enterprises make telecommuting-related investments in facilities or equipment, certain portions of the investment amounts will be permitted as tax deductions, etc.
The new system doesn’t require numerical productivity improvements, but rather permits tax breaks for qualitative investments. Though these emergency economic measures are only intended for small and medium-sized enterprises, it is foreseen that measures aimed at large corporations will be considered in tax reforms for the year 2021.
Reduction of Fixed Assets Tax Related to Local Taxes
Regarding the fixed asset taxes of small and medium-sized enterprises whose sales decreased, measures have been adopted to allow such enterprises to have all or half (depending on the degree of sales decline) of those taxes exempted in the year 2021.
(This information is based on content approved by the Cabinet on April 7 which has not yet come into effect. Please be aware that it may change.)
Support Measures to Be Aware of Concerning Subsidies for ‘Teleworking’ in Response to COVID-19
Introduction
The Ministry of Health, Labour and Welfare established temporary subsidies called the “teleworking {i.e., telecommuting} category of COVID-19 infection control measures”. Small and medium-sized enterprises can receive subsidies of up to 1 million yen by carrying out certain actions.
Formal ‘Teleworking’ System Not Required for Eligibility
The following two conditions are required to receive ‘telework’ category subsidies for countermeasures taken against the COVID-19 virus:
- Taking an action which qualifies for a subsidy
- One and more employees telecommuted
Under this support measure, a subsidy rate of 50% (up to 1 million yen) will be provided if a business entity/owner met the above requirements during the period from February 17, 2020 to May 31, 2020. This subsidy system was established in the teleworking portion of Work Style Reform Support Subsidies.
An eligible entity will be a small or medium-sized enterprise which: newly introduced a telework system as a COVID-19 countermeasure; is enrolled in the workers' accident compensation insurance system; and satisfies either ① or ② in the following table. Even without an established teleworking system, businesses where some workers teleworked a few times, even on just a trial basis, will qualify.
| Business | ①Capital/Investment | ②Full-time Workers |
|---|---|---|
| retailers(including restaurants) | 50 million JPY or less | 50 or less |
| service industry | 50 million JPY or less | 100 or less |
| wholesalers | 100 million JPY or less | 100 or less |
| others | 300 million JPY or less | 300 or less |
Purchase Prices of Laptop Computers Aren’t Covered.
In accordance with the above condition (1), one and more of the following actions would be required during the above (Feb. 17 - May 31) period.
- Introduction and operation of communication devices for teleworking
- Preparation and revision of working rules, labor-management agreements
- Instruction for those in charge of labor management
- Instruction, learning & awareness by workers
- Related consulting with external experts.
A requirement is that delivery of the goods, payment for the goods, etc., be completed during the above Feb. 17, 2020 - May 31, 2020 interval. For instance, if a communications device for telecommuting is purchased by credit card, with the purchase amount then being withdrawn from the purchaser’s bank account on or after June 1, 2020, the purchase no longer qualifies for the support measures.
On the other hand, if an eligible good or service was ordered prior to February 17, then was delivered/completed after that date (up to May 31), then in such a case it can be applied. It should be noted that the designation “communication devices” is restricted to devices utilized specifically for web meetings, or relevant cloud services - not more versatile items such as PC’s or tablet devices.
In addition to the aforementioned subsidy from the Health, Labour and Welfare Ministry for the telework category, the Tokyo government has begun another subsidy program for teleworking that has a 100% subsidy rate. Entities with offices in Tokyo should take note of this subsidy as well.
Regarding Taxes on Telecommuting Allowances
Introduction
With ‘telework’, how will taxation of telecommuting allowances be handled?
Outline
Due to the spread of the new corona virus, there are more businesses recommending and carrying out telework arrangements for employees. For teleworking, some companies apparently supply employees - who incur additional expenses for internet usage, electricity, etc. in their homes - with “telework allowances” to assist them. So how are such allowances to be dealt with in terms of tax matters?
When Payments Are Uniform, They Are Taxed as Salary.
Though being assistance for business-related expenses incurred, telework allowances which are provided uniformly to all employees are basically subject to income tax. In such cases, an employer needs to impose withholding tax.
As a general rule, money and goods which a company supplies employees are subject to income tax, even if they are not categorized as salary or bonuses.
However, within the range necessary for business operation, travel allowances and such are not taxed, because they are reimbursements of actual expenses which basically the company should incur itself.
Though they have not been informed regarding the specifics of taxation on telework allowances, it would seem that the ways in which companies pay social expenses to employees would be helpful as reference.
This manner of handling goes generally as follows: Even though social expenses which companies pay for employees are basically subject to taxation, “because the expenses are provided on behalf of business operations, they should not be taxed when the resulting achievements are clear.”
Putting this approach into practice, when equal telework allowances are paid, it is considered that because clear indications of how the allowances are used for business operations are not required from employees, the allowances are considered to qualify in principle as income subject to taxation.
On the other hand, if employees specify in writing the portions of their Internet access and utilities utilized for business purposes, and get reimbursed for those actual costs, they will be not subject to income tax for the reimbursements.
Overall, we can think that when there is a concrete basis for considering the original expenditure to have been for business purposes, and the payment is reimbursement for that, then it will not qualify for income tax; for cases other than that, the payment will qualify to be taxed.
Furthermore, with the closing of Japanese schools at all three levels (primary - high school), some companies have provided “closed-school allowances” of uniform amounts to employees with children in primary and secondary school. These kinds of allowances will also be subject to income tax.
Telework Allowances to Employees Can Be Included in Deductible Expenses.
Although the handling of income tax is as described above, for corporate tax calculations, it can be considered that telework allowances paid to employees can be included in deductible expenses.
However, it is important to be aware that telework allowances for executive officers are not to be included in deductible expenses if regular salary requirements aren’t met.
