The Handling of Travel and Transportation Expenses Under the Invoice System


We are often asked whether the introduction of the invoice system will require changes in expense reimbursement methods. Is an invoice required even for small amounts of travel and transportation expenses paid in advance by employees? Or will a different document be required?

Confirmation of Current Rules

Under the current system for preserving documents such as rate-classified invoices, if the transaction amount is less than 30,000 yen including tax, or if there is a compelling reason for not receiving an invoice, the {consumption} tax deduction for taxable purchases is allowed by keeping certain books of account even if the invoice is not kept.

Under the invoice system, although these measures will be abolished (i.e., invoices will become mandatory for most transactions), tax credits for purchases will still be available for certain transactions if just the books of account (ledger books) are kept.

Treatment of Advance Payments Made by Employees

In many cases, travel and transportation expenses are paid directly by employees, who arrange public transportation tickets, etc., and are reimbursed at a later date. In such a case, in principle an invoice made out to the business employer is required in order for the business to deduct taxes on purchases. If the invoice is not made out/addressed to the business, but instead is to the employee who made the replacement payment, the legal requirement is not met and the tax credit for purchases cannot be claimed.

In such cases, in addition to the invoice addressed to the employee, a "Reimbursement for Advances" form must be prepared by the employee. Such a "Reimbursement for Advances" form is intended to clarify that the invoice addressed to the employee is actually addressed to the business employer, and not to the employee personally.

The specific items to be included in a "Reimbursement for Advances" form have not been clarified, but it appears that a general travel expense reimbursement form should be sufficient.

Even if an invoice is not available, a business operator is exempt from the obligation to get an invoice for transportation of passengers by public transportation (bus, train, etc.) for less than 30,000 yen; therefore, the business employer making the reimbursement payment is allowed to deduct the taxes on such purchases by keeping only books of account. This is called ‘the exception for public transportation’.

Please note that in order to apply this special exception for public transportation, it is necessary to enter "exception for public transportation" or the like in the ledger book (book of account), in addition to the following information:

  1. Name of the counter-party
  2. Transaction date
  3. Description of services
  4. Amount of consideration paid

The Handling of Cases Where Businesses Pay Business Travel Expenses to Their Employees

When a business pays business travel expenses to an employee, the taxable purchase(s) are made from the employee. The amount that is considered to be necessary for the business trip can be deducted from taxable purchases by keeping only the books of account. This is called ‘the {special} exception for business travel expenses’, and it is characterized by the fact that it does not have the same monetary criteria as the exception for public transportation (the business travel expenses exception may surpass 30,000 yen).

However, as in the case of the public transportation exception, the travel expenses must be stated in the ledger book as "Exception for business travel expenses”, in addition to noting items 1. to 4. above. Thus, even under the invoice system, there is no need to make major changes in the procedures for the reimbursement and payment of travel expenses. Nevertheless, there are some changes, such as an increase in the number of items to be entered in the ledgers, so care must be taken in this regard.

System for Electronic Data Storage of Ledger Books and Documents


Corporate law stipulates that bookkeeping documents and other documents must be preserved for ten years. Let's review the issue of electronic data storage of bookkeeping documents, which is different from analog storage. It would be a considerable burden for a company to keep bookkeeping documents, invoices, receipts, etc. in ‘hard copy’ form (as originals) for a long period of time. Let's consider ways to reduce the burden as much as possible.

What is the Retention Period for Bookkeeping Documents?

Under corporate law, the retention period for bookkeeping documents and other documents is 10 years. However, no retention period for documents such as receipts and invoices are specified.

On the other hand, corporate tax law requires that, in principle, books of account and documents prepared or received with respect to transactions, etc., be preserved for seven years (nine years in certain cases). In practice, it seems to us that many companies preserve books and documents for seven years as stipulated by corporate tax law, not going with the 10-year period in corporate law.

However, it is advisable to keep important documents such as financial statements, corporate tax returns, general ledgers, and real estate-related documents, even if the legally-required retention period has passed. Even after the retention period has passed, such documents might be needed at a moment's notice.

It is also important to classify and organize documents that should be kept semi-permanently, and those that should be kept only for the period required by law.

What is Electronic Data Storage of Ledger Books and Documents?

In principle, bookkeeping documents must be kept in paper form. However, under certain conditions, it is permissible to electronically store books and documents prepared by oneself on one’s own computer. For example, it is permitted to store some of the books, such as the journal and general ledger, in electronic format, while other books are stored in paper form. However, this system cannot be used for ledgers that are not consistently prepared on a computer - such as those that are partially handwritten during the preparation process.

For example, if you use accounting software for your accounting, you would basically be consistently using a computer to prepare your books, so you would be considered eligible for the electronic data storage system.

Eligible Documents

”National tax-related ledger books and documents" are subject to this system. This includes not only journal books, general ledgers, expense books, etc., but also balance sheets, profit and loss statements, and other documents related to the settlement of accounts that are prepared by the taxpayer on his/her own computer.

Prior Approval No Longer Required

In the past, prior approval from the relevant tax office head was required for electronic data storage. However, with the 2021 tax reform, the necessity for prior approval by the district director has been eliminated, and now no special procedures are required for the electronic storage of books of account and documents. However, it is not permitted to start electronically storing books and records in the middle of a fiscal year.

The above is only related to the preservation of books and documents required by corporate tax law. Please take advantage of the fact that you can electronically save documents that are past the retention period required by law without being bound by these rules.

Do You Know the Types of Financing?


The reality is that nearly two-thirds of small and middle-sized businesses receive loans from banks. There are four types of bank financing. Let's understand the four types and the characteristics of each, and consider how your business can use the funds and which financing method(s) is best for you.

Types of Loans and Their Differences

Type Features
Loan on deed A method of obtaining financing by signing a loan agreement. This type is used for long-term loans with a repayment period exceeding one year.
Loan on bill / Note loan A method of obtaining a loan by presenting a note to a bank for borrowing. Often used for short-term financing, with a repayment period of one year or less.
Overdraft A method in which a maximum amount is set, and loans up to that amount are freely received and repaid.
Discounting of a note A method of raising funds by having one’s bank purchase notes received from customers.

What is a Loan on Deed?

Loans on deed are a financing method whereby a loan agreement is executed with a bank before a loan is received from the bank. The loan agreement includes the loan amount, interest rate, repayment period and repayment method, and is signed and stamped by the company receiving the loan, as well as by a guarantor (cosigner). Loans on deed are used for loans with a repayment period of one year or longer. Since the loan is to be repaid over a long period of time, the business's future prospects and business plan are also taken into consideration in the screening process.

Common uses of funds received by loans on deed are for long-term working capital and capital investment. Since buildings, machinery, and other equipment, once installed, will be used for a long period of time, it would be difficult to finance them if they were to be repaid within a year.

For this reason, loans for capital investment are usually set up with long repayment terms exceeding one year, and are made through loans on deed. The advantage of loans on deed is that the repayment period can be extended, making it easier to stabilize cash flow. The disadvantage is that the procedure is complicated. For each loan on deed, the company receiving the loan and the cosigner must sign and apply their seal to the loan agreement, and documents such as a ‘Certificate of All Historical Matters’ (履歴事項全部証明書) and a certificate of personal seal (stamp) registration must be collected for both parties.

What is a Loan on Bill?

Loans on bills are a method of receiving a loan by presenting a note for borrowing to a bank. In a note for borrowing, the company receiving the loan becomes the drawer, the bank providing the loan becomes the payee, and the due date of the bill is the date of repayment. Even companies that do not have a checking account or that do not issue notes in normal business transactions can obtain loans through bill financing by using such specialized bills called “notes for borrowing”.

Loans on bills are made on financing that is repaid in a short period of time - up to one year. Loans on bills do not require the signature and seal of a guarantor for each loan, nor is (s)he required to submit a ‘Certificate of All Historical Matters’ or a certificate of personal seal (stamp) registration, as is the case with loans on deed.

Loans can be obtained as soon as the company's signature and official seal are affixed to the note for borrowing, making it easier than loans on deed in terms of procedures. Loans on bills are used for short-term repayment, such as for tax payments, bonuses, and working capital.

For banks, loans on bills are an easier method of financing, because short-term loans with a repayment period of one year or less are repaid more quickly than long-term loans which have repayment periods of more than one year.

Next month's issue will discuss overdrafts and discounting of notes.

  • Russell Bedford

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