‘Electronic Invoices’ Attracting Attention

Introduction

Electronic invoices are attracting attention, in preparation for the introduction of the invoice system. How should electronic invoices, which comprise electronic data from invoices, be handled? We will explain about this, including the relationship with the Electronic Bookkeeping Act.

The Electronic Bookkeeping Act will be Applicable from 2024

From October of this year, if invoices are received via e-mail, they will be subject to the Electronic Bookkeeping Act, since they constitute information about electronic transactions. This means that they will be required to be stored in electronic form.

While storage in printed form is permitted until the end of December 2023, electronic data storage is required from January 2024 onward. Under the Electronic Bookkeeping Act, electronic invoices must be stored in a manner that meets retention requirements, such as the requirement to ensure search functionality.

Relation to the 2023 Tax Reform

However, under the 2023 tax reform, if it is possible to download electronic data in response to a tax audit-related request, the data may be preserved without the requirement to ensure search functionality if one of the following conditions is met:

A: Net sales of 50 million yen or less in the fiscal year before last (two fiscal years before); or,
B: The taxpayer can present output documents.

Therefore, for businesses with annual sales of 50 million yen or less, it is possible to reduce the impact of the Electronic Bookkeeping Act regarding electronic transactions.

In addition, the preservation requirement itself will become unnecessary if the tax commissioner (tax authorities) having jurisdiction finds reasonable cause for not preserving electronic data in accordance with the preservation requirement, and the taxpayer is able to respond to a request to download electronic data and present output documents at a tax audit.

Specific examples of cases in which there is reasonable cause for not preserving electronic data have not yet been identified, but apparently will be determined in the future.

Output Documents are Acceptable for Consumption Tax Purposes

The Consumption Tax Law permits the preservation of electronic invoices in written output (‘hard copy’) form.

This policy is not expected to change after the 2023 tax reform. Therefore, after January 2024, the preservation of electronic invoices in written output form will be in a contradictory situation - where it is not permitted under the Electronic Bookkeeping Act, but is allowed under the Consumption Tax Law.

Under these circumstances, small businesses with annual sales of 50 million yen or less are unlikely to encounter problems if they continue to keep all documents in writing as before.

On the other hand, for businesses with annual sales exceeding 50 million yen, we cannot say for certain without seeing specific examples of cases where it is deemed that there are reasonable grounds for not saving electronic data, so we will report back here when we have more information.

In any case, it is thought that businesses will actively invest in new equipment if they can significantly improve productivity and increase company profits by moving forward with electronic data storage; however, as long as the situation remains uncertain, it is expected that small and medium-sized businesses will find it difficult to respond.

How Invoices Should be Handled in Cases where Sellers Incur the Fees

Introduction

There are cases where the buyer bears the bank transfer fee, or the seller incurs it. If the buyer bears the fee, there is no particular problem, but if the seller bears it, the invoice procedure becomes a little troublesome.

If a Fee is the Buyer's Burden, then Not an Issue

An invoice is delivered by the seller to the buyer, and then there are two possible patterns: either the invoice amount as-is is wired to the seller, or else the net amount after deducting the transfer fee gets sent to the seller.

In the former case, the buyer pays the bank transfer fee to the bank; in the latter case, the seller in effect bears the fee. The transfer fee being borne by the buyer does not cause any problem from the viewpoint of invoices, since the fee-bearer and the payer are the same party.

In the latter case, the seller does not receive an invoice for the transfer fee that was actually borne by them, because the fee-bearer and the payer differ.

Example: A seller delivers an invoice for 11,000 yen including tax, and the buyer remits 10,340 yen after deducting 660 yen (including tax) for the bank transfer fee.
The buyer pays the transfer fee of 660 yen to the bank, but the seller is actually incurring the fee. Nevertheless, the seller gets no invoice for the transfer fee.
→In other words, the buyer would not be able to apply the purchase tax credit for the 60 yen of consumption tax included in the transfer fee.

General Treatment of Discounts, etc.

For this reason, the invoice system imposes an obligation to deliver a return invoice stating the amount of discounts, etc., and the consumption tax amount, etc., when discounts, etc., are given/taken.

The consumption tax focuses on two points: what goods and services are taxable, and who is the recipient of those goods and services. In the previous example, the 660 yen transfer fee to the bank is for a service that the buyer received from the bank.

Since the seller does not have to pay for that cost incurred by the buyer, this is equivalent to a discount. So in principle, instead of an invoice, a return invoice needs to be delivered.

However, it is simply a hassle to go to the trouble of preparing a return invoice for a bank fee of a few hundred yen.

Revision Due to Tax Reform of 2023

In response to such issues, the 2023 Tax Reform Proposal proposed a review of the obligation to deliver small-sum qualified invoices.

From the viewpoint of reducing administrative burdens in consideration of business practices, the obligation to issue a qualified invoice is exempted for small discounts, etc. of less than 10,000 yen including tax.

Practical Handling is Different.

For consumption tax purposes, the above is considered a discount, but in practice, many businesses would probably record the sales amount as 11,000 yen, and treat the 660 yen transfer fee as an expense item - such as a payment charge or miscellaneous expense.

It should be noted that with this approach, the seller does not have an invoice for the payment fee which was actually incurred, though the transaction in question is not eligible for omission of the obligation to keep an invoice.

Although it is unlikely that a tax credit for purchases will be disallowed due to differences in accounting treatment, it is important to keep in mind, just in case, that this is the rule.

How to Deal with New Banks

Introduction

If you are seeking a loan from a new bank, how should you approach them to make a good impression? Here are some suggestions, along with things you should refrain from doing.

What You Should Refrain from Doing

Whether you want to establish a main bank or obtain financing from several banks, you need to get to know your new bank(s) before you can begin. So how should you contact a bank?

The first thing you should not do is to suddenly go into a bank where you don’t have a deposit account and immediately apply for a loan. From the bank's point of view, such a first-time customer seems as if he/she has applied for loans at several banks before, been rejected by them, and then jumped to their bank to get a loan. Please be careful about this, because if they see you in that way, they are likely to not take you seriously. Therefore, it is best not to take this step.

So how can you do this? There are several ways to get acquainted with a new bank, the easiest being to open a deposit account at one of their branches nearby.

Opening a Corporate Bank Account at a Nearby Branch

Even if a corporation or a sole proprietor goes to the counter of a bank branch to apply for a deposit account, it is quite rare that the account can be opened on the spot.

After the staff talks with you at the counter, a bank representative will contact you and visit your office.

Before opening a deposit account, a bank generally visits the prospective customer's offices to verify that their business indeed exists. In addition, a bank representative will interview the business owner to try to determine if he/she is an individual they would like to deal with.

The purpose of this is to eliminate risks. If a deposit account is opened for a ‘company’ with no actual business operations, the account could be used for crimes such as fraud or money laundering, or as an account for anti-social forces, which would cause the bank trouble later on.

If a deposit account can be opened without problems, presuming the banker is a proactive salesperson, he or she will also take the opportunity to discuss financing. This is because when a new company opens a deposit account, it is an opportunity for the financial institution to acquire a new customer.

Many banks assign a quota of new loan recipients to bankers in the sales section who make the rounds outside the bank. The bankers who visit offices are often client  service officers, and they are looking for new companies to finance.

Earlier we mentioned that if a company suddenly goes to a new bank and applies for a loan, they will not be taken seriously. However, in this case (where standard procedures are followed), it will be the banker who will bring up the subject of financing. If the bank is talking about making a loan, it is easier for your company to move forward with discussions on financing.

Referrals from Others are Usually Reassuring

Another way to make contacts is to ask for a referral to a bank from an acquaintance or professional. You will probably feel more comfortable if the referral comes from someone who has done business with the bank.