Invoice System Q&A
Introduction
Are you steadily preparing for the start of the invoice system? The invoice system is about to start this October. Let's review, in a Q&A format, the points that in practice are particularly important.
We Didn’t Get a Notification of Our Registration Number by the Start of the System - What Should We Do?
It may be assumed that your company will not be notified of your registration number by October 1, 2023, the start of the invoice system. Since it currently takes more than one month from application to registration for the invoice system, it is quite possible that your registration number notification will not arrive by October 1.
In such a case, please inform your business partners in advance that invoice deliveries will be delayed, and deliver the invoices after you get the notification. Alternatively, provisional invoices can be issued until notification is received, and then the invoices can be re-issued afterward.
If a Tax-exempt Business Becomes an Invoice-issuing Business, from When Can it Choose Simplified Taxation?
If a tax-exempt business obtains an invoice registration during the taxable period(s) that include(s) the dates from October 1, 2023 to September 30, 2024, there is a transitional measure whereby the business becomes a taxable business for consumption tax purposes from the date of registration.
In such a case, by submitting a “Notification of Selection of the Simplified Consumption Tax Taxation System" to the district director with jurisdiction during the taxable period that includes the registration date, stating that the simplified taxation system will be applied from that taxable period, the taxpayer can elect for simplified taxation from that taxable period.
Normally, the general rule is that the simplified taxation selection must be submitted before the beginning of the fiscal year in which the application for simplified taxation is intended. However, please note that this is an exception only for tax-exempt businesses that register for invoicing during the above period.
If Taxable Sales for the Base Period Are Less Than 10 million Yen After Registering for Invoice Issuance, does the Company Become a Tax-exempt Business?
Generally, if taxable sales for the base period of a taxable period are 10 million yen or less, the business is, in principle, a tax-exempt business. However, an invoice-issuing business operator does not become a tax-exempt business even if its taxable sales for the base period are 10 million yen or less; it would have to cancel its registration as an invoice-issuing business in order to become a tax-exempt business operator.
What Should I Do if I Take Over an Invoice-Issuing Business through Inheritance?
When a business is taken over from an invoice-issuing business operator via inheritance, the succeeding heir is required to submit an application for registration. The prior operator’s invoice number, etc. cannot be taken over.
For example, if the former business operator dies on or before September 30, 2023, the registration will not be effective even if the decedent had applied for an invoice registration. The heir who succeeds the business would need to file an application by September 30. On the other hand, if the former operator dies on or after October 1, 2023, the heir must file a "Notification of Death of a Qualified Invoice-Issuing Business Operator”, and as the successor to the business, needs to apply for registration himself/herself in order to be registered as an invoice-issuing business operator.
Inheritance Tax Assessment Method for Condominiums to Be Reviewed
Introduction
In the FY2023 tax reform proposal by the ruling party, it was clearly stated that, “In light of the fact that inheritance tax-related assessment values of condominiums deviate from market values, optimization of inheritance tax assessments on condominiums will be considered”. On July 21, the National Tax Agency began the process of soliciting public opinions on a proposal to review the inheritance tax assessment method for condos. How will inheritance tax assessments on condominiums be revised in the future?
Moving towards Multiplying by "Correction Rates”
Currently the assessed value of a condominium for inheritance tax is calculated separately for the building portion and the site portion. The revised draft notification introduces a system in which the value of the building portion and the value of the site (right of use of the site) portion are each multiplied by a certain "correction rate" respectively.
This would bring an end to the practice of saving inheritance taxes by bequesting condominiums whose assessed value for inheritance tax purposes is significantly lower than their market value.
What Happens with those "Correction Rates?"
According to the draft notification, the "correction rate" that would be used in a valuation would differ by the "valuation level”. That "valuation level" is calculated as "1 divided by the valuation deviation”. This indicates the percentage by which the theoretical market value of a condominium deviates from its valuation under currently-applied notifications.
If the "valuation level" exceeds 1, the assessed value for inheritance tax purposes exceeds the theoretical market value, and “the correction rate = the valuation deviation rate”. By multiplying the "valuation deviation rate" by the "correction rate" as it is, the assessed value for inheritance tax purposes would be reduced to an appropriate level.
The "valuation deviation rate" means “the market value (theoretical market price) divided by the currently-assessed value”. In other words, this formula is an index to correct differences between market values and current inheritance tax-related assessed values.
On the other hand, if the "valuation level" were less than 0.6, “the correction rate = the valuation discrepancy rate x 0.6”. By multiplying the "valuation discrepancy rate" by 0.6, the assessed value for inheritance tax purposes would be raised to an appropriate level. According to the draft notification, the minimum inheritance tax assessed value for condominiums would be 60% of the theoretical market value.
If the "valuation level" is between 0.6 and 1, the "correction rate" would not be applied. The current valuation method would still apply, and the assessed value would not be affected by the revision.
| Valuation Level | Correction Rate to be Applied | Impact on Inheritance Tax Assessed Value |
|---|---|---|
| more than 1 | valuation deviation rate | reduction |
| between 0.6 and 1 | not applicable | no impact |
| less than 0.6 | valuation discrepancy rate x 0.6 | increase |
The basic idea is to lower the assessed value if the amount assessed by the current valuation method is too high compared to the market value, and to raise the assessed value if the amount is too low.
The proposed notice would apply to inheritances, bequests or gifts on or after January 1, 2024.
Condominiums Intended for Sale and Entirely-Owned Condominiums are Not Affected
The proposed notice's valuation method is only for single units of condominiums. If a condo is owned in its entirety and there are no unit owners, it is not subject to this method.
Please note that the proposed notice does not apply to condos for sale. Both two-family residential buildings and inventory items are also excluded from the proposed notice's valuation methodology.
Situations Resulting in Disadvantage Concerning Loan Approvals
Introduction
Did you know that there are certain corporations that cannot be guaranteed by credit guarantee associations? In what situations would they be disadvantaged in a loan application process? Be careful not to inadvertently set up a corporation and then find yourself unable to obtain financing.
Types of Companies
When looking to establish a new company, joint stock companies (corporations) and limited-liability companies are common; however, depending on the nature of the business they are conducting, some business owners choose to establish as general incorporated associations (一般社団法人) or social welfare corporations (社会福祉法人).
But it is important to note that establishing a company other than a joint stock company or limited-liability company often significantly hinders subsequent loans from banks. Except for the medical industry, general incorporated associations, general foundations (一般財団法), and social welfare corporations cannot receive guarantees from credit guarantee associations; nor can school corporations or religious corporations receive such guarantees. This is because these are non-profit corporations, which are seen as entities which don’t have the main purpose of making profits. The source of repayments for loans is cash generated from profits, but since nonprofit corporations are not intended to make a profit, even if they are provided financing, repayment cannot be expected. As a result, these corporations are not guaranteed by credit guarantee associations, with some exceptions.
This doesn’t mean that banks and the Japan Finance Corporation will not accept loan applications just because the applicants are these types of businesses. However, unlike a joint stock company or limited liability company, the fact that their main objective is not to make a profit often has a negative impact on loan approval.
Delinquencies on Taxes or Social Insurance Premiums
Companies that are delinquent in paying their taxes and/or social insurance premiums will find it difficult to obtain loans once the bank becomes aware of this. The fact that a company is in arrears will be investigated in the following ways:
- Proof of tax payment is requested;
- Receipts for taxes paid are required;
- Asking for submission of a bankbook to see if social insurance premiums are being paid on time.
※Japan Finance Corporation often uses this method to check for delinquent social insurance premiums.
If a company that is delinquent in paying taxes and social insurance premiums wants to obtain a loan, it needs to consider borrowing money temporarily from an acquaintance or a non-bank, clear the delinquency, and then apply for the loan.
Delinquencies on Existing Loans
A delinquency on a loan that is currently in the process of being repaid is a negative factor in a new application. Delinquency also depends on whether the loan is currently delinquent, or else was delinquent in the past.
With guaranteed loans, the bank informs the credit guarantee association if repayment is late, even if by just one day. If a delinquency occurs, the credit guarantee association tends not to issue a new guarantee for at least three months after the delinquency is resolved. Furthermore, if a company is currently delinquent, those associations will not offer a new guarantee.
