In Japan, a self-assessment system is used for income tax, where taxpayers are required to accurately calculate their income and tax obligations according to relevant tax laws and pay their taxes independently. To facilitate this process, Japan offers the “Blue Return System” for taxpayers who meet certain bookkeeping standards and file accurate tax declarations based on their records. Under this system, filers can benefit from favorable tax treatments when calculating their income.
1.Who is eligible for these benefits?
Individuals who earn income from real estate, business operations, or timber sales are eligible to file a Blue Return.
2.What are the benefits of the Blue Return?
The main benefits of the Blue Return are as follows:
(1)Special Exemption for Blue Returns
- Blue Return filers with real estate or business income who keep records using double-entry bookkeeping, submit a balance sheet and income statement with their tax return by the due date, and fulfill additional requirements may receive a deduction of up to 550,000 yen. (If records are kept electronically and filed via e-Tax, the deduction can be up to 650,000 yen.)
- All other Blue Return filers are eligible for a deduction of up to 100,000 yen on their real estate, business, and timber income.
(2)Salary Payments to Family Members Exclusively Engaged in the Business
Salary payments to a spouse or other family members living in the same household as the Blue Return filer, who are exclusively engaged in the filer’s business, can be included as necessary expenses, provided the amounts are reasonable and pre-determined.
Note: Family members who receive salary payments as exclusive employees of a Blue Return filer are not eligible for spousal or dependent deductions.
(3)Carry-Over and Carryback of Net Losses
For example, if there is a loss (deficit) in business income or other qualifying income types that cannot be fully deducted in the current tax calculation, taxpayers under the Blue Return system may carry over that loss for up to three years. This deduction can be applied to income in subsequent years. Additionally, if a taxpayer filed a Blue Return in the previous year, they may carry back the loss to that year instead and receive a tax refund.
(4)How do I apply for the Blue Return?
New applicants for the Blue Return must submit the Application for Filing the Blue Return to the District Director of the Tax Office overseeing their residential address by March 15 of the relevant tax year. (For individuals who started a new business after January 16 of the tax year, the application deadline is within two months of commencing operations.) Additionally, if you’d like to benefit from salary payments to family members, an application for this must also be submitted by the due date.
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