May 11,2023 ｜ Tax
Japanese tax laws require businesses to keep their accounting documents for the following number of years. These are the documents that you will need if you are ever audited by tax officials.
|Retention Period for Corporations
|Retention Period for Sole Proprietors
|Accounting Ledgers N.B. For blue filers, ledgers must double entry.
|Journal entries/ Accounting ledgers, Fixed assets ledgers/
|Documents: Closing (of account) documents
|Balance sheets/ Profit & loss statements Inventory lists
|Documents: records of cash transactions
|Bank books/ receipts/ Duplicate checks etc.
|Invoices/ Quotations/ Delivery slips
In any year in which the losses for that year exceed the profits (i.e. in the red), the documents in the chart above for that year only must be retained for 10 years instead of 7 years. This means that if the profits are greater than the losses in the subsequent year, then the retention period for that year (i.e, the one where the profits are greater than the losses) will be 7 years.
So, with respect to documents for 2023, you usually have to retain them for 7 years, but if you cannot make a profit in 2023, you will need to retains 2023’s documents for 10 years.
Since all of these documents were in paper form, businesses had to spend a lot of money for storage space and other related costs to comply with the retention requirements above.
To address the problem, the government enacted a new law, known as ERRL：Electronic Record Retention Law in July 1998.
Because the ERRL and related implementing rules were very strict and cumbersome, the new regulations relaxed requirements to make it easier for us to keep the following documents in data format instead of printed paper.
|Style of retained data format
|Documents you prepare
|The* business which choose a data format
|Need to introduce a measure to avoid cheating **Data needs search function with dates, amounts, and counterpartiesNeed to equip a display and a printer when auditing
|Documents you send /receive in paper format
|The same as above
|The following simplified regulations will be applied from 2024. Need to introduce a measure to avoid cheating **Data needs search function by date, amounts, counterpartiesNeed to associate the scanned data to accounting dataNeed to equip a display and a printer when auditing
|Documents you send / receive in data format
|All businesses except the businesses whose sales volume is less than 50M yen***
|Need to introduce a measure to avoid cheating **Data needs search function with date, amounts, counterpartiesNeed to equip a display and a printer when auditing
*Please note that a business can choose whether to keep in paper or in digital format.
**Attaching a time stamp to the data, using a system to retain data which preserve any data history etc. Setting a company rule which avoids cheating can be alternative.
***Exempt business still needs to retain the documents in data format but not to be obliged to follow the requirements.