COVID-19 Subsidy for Small Business in Japan How to Take Advantage of a Rare Opportunity

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Out of tragedy often emerges opportunity. In Japan it is manifesting as a lifeline in whichsmall to medium sized business operatorsreeling from the effects of Covid-19 now have a chance at survival. Hope of one day again being viable, indeed even thriving,is made more possible through the granting of a one or two-million-yen subsidyby the Japanese government.
What Kinds of Businesses Qualify?

The Japanese Corona Subsidy is being made available for Sole Proprietorships andSmall and Medium-sized companies. For those individuals running their own small business, aka “Sole Proprietorship,” he or she can receive a subsidy from the Japanese government of one million yen. Operators of small and medium-sized companies are eligible to receivesubsidies of up to two million yen.

Determining the Amount of theSubsidy

First off and perhaps obvious, if you apply it is assumed that you reside and operate in Japan one of the three types of businessesmentioned above. It is required that, due to the Corona-19 pandemic, your business sales (not profit) in any month of 2020 have plummeted to at least 50% less than that of the same month in 2019.(Note that in the case of corporation, all calculation is based on comparing fiscal years as opposed to calendar years.)Though this is considered a subsidy, it remains undecided by the Japanese government as to whether the amount received will be taxable.

Case Examples

Let’s take a look at a typical business subsidy request in which your assumed annual 2019 sales totaled a hypothetical 6 million yen, which would require of you the provision of evidence, such as your tax filing documents, etc., should you wish to apply for the subsidy.

if you operate a small to medium sized business, then the following calculation is relevant for you. Assume you had 6,000,000 JPY in annual sales in 2019. And if your worst month during Covid was 200,000 JPY. Then the annualized forecast sales would be 2,400,000 JPY (i.e. 200,000 x 12 months). This would equate to a forecast loss of 3,600,000 JPY vs. last year. As the loss exceed the maximum 2,000,000 JPY, you would qualify for a subsidy of 2,000,000 JPY.

Should you be operating your business in the form of a sole proprietorship, you can be the recipient of up to one million yen. Running a small or medium-sized company, you can receive up to two million yen.Of course, this all requires one to have had business income in 2019, so if you opened your business this year (2020), then the subsidy will not be available to you. This lack of eligibility extends to those who decided to close their business this year. (Sadly, for those of you aspiring to a future in the film business, a segment in which the wardrobe department is almost an unnecessary budgetary expense,adult entertainment is automatically disqualified from receiving subsidy payments.)

Proving Sales Losses (and Eligibility) forSubsidy Payments

As already touched upon, you will need to submitrelevant financial documentationfrom your business (accounting software files, etc.) to prove your 2020 monthly sales amounts.For last year’s annual sales number, one will be required to submit duplicate copies of his or her tax filings. If you have no tax filing from March of 2020, but have a March 2019 filing, you can use that instead. As also previously mentioned, having started your business in 2020 makes youineligible for this subsidy.

Other Required Documents

The following are various documents that you would be wise to have at your ready during the application process:
• Soft copy of one’s bank book
• ID (Resident Card if an expat) of business operator
• Tax office-issuedcompany registration number

How to Apply

• Fill out and file an application online (Note that hard copy applications are neither needed nor, given the current situation, encouraged. Documents not created virtually online may be scanned or photographed and uploaded via the Internet.)

Filing Period for Subsidy

Applications were first received on May 1st, 2020 and the government will continue to accept submissions until the 15th of January 2021 (or until the budgeted funds are exhausted).

Any Restrictions How Subsidy Funds Are Spent?

Once subsidy funds are received, business owners will likely be ecstatic to know that there are no limitations or exclusions as to how the money is utilized. For example, the funds received could be spent on raw ingredients necessary for a restaurant chef’s menu offerings or, for a business that necessitates a staff of salaried office workers, the money could be channeled into the payroll department to ensure everyone remains paid. The money is spent according to the discretion of the business owner. Note that if you are a salaried employee of someone else’s company but are also operating a small business of your own on the side and if you filed a tax return, you will still be eligible for this subsidy.

Feeling a Bit Overwhelmed?

Capital Tax professionals understand how difficult life can be during this pandemic Twilight Zone in which we find ourselves. Add the complexities of dealing with a proper subsidy application for your small business and stress levels can go off the proverbial chart. Capital Tax is making available our experienced staff members to help in answering any questions you might have about this subsidy program and how you might best exploit this important opportunity.
We invite you to call or message us today.

Eric La CaraEric La CaraManaging Partner and Tax Practice manager for Capital Tax in Vancouver and Tokyo. Eric is a U.S. and Japan Personal & Corporate tax specialist with more than 15 years of experience in the area of cross-border structuring and taxation. Eric is charged with developing Capital Tax overall operations and strategic direction using the business and technical skills he has acquired during his professional career in Asia.