Management Visa and Receipt of Compensation
You need to be cautious when receiving directors’ compensation in Japan on a Business Management Visa.
If you seek guidance from an administrative scrivener, you will be advised to ensure your visa is approved before receiving any compensation.
This is because, from the perspective of worker protection, as general, the government restricts working and receiving wages in Japan without a visa.
Without this restriction, people could work in Japan indefinitely and receive salaries.
This would bring downward pressure on wages for workers in Japan (including both Japanese nationals and non-Japanese nationals).
Such restrictions can prevent an unfavorable labor market.
However, when working as a director at a company, it may be an obstacle. You need to exercise great caution when aligning salary payments with payment timing.
Otherwise, despite paying directors’ compensation, it may no longer be recognized as a company expense.
Basics of Directors’ Compensation and Corporate Expense Accounting: Fixed Monthly Salary
Only three types of executive compensation are recognized as company expenses:
Fixed Monthly Directors’ Compensation(Teiki-Dougaku Kyuyo), Pre-determined Director’s Compensation Filed in Advance(Jizenkakutei Todokede Kyuyo), and Performance-linked Director’s Compensation(Gyouseki Rendougata Kyuyo).
If it does not fall under these three categories, even if paid as compensation to directors, it will no longer be recognized as a company expense.
This time, let’s take a look at fixed monthly directors’ compensation.
Fixed Monthly Director’s Compensation
定期同額給与とは、毎月一定の時期に同じ金額を払う給与です。
Fixed monthly directors’ compensation refers to a salary paid at a fixed time each month in the same amount.
Under Japanese labor law, wages themselves must be paid for periods of one month or less.
Therefore, “fixed monthly payments” would mean paying the same amount each month.
Includes in-kind compensation.
If this amount changes during the fiscal year, it will no longer be considered a fixed monthly amount.
For example, if you were paying 200,000 yen monthly and increased it to 250,000 yen, it would no longer be considered a fixed monthly payment.
In this case, the 50,000 yen difference would no longer be recognized as a company expense.
A system that prevents profit manipulation
The reason for this mechanism is to prevent companies from manipulating their profits.
For example, a profitable company might change an executive’s salary to 100 million yen only for the final month to avoid paying corporate taxes.
This reduces taxable income by 100 million yen at the time of the financial settlement.
To prevent such manipulation, there is a system of fixed monthly salary payments.
Approved Temporary Revision
However, if profit participation is denied each and every time, normal operations become impossible.
Therefore, there are provisions for exceptions.
For example, if the revision occurs within three months after the start of the fiscal year, the amount at the time of revision is recognized as a fixed periodic amount.
The director’s compensation that was just changed to 250,000 yen would be recognized if the revision occurred within three months after the start of the fiscal year.
This system is designed to align with the requirement that shareholder meetings and board meetings be held within two months after the fiscal year-end, and that new directors take office within one month of the following month.
Furthermore, if a company’s performance deteriorates significantly and losses cannot be recognized as executive compensation, this too becomes problematic. In cases where adjustments are made due to deteriorating performance, recognition may be permitted.
Take care of Visa, Registration, and Payroll timing.
For standard changes, they would likely be approved through the temporary revision process.
However, the problem lies with visa issues.
役員として登記して、そして経営管理ビザなどで入国をする場合に、すぐさまビザが降りる事は稀です。
そうすると、役員への給与支給が、事業年度開始以後半年経過しているということはざらにあります。
When registering as a director and entering the country on a management visa, it is rare for the visa to be granted immediately.
Consequently, it is common for directors’ compensation payments to be delayed until six months after the start of the fiscal year.
Therefore, the timing relationship between executive compensation and visa approval requires careful attention.
Be sure to keep this in mind.
