You may be able to deduct client entertainment costs from your company's taxable income if you meet certain criteria.

In Japan, it is common to see drunk 'salarymen' (business workers) slouched over the restaurant table with their work-tie tied around their forehead. Surprisingly, gatherings like these are actually classed as official work outings. Client entertainment is a commonly accepted form of company expenditure in Japan—even in small and medium sized companies—and comes under a form of corporation tax. This is an unfamiliar concept in many other countries where corporation tax deductions for client entertainment costs aren't possible or commonplace.

On the other hand, the existence of this tax law means that your Japanese client will probably expect you to provide client entertainment and foot the bill for the costs yourself, unlike clients in your home country.

For the accounting period from 1 April 2014 to 31 March 2015, there are two options available for client entertainment deductions:

1) A deduction for 100% of the client entertainment costs, worth up to 8 million yen, or;
2) A deduction of 50% of all the entertainment costs on your accounting record. This option is only available to bigger companies* and only applies to the costs for eating, drinking, and golf outings—gifts are excluded from the scheme.

* In Japan the definition of a small or medium sized company refers to those which share a capital value of less than 100 million yen.

In addition to this deduction scheme, a business can also get a full deduction from their taxable income if they spend less than 5,000 yen per head.

To apply for these deductions, you will need to keep a record of any outings: the date, name of attendees and their organisation, amount, location, name of the restaurant and if they were eating or drinking.

Our tips:

1) Build business ties by splashing out on up to 8 million yen on client entertainment—just make sure you meet the criteria for deductions.
2) Make sure the cost per head does not exceed the 5,000 yen maximum limit.
3) Make sure you get a receipt and record all the details of the outing.
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