Incentive Bonus to Director of Japan subsidiary.
Under the Japanese corporation tax law by 2006 tax reform, director's remuneration by Fixed monthly payments is only tax deductible.
i.e. Incentive Bonus to Japan subsidiary's director is not tax deductible.
Other Tax Deductible Remuneration Paid to Directors.
１．Fixed payments in accordance with an advance notice to the tax office
A pre-determined bonus is deductible provided the company has filed an advance notice with the tax office by a certain time of the law.
However, Incentive Bonus is decided by a performance of the period and the figure is fixed after the period. Then Advance notice scheme is not match with this kind of Bonus.
２．Performance bonuses paid in proportion to the company’s earnings to directors who engage in the operation of the company’s business.
This regulation is not applied for a family company which shareholder keeps more than 50%. So again ,this scheme is also not applied to a subsidiary of a foreign affiliated company.
※Above regulations are not applicable for almost foreign affiliated companies.
How will an incentive bonus be paid to make it tax deductible?
[Basic remuneration＋Incentive Bonus]÷12 month ＝A fixed monthly salary of the next period.
This resolution should be approved by a General Share holder's meeting every year which should be held within 3 month after the accounting end.
Alternative way for Incentive Bonus paid at one time. -
Director of Japan subsidiary can be a director of parent company outside
Ministry of Justice announced on 16 March 2015 that representative director of Japan company can be non resident of Japan. Before that at least one of Japan resident was required as a representative director.
Now all staff of a Japan subsidiary can be non-director so that their incentive bonus could be a tax deductible.
(Note) To avoid any PE risk for Japan subsidiary, you should ask tax advise for a licensed tax accountant.
Review is necessary from the business perspective.
You should compare pros and cons form the business perspective before introduce a new director position.