3. Tax-Deduction of Accrued Expense in Japan (Saimu Kakutei) 債務確定の判定

Japanese Corporate Tax Law provides the requirements for deduction of accrued expenses as follows (Source: National Tax Agency)! For more about Japanese tax and accounting, click HERE.

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Corporate Tax Law Basic Circular 2-2-12

An expense (except for depreciation cost) under Article 22, paragraph 3, subparagraph 2 of Japanese Corporate Tax Law is "definite" as of the end of a fiscal year and deductible for the fiscal year if all of the following conditions are met:

1. A liability related to the expense has been established as of the end of the fiscal year.
2. An event for which a payment should be made based on that liability has occurred as of the end of the fiscal year.
3. The amount of the payment can be reasonably determined by the end of the fiscal year.

Example of repair expense (Source: National Tax Agency)

For example, an accrued repair expense is deductible for a fiscal year if, as of the end of that fiscal year:

1. an order for the repair has been placed;
2. the repair has been completed by a service provider; and
3. a cost for the repair can be estimated objectively.

For an explanation in Japanese, click HERE! 

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