This article is contributed by LOOK UP ACCOUNTING.

In Part 2 of “A Guide to Taxes in Japan for Freelancers”, we’ll look at the difference between the White Return and Blue Return, the required documents and records for tax filing, and whether you can expect a tax refund or reduction.

1. Types of Tax Returns

Comparing the White Tax Return vs. Blue Tax Return

2. Required Documents

Documents needed based on the type of tax return

What are the requirements for the Blue Return?

3. Tax Refund Eligibility

Should you expect to receive a tax refund?

1. Types of Tax Returns

For sole proprietors and freelancers in Japan, there are two main types of tax returns: the White Return and the Blue Return. Despite their names, these returns aren’t actually colored forms, so it’s unclear why they were named this way.

The key difference lies in the bookkeeping method used. The White Return (Shiro-iro shinkoku, 白色申告) is prepared based on a simple breakdown of income and expenses, whereas the Blue Return (Ao-iro shinkoku, 青色申告) is prepared based on detailed financial statements.

The Blue Return is generally recommended because it offers the potential for an income tax deduction of up to 650,000 yen.

Comparing the White Tax Return vs. Blue Tax Return

2. Required Documents

Documents needed based on the type of tax return

 

 

What are the requirements for the Blue Return?

The Blue Return is available to those with real estate income, business income and timber income. It’s not available to employees or salaried workers.

To be eligible for the Blue Return and to qualify for the 650,000 yen income tax deduction, it is necessary to either maintain excellent electronic records (via double-entry bookkeeping) or file your tax return through e-Tax (most people who file via e-Tax meet the requirements for the 650,000 yen deduction). 

Additionally, the following must be completed:

1. 'Business opening notification' (Kaigyo todoke 開業届）
2. 'Blue tax return approval application' (Shotokuzei no aoiroshinkoku shinseisho 所得税の青色申告承認申請書) to be filed by March 15th of the year when you are going to file the first Blue tax return
3. ‘Blue tax return financial statement’ (Shotokuzei no aoiroshinkoku kessansho 所得税青色申告決算書)

While these documents used to be completed on paper and submitted to the tax office, they can now be completed online via e-tax or accounting software such as Yayoi, Moneyforward, or freee. Don’t forget that the tax return must be submitted by the deadline of March 15.

If you’re unable to apply for the Blue Return or if your application is revoked (e.g. due to inadequate bookkeeping), you’ll need to file a White Return instead.

→ Source: No.12010 Blue return system

3. Tax Refund Eligibility

Should you expect to receive a tax refund?

If you’re eligible for a refund, the amount will be remitted to your account. You may be eligible for a refund if the amount of income tax determined in the final tax return is less than the amount of tax withheld or less than the estimated tax payment. 

A tax refund is also plausible if withholding tax has been deducted from your salary or compensation during the year. For those who haven’t had withholding tax deducted, you may have less taxes to pay, however, even if you apply for medical expense deductions or mortgage loan deductions, it won’t lead to a tax refund. 

Your taxes may be reduced if:

• You suffered damage to assets due to disasters, theft, or accidents (miscellaneous loss deduction)
• Medical expenses exceeded 100,000 yen
• Applied for a mortgage loan deduction
• You made contributions to the Furusato Nozei (hometown tax donation system)

To recap: There are two types of tax returns in Japan: the White Return and the Blue Return. While the White Return is simpler, filing the Blue Return via e-Tax with proper bookkeeping can provide an income tax deduction of up to 650,000 yen. 

In the last article of this series, we will walk you through what you need to do to submit a tax return in Japan as a freelancer or sole proprietor.