- Provision of office supplies, etc.
- Teleworking Allowances
- Electricity and Communication Costs
- Meal Subsidies
It has been more than a year and a half since the COVID-19 virus was first detected in Japan. Our lifestyles have changed drastically since then. It would be safe to then assume that this also affected how we work. Based on a survey conducted by Persol Research and Consulting Co., Ltd., at the end of 2020, the prevalence of remote work was about 25%, showing a significant change in work arrangements.
More and more people now realize that with remote work, work can still get done without physically going to their offices and are now implementing a variety of remote work that is not limited to their homes or satellite offices. These new work arrangements are referred to as “workation” or “bleisure”, amalgamations of the word’s “work” and “vacation”, and “business” and “leisure” respectively.
Although there aren’t a lot of companies that have adopted this concept, the government is also encouraging the use of workations, and the Yano Research Institute estimates that the market will grow to over 360 billion yen by 2025, more than five times the current size.
While both remote work and workations allow companies to reduce office rent and other costs, they are also required to introduce new benefits and allowances. In this article, we would like to summarize how taxation would be applied on such benefits and allowances that arise while introducing remote work and workations, using the FAQs on withholding income tax compiled by the National Tax Agency as reference.
When implementing a telework arrangement, it is essential to provide office supplies such as computers to your employees. Let’s first check if supplies such as these are considered taxable compensation.
First of all, there is no need to impose taxes on office supplies and other items owned by the company that are loaned to employees. On the other hand, if the company provides the item to the employee and the ownership is eventually transferred to the employee, the item must be taxed as a form of compensation. In other words, if a company provides a laptop or other device that was used as company equipment to an employee and it does not need to be returned, it will be taxed as salary.
In other cases, employees may have to initially cover the cost for the supplies they need for their work.
In the case of payments for such expenses, the company may give the employee funds in advance to cover the cost, or the employee may need to pay out of pocket ― but in either case, as long as the receipt is submitted to the company for reimbursement or liquidation, the payment is exempt from taxation.
With the implementation of remote work, more and more companies have stopped providing commuting allowances, and instead have introduced telecommuting allowances to compensate for electricity and communication costs that are consumed at the employee’s home, which tend to rise with the increase in time spent at home.
Unlike commuting allowances, which are tax-exempt, telecommuting allowances paid to compensate for the employee’s additional utility costs are subject to taxation.
Even if the additional money is intended to be used to cover for increased costs caused by remote work, it is basically considered compensation and taxed unless the actual expenses are reimbursed with receipts.
If you want to provide the payment within the tax-exempt range, you can either reimburse the actual cost, or if you want to compensate for electricity and communication costs, you can provide the payment within the range as described in the next section.
If you are trying to compensate for the cost of electricity or telecommunications within tax-exempt ranges. you will not be taxed as long as it is within the following formula given by the National Tax Agency.
(For electricity fees)
(For communication fees)
(Source: National Tax Agency homepage, https://www.nta.go.jp/)
The last value multiplied by 1/2 is the percentage calculated based on the assumption that the rate for the utilities fee charged is equal for all hours in a day except for sleeping hours.
Although the burden of calculation increases, it is necessary to use the above formula or some other reasonable calculation method in order to avoid salary taxation.
More and more companies are offering meal subsidies as a form of assistance to their employees, so let’s check the tax implications of this.
Under the Income Tax Act, meal subsidies are treated in the same way for remote workers as they are for regular workers. First, the following two conditions must be met for the amount to be paid:
(1) The officer or employee must cover more than half of the overall cost of the meal; and
(2) The amount computed with the following formula shall not exceed 3,500 yen per month (excluding consumption tax and local consumption tax).
(Cost of meal) ― (Amount covered by officers and employees)
In addition to this, the following expenses do not have taxes imposed:
- Up to 300 JPY for late-night workers
- Meals (in kind) provided for overtime work
In cases where an employee is working remotely but does not have the capacity to work from home, the employee may rent an office for personal use.
Regarding the cost of rental office space, if an employee uses a rental office or other working space near their home to use for work during working hours, the cost of renting the space is exempt from taxation, given that the employee pays for the office space in advance and submits receipts, etc. to the company for reimbursement, treating the rental cost as though the space was used for business purposes.
In other words, it is treated similar to office supplies expenses indicated earlier in the article.
It is easy misunderstand the cost of travel and transportation for workation or bleisure. Under the Income Tax Act, travel expenses incurred in the performance of one’s work are not taxable.
The key here is whether or not such costs were incurred “in the performance of one’s work duties”. If one were to take a vacation/leave from work, rent a hotel room and perform work there remotely during their free time (*work time is not considered vacation time.), such travel expenses would still be considered taxable. This is because the expenses incurred to go the hotel, as well as the hotel expenses themselves, were not incurred with primarily performing work in mind.
However, if one were to combine a business trip with a vacation, travel expenses from your office (or home) to the destination are not taxable as expenses.
The website of the Japan Tourism Agency shows the taxation relationship in three possible cases.
(Source: Japan Tourism Agency homepage, https://www.mlit.go.jp/kankocho/workation-bleisure/)
This advisory column looks at how withholding income taxation of allowances and expenses related to remote work and workations is done, considering that these types of work arrangements are becoming more common nowadays during the pandemic.
All of these allowances and expenses follow the same basic concepts under the current tax law. However, in the case of commuting and telecommuting allowances, even if the company’s intention is to “compensate for the costs borne by the employee”, the tax treatment may change due to the change in the name of the expense. Therefore, please be careful when introducing new employee subsidies and benefits.
Finally, there will be cases in the future where new kinds of work arrangements will develop. As current tax laws may not be applicable to such developments, certain decisions will need to be made to address this, or new taxation systems may be put in place.