For foreign companies to avoid failure in selecting an accounting firm in Japan
This post is for foreign companies that are starting a business in Japan and are considering outsourcing back-office operations to the accounting offices. I hope my 15 years of experience in the accounting tax industry would be your help.
Tax and English are like oil and water
If you want bilingual “accounting” professionals in Japan, you can find them, such as CPA (Certified public accountant). However, when it comes to bilingual “tax” professionals, it turns out to be difficult to find them.
I think there is a structural reason for the lack of tax experts with excellent English skills.
I first joined an audit firm as a CPA. There was an atmosphere that if you can’t keep up with IFRS, you couldn’t get ahead, so everyone was eager to study English.
After that, I changed my job to a tax accounting company and engaged in tax services.
The situation was different. There was no IFRS in the tax world. Rather, tax is always domestic.
As a result, tax and English become like oil and water.
HR operation and English are much more like oil and water
Foreign-affiliated companies often have directors and employees with foreign nationals.
In this case, payroll staff has to handle not only ordinary salary calculation and social insurance procedures but also those specific for non-residents, such as gross-up calculation, income tax for non-residents, and social security issues for non-residents.
Each country has a lot of domestic rules on HR.
We can find very few people who are familiar with the labor procedures unique to foreigners and can explain them in English.
The bookkeeper does not always know the tax
There would be a lot of people in this outsourcing industry who think bookkeeping is a matter of easy accounting. They consider that anyone can handle it if they have basic knowledge of bookkeeping. And they would try to hire inexpensive staff/managers without a licensed qualification who only has minimal or little experience of tax.
The next story is from my past experience.
A foreign-affiliated company switched the accounting office from a mid-sized firm (75 employees, established 1989) to our accounting office. I think the mid-sized accounting firm was a good company with a long history of specializing in foreign-affiliated companies. The reason the client transferred was not dissatisfaction, but their parent company’s global policy (Contract partners limited to Deloitte globally).
We found that the predecessor had treated some transactions incorrectly so far. It was a typical international tax issue, such as whether to withhold tax on cross-border services by non-residents.
That’s certainly not an easy issue at all but “International accounting firm” should handle it.
Our accounting office provided the tax advisory on it after they agreed on its fee of JPY 700,000, which was calculated by time charge-base of JPY 40,000 per hour.
Bookkeeper must be familiar with tax matters such as foreign withholding, but this is not always the case. It doesn’t matter if the accounting firm is large. The quality of service depends on who will be in charge.
Let’s check their GAAP conversion skills
We see that some foreign-affiliated companies book daily transactions based on US-GAAP/IFRS according to their parent company’s GAAP. In such a case, it is necessary to reclass the financial statement into the one based on Japan-GAAP at the year-end closing to comply with Japanese corporation law and corporate income tax law.
A certified public accountant can help with GAAP conversion. A CPA who understands the outline of USGAAP / IFRS and can speak English. Medium or larger accounting firms would have that CPA.
(*) GAAP: Generally Accepted Accounting Principle
Accounting firms that have experienced ERP are good
Commonly, foreign-affiliated corporations employ an ERP system such as Oracle and SAP according to their global policy.
But for those who are familiar with accounting software made in Japan (*), those ERP systems seem to be pretty non-user-friendly and inefficient.
I learned that outsourcing companies need to understand the trait of ERP by experience so that they get specific know-how to make it work efficiently. Otherwise, they are likely to wind up in requesting clients to raise a fee or cancel the contract in one or two years later.
(*) Such as Yayoi, Kanjo-bugyo, PCA.
There are pros and cons for each large company and small specialized company
Here are strong points and week points for Big accounting companies and mid/small-sized specialized companies.
Note the followings are trend only and may not apply to all companies.
|Large outsourcing firm||(1) Access to reliable experts on a specific area such as Transfer pricing tax system and M&A reorganization tax.
(2) IT security, information leakage, personal information protection are in place.
(3) There is a certain sense of reassurance for quality.
(4) Provide one-stop services.
|(1) When you ask a question about tax treatment, they will provide you advises on-time charge basis, which would be expensive.
(2) Response to unusual requests may be late or unable to handle due to strict internal procedures.
(3) Team members may change frequently. May not sufficient in taking over the job. Job quality varies depending on the team member.
|Mid/small outsourcing firm||(1) Reasonable price
(2) Carry out quickly for client’s queries or additional requests. Flexible treatments
(3) Service quality may keep the same level to any clients as the representative commits in all engagement teams
|(1) Do not provide services for Transfer pricing tax, M&A reorganization tax.
(2) IT security, information leakage, personal information protection may not be in place.
An office with both the advantages of SMEs and the benefits of large companies is the ideal accounting firm.
Quality should be BIG4 level,
Fees should be small,
Always quick response.
We are aiming at it.
If you would like to have a quote, please contact us without hesitation.