1. Accounting Requirements in Japan

To operate a legal entity in Japan, it is essential to comply with Japan’s distinctive accounting standards and tax system.

Japanese subsidiaries must understand the differences between the accounting standards adopted by their parent company and Japanese standards (GAAP differences). If necessary, they may need to reclassify their financial records to conform to Japanese standards at the end of the fiscal year. Furthermore, Japanese tax filings and statutory disclosures are typically conducted in Japanese and must adhere to the Corporate Tax Law and the Companies Act. Even if the parent company consolidates financial results under US GAAP or IFRS, the Japanese subsidiary must submit its financial statements and tax filing documents in the required Japanese format.

Additionally, Japan imposes a consumption tax and has unique requirements for invoice formats and data retention, such as the qualified invoice retention system (the "invoice system"), which began in 2023.

In summary, foreign-affiliated companies must ensure that their Japanese subsidiaries comply with local accounting and tax regulations. An accounting system that accounts for differences from the parent company's standards and adjusts to Japanese requirements is necessary.

2. Overview of Japan's Electronic Bookkeeping Law

The Electronic Bookkeeping Law establishes rules for preserving tax-related books and documents as electronic data.

The law classifies preservation obligations into three main categories: 

• Electronic Bookkeeping Preservation: Saving electronic data of books and financial statements created on a company’s PC or accounting software (optional)
• Scanner Preservation: Digitizing and saving paper documents received or issued as image data (optional)
• Electronic Transaction Preservation: Storing data for invoices, receipts, etc., exchanged electronically (mandatory) 

Among these, Electronic Bookkeeping Preservation and Scanner Preservation are optional, while Electronic Transaction Preservation is mandatory. The standard retention period is seven years (extendable to ten years in some cases), and electronic data must be accessible during tax audits.

To comply with electronic storage requirements, the following conditions must be met to ensure the authenticity and visibility of records:

[Overview of Requirements for Storing Electromagnetic Records Related to Electronic Transaction Information]

• Preparation of documentation describing the electronic data processing system
• Provision of viewable devices
• Search functionality
• Measures to prevent and track corrections and deletions
  One of the following must be implemented:
  • Timestamp affixed before or after data exchange
  • Use of systems that log changes or prevent alterations
  • Internal rules to control changes or deletions

(Reference: National Tax Agency | Electronic Bookkeeping Law Q&A – Electronic Transactions: Application Requirements)

https://www.nta.go.jp/law/joho-zeikaishaku/sonota/jirei/07denshi/02.htm#a009

These requirements ensure that electronic transaction records are tamper-proof, searchable, and readily verifiable.

Since these obligations apply to businesses of all sizes, compliance with the Electronic Bookkeeping Law is essential for operating in Japan.

3. Why IoT Compliance is Essential (Electronic Bookkeeping Law, Efficiency, Data Linkage)

To run accounting operations smoothly in Japan, “IoT compliance” the adoption of digital tools is crucial.

This need stems from three key perspectives: compliance with the Electronic Bookkeeping Law, operational efficiency, and system integration with internal and external platforms.

For legal compliance, digitization of paper documents is required. Common methods include scanning paper receipts and invoices or capturing them via smartphone, followed by OCR (optical character recognition).

Such tools and systems fall under IoT (Internet of Things). Timestamps, audit logs, and secure processing are achieved through compatible accounting software and cloud services.

From an efficiency standpoint, IoT tools dramatically reduce the time spent storing and retrieving paper documents. Electronic formats allow for instant searches and viewing, while also eliminating risks of physical loss or storage limitations. Digital approval workflows also support remote work, aligning with modern work style reforms.

Regarding system integration, today’s accounting platforms must interface with other business systems. For example, they can automatically retrieve bank and credit card transactions and import sales data from e-commerce or sales management platforms. Many cloud-based accounting tools offer API connections for these integrations, enabling automation and reducing manual input. 

4. Initial Introduction Challenges and Options When Establishing a Company in Japan

When foreign-affiliated companies establish subsidiaries in Japan, they face challenges in selecting and implementing accounting systems due to language barriers, compatibility with the parent company’s ERP, and cost.

English-language systems may be unfamiliar to local staff, while Japanese systems may lack usability for foreign CFOs, necessitating multilingual support and UI customization.

Moreover, parent company ERPs are often large-scale and costly to implement. Cloud accounting software, offering lower costs and shorter setup times, can be a more practical option.

Flexible operational strategies, such as outsourcing or aligning account titles with Japanese standards, should be considered early on. Each option must be evaluated for its compatibility with the parent company and scalability for future growth.

5. Reasons Why Oracle, SAP, and Xero are Not Suitable

While foreign ERPs like Oracle, SAP, and Xero offer powerful features, their complexity and high consulting costs can be burdensome for smaller Japanese subsidiaries.

These platforms may struggle to support Japan’s unique accounting practices, such as consumption tax handling and statutory reporting. In addition, their English-based interfaces may hinder usability for local staff.

Japanese software tends to be quicker to adapt to local regulatory changes, such as updates to the Electronic Bookkeeping Law, making it a more practical and cost-effective choice. For these reasons, Japanese systems are often preferred.

6. Introduction to Unique Japanese Accounting Systems (Kanjyo Bugyo, PCA Kanjyo, etc.)

Japan has several domestic accounting software solutions tailored to local business practices and tax rules.

Major examples include Kanjyo Bugyo (OBC Co.), PCA Kanjyo (PCA Co.), and Yayoi Kaikei (Yayoi Co., Ltd.). These platforms have long-standing market presence and high adoption in Japan.

Kanjyo Bugyo 
A standard accounting tool for small and medium-sized enterprises, it features familiar UI and report formats for Japanese users and integrates smoothly with OBC’s other tools (e.g., Sho Bugyo for sales, Kyuyo Bugyo for payroll). 
A cloud-based version, Kanjyo Bugyo Cloud, supports the latest legal requirements, including the Electronic Bookkeeping Law. 
A Global Edition is also available with English menus, making it accessible for foreign users and well-supported by local accounting professionals.

PCA Kanjyo 
Another long-established product, it supports both installed and cloud versions and offers advanced capabilities like departmental and project-based accounting. 
With regular updates for legal compliance, it offers stability and familiarity for users with bookkeeping experience, although it emphasizes manual over fully automated processes.

Yayoi Kaikei 
Popular among small businesses and sole proprietors, it is known for its user-friendly desktop version and intuitive UI ideal for users with limited accounting knowledge. 
The cloud version, Yayoi Kaikei Online, is widely used but lacks English language support, making it better suited for operation by Japanese-speaking staff. 

7. Features of freee and Money Forward

freee and Money Forward are leading cloud-based accounting solutions in Japan.

Both offer automated bank feed integration, OCR for receipts, and seamless linkage with other cloud services enhancing overall back-office efficiency.

They emphasize automation for non-specialist users (e.g., generating journal entries from expense submissions) while also offering intuitive interfaces for users with accounting knowledge.

Their subscription-based pricing eliminates the need for server maintenance and version upgrades. As cloud platforms, they’re always updated to reflect the latest legal requirements, including those related to the Electronic Bookkeeping Law and invoice system.

Among the two, only Money Forward offers an English interface. If using freee, foreign-affiliated companies may need to assign Japanese staff for day-to-day tasks and generate parent-company reports using CSV exports or custom templates.

8. Summary

CFOs and accounting managers of foreign-affiliated companies must fully understand Japan’s accounting and tax obligations including GAAP differences, consumption tax, and the Electronic Bookkeeping Law—and select systems that ensure compliance.

Ease of implementation, cost, and the ability to link data with the parent company (via CSV or API) are also key considerations.

Traditional software like Kanjyo Bugyo, PCA Kanjyo, and Yayoi Kaikei, and newer cloud options like freee and Money Forward each offer unique benefits. The choice should align with the company’s size, operations, and IT capacity.

Ultimately, selecting the right system supports legal compliance, operational efficiency, and global integration, strengthening the business foundation in Japan. 

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