Regulation for Enforcement of the Income Tax Act

A person who seeks to obtain the approval of the district director prescribed in Article 195, item (ii) (Requirements for Small Enterprises) of the Order must submit to the competent district director with jurisdiction over the place for tax payment, by January 31 of the year in which the person seeks to again have the provisions of Article 67, paragraph (1) (Periods to Which Revenue and Expenses of Small Enterprises and Similar Businesses Are Attributed) of the Act apply, a written application stating the following particulars:

the name and domicile (or, if the person has no domicile in Japan, residence) of the person submitting the written application and, if the place of domicile (or, if the person has no domicile in Japan, the place of residence) differs from the place for tax payment, that place for tax payment;

The period during which the person was previously subject to the application of the provisions of Article 67, paragraph (1) of the Act, and the reason why the provisions ceased to apply to the person;

Any other matters for reference.

Where a written application set forth in the preceding paragraph is submitted, the district director may reject the application if the district director finds that it would be difficult to properly calculate the amount of real property income or the amount of business income of the person for each subsequent year by calculating the amount of real property income or the amount of business income under the provisions of Article 67, paragraph (1) of the Act.

Where a written application set forth in paragraph (1) is submitted and the district director grants approval of or rejects the application, the district director notifies the person who made the application of that fact in writing.

Where a written application set forth in paragraph (1) is submitted, if no disposition of approval or rejection of the application has been made by March 15 of the year in which the person seeks to again receive application of the provisions of Article 67, paragraph (1) of the Act, the approval is deemed to have been granted on that date.

The calculation of the amount of real property income or the amount of business income for the year in which a Resident who has been subject to the application of the provisions of Article 67, paragraph (1) (Periods to Which Revenue and Expenses of Small Enterprises and Similar Businesses Are Attributed) of the Act ceases to be subject to their application is as prescribed in the following items.

The amount equivalent to the difference between the amount of accounts receivable, accounts payable, accrued revenue, unearned revenue, prepaid expenses, accrued expenses and other similar assets and liabilities, and Inventory (hereinafter referred to as "accounts receivable, etc." in this item) as of December 31 of the year preceding the year in which the person became subject to the application of the provisions of Article 67, paragraph (1) of the Act (where the person newly commenced business that generates real property income or business income in the course of the year, the date on which the person commenced that business; the same applies in the following item) and the amount of accounts receivable, etc. as of January 1 of the year in which the person ceased to be subject to the application of the provisions of that paragraph is to be included in gross revenue or necessary expenses, respectively, in calculating the amount of real property income or the amount of business income for the year in which the person ceased to be subject to their application;

The amounts of allowances and reserves under the provisions of the Act and other laws and regulations pertaining to income tax as of December 31 of the year preceding the year in which the person became subject to the application of the provisions of Article 67, paragraph (1) of the Act are respectively deemed to be the amounts of those allowances and reserves carried over from the year preceding the year in which the person ceased to be subject to the application of the provisions of that paragraph.

In the case where a Resident who carries on business that generates miscellaneous income and who was subject to the application of the provisions of Article 67, paragraph (2) of the Act in the year preceding a given year ceases to be subject to the application of the provisions of that paragraph in that year, with respect to the calculation of the amount of miscellaneous income pertaining to that business for the year in which the person ceases to be subject to their application, the amount equivalent to the difference between the amount of accounts receivable, accounts payable, accrued revenue, unearned revenue, prepaid expenses, accrued expenses and other similar assets and liabilities, and assets equivalent to the assets listed in the items of Article 3 (Scope of Inventory) of the Order pertaining to that business (hereinafter referred to as "accounts receivable, etc." in this paragraph) as of December 31 of the year preceding the year in which the person became subject to their application (where the person newly commenced business that generates miscellaneous income in the course of the year, the date on which the person commenced that business) and the amount of accounts receivable, etc. as of January 1 of the year in which the person ceases to be subject to the application of the provisions of Article 67, paragraph (2) of the Act is to be included in gross revenue or necessary expenses, respectively, in calculating the amount of miscellaneous income pertaining to that business for the year in which the person ceases to be subject to their application.

In the case referred to in the preceding paragraph, where the provisions of Article 67, paragraph (2) of the Act applied to the person in every one of the years within the five years on or before the year preceding the year referred to in the preceding paragraph, the person may, at the person's choice, decline to apply the provisions of the preceding paragraph.

A Resident who is subject to the application of the provisions of the preceding two paragraphs must, when submitting a Tax Return for the year for which the Resident seeks application of those provisions, state in that return to the effect that those provisions apply to the Resident.

The matters specified by Ministry of Finance Order as prescribed in Article 197, paragraph (1) (Procedures, etc. for Receiving Special Provisions on Timing of Attribution of Revenue and Expenses) of the Order are the following matters:

The name and domicile (or residence, if the person has no domicile in Japan) of the person who submits the written notification prescribed in Article 197, paragraph (1) of the Order and, if the place of domicile (or place of residence, if the person has no domicile in Japan) differs from the place for tax payment, that place for tax payment;

The facts by which the person satisfies the requirements listed in the items of Article 195 (Requirements for Small Enterprises) of the Order;

As of December 31 of the preceding year prescribed in the items of paragraph (1) of the preceding Article, the amount of accounts receivable, etc. referred to in item (i) of that paragraph and the amounts of allowances and reserves referred to in item (ii) of that paragraph;

Any other matters for reference.

The matters specified by Ministry of Finance Order as prescribed in Article 197, paragraph (2) of the Order are the following matters:

The name and domicile (or residence, if the person has no domicile in Japan) of the person who submits the written notification prescribed in Article 197, paragraph (2) of the Order and, if the place of domicile (or place of residence, if the person has no domicile in Japan) differs from the place for tax payment, that place for tax payment;

The matters stated in the written notification set forth in the preceding paragraph that are listed in item (iii) of that paragraph;

Any other matters for reference.