Accounting, tax, and labor administration that the country manager or a small team could handle alongside other duties in the early days eventually become unmanageable as the business grows. If strengthening the back office is delayed, it can hold back business growth through late tax filings, rising administrative costs, and similar problems.
- Monthly closing and tax filings are consistently done right up against the deadline
- Accounting is handled part-time by someone with other responsibilities
- Reporting to the overseas headquarters takes a long time every cycle
- Headcount has grown, but labor administration and management have not kept pace
This article explains when a foreign company's Japan entity should strengthen its back office, and how to approach it.
The Risk of Falling Behind on Back-Office Operations
Japan has its own tax system covering corporate tax, consumption tax, and withholding tax, and mishandling it carries risks that can directly affect the business, such as additional tax assessments or a tax audit. An underdeveloped accounting function can also delay monthly reporting to the overseas headquarters, affecting investment decisions and trust with headquarters.
Back-office gaps are not always visible on the surface, but the cost of fixing them grows as the business grows, so addressing them early is important.
Five Signs It Is Time to Strengthen the Back Office
The following signs indicate it may be time to consider strengthening the back office.
| Sign | Possible Risk |
|---|---|
| Monthly closing is not completed within the following month | Delays in management decisions and headquarters reporting |
| Tax filings are consistently done right up against the deadline | Risk of filing errors or additional tax assessments |
| The person handling accounting also covers other duties | Work becomes siloed and hard to see into |
| Headcount has grown, but labor management is still handled manually | Labor disputes and compliance risk |
| The company cannot yet meet headquarters standards such as IFRS or US GAAP | Reduced accuracy of headquarters reporting |
How to Approach Strengthening the Back Office
Strengthening the back office does not require bringing everything in-house at once. Building out the monthly closing process and accounting workflow first, and establishing a relationship with outside specialists, allows the function to be strengthened in stages.
Foreign companies in particular need a structure that can meet both Japanese standards and headquarters standards (such as IFRS or US GAAP), which makes working with specialists who understand both Japanese requirements and headquarters' expectations especially valuable.
Summary
- Back-office gaps are not always visible, but the cost of fixing them grows as the business grows
- Delayed monthly closing, tax filings done right up against the deadline, and siloed accounting work are signs it is time to strengthen the function
- Check whether labor management has kept pace with headcount growth
- Build out, in stages, a structure that can meet both Japanese and headquarters standards (such as IFRS or US GAAP)
- Build a relationship with outside specialists and find the right balance between in-house work and outsourcing
Contact
JBN provides one-stop support, from tax and compliance response through to building an accounting function and internal management systems.
To discuss strengthening your back office, please contact us.