This is a translation of the Japanese original. The Japanese version is authoritative; figures follow Japanese tax law.
A company with capital of 100 million yen or less can treat entertainment expenses (交際費) of up to 8 million yen a year as fully deductible for corporate tax. On top of that, meals with people outside the company that cost 10,000 yen or less per person are not counted as entertainment expenses at all. From April 2024 this line rose from 5,000 yen to 10,000 yen, which moved most business meals outside the entertainment expense cap. There are limits: drinks with your own people only stay entertainment expenses even under 10,000 yen, and the exclusion is refused unless you keep a document showing the date, the names of the people present and the headcount. This article sorts out whether to take the 8 million yen flat deduction or the 50% of entertainment meal expenses, whether the 10,000 yen test is tax-inclusive or tax-exclusive, and where the line runs against meeting expenses and employee welfare expenses, using National Tax Agency (NTA) materials.
The short answer: a small or medium company thinks about entertainment expenses in three steps
| Step | What it covers | Effect |
|---|---|---|
| 1. Meals of 10,000 yen or less per person | Meals that include people from outside the company, such as clients, at 10,000 yen or less per head | Not counted as entertainment expenses. Fully deductible (on condition that the document is kept) |
| 2. The 8 million yen flat deduction | Entertainment expenses excluding step 1 totalling 8 million yen or less a year | Fully deductible |
| 3. 50% of entertainment meal expenses | Instead of step 2, you may elect to deduct 50% of meal expenses with people outside the company | Better only for companies with over 16 million yen of meal expenses a year |
Sources: NTA Tax Answer No.5265, "The scope of entertainment expenses and the calculation of the non-deductible amount"[NTA]; Outline of the 2024 amendments to corporate tax legislation[NTA]
A company with capital of 100 million yen or less may pick whichever of step 2 and step 3 is better for it. A company whose entertainment expenses do not reach 8 million yen a year deducts everything under step 2. For a one-person company or a firm with a handful of staff, steps 1 and 2 remove almost all worry about entertainment expenses. Sole proprietors have no such regime at all: their entertainment costs are judged under the general rule for necessary expenses (there is no ceiling in the law, though you still have to explain the connection with the business).
Meals of 10,000 yen or less per person: the conditions for leaving the entertainment expense pot
The NTA excludes from entertainment expenses any cost of dining "where the amount obtained by dividing the amount paid by the number of people who took part in the meal is 10,000 yen or less". For payments made on or before March 31, 2024, the figure was 5,000 yen or less[NTA No.5265].
Can be excluded
- A meal with two people from a client and two of your own, 36,000 yen in total: 9,000 yen per head, so it is excluded
- A meal after a meeting with a customer, 8,000 yen per head
- Food and drink given to a client as a gift (within the range that may be treated as a cost of dining)
Cannot be excluded
- A meal with only directors, employees and their relatives (in-house meal expenses). Entertainment expenses even at 5,000 yen per head
- A meal at 12,000 yen per head: the whole amount is entertainment expenses, not only the excess
- A meal with no document naming the participants and the headcount
- Golf, theatre and other entertaining that is not dining (not a cost of dining, so out of scope)
To take the exclusion, keep a document (written on the receipt itself or on a separate sheet) stating these five items[NTA No.5265].
- The date of the meal
- The names and the relationship of the customers, suppliers and others who took part
- The number of people who took part
- The amount, and the name and address of the restaurant
- Anything else that shows the payment was a cost of dining
Is the 10,000 yen tax-inclusive or tax-exclusive? Your accounting method decides
The 10,000 yen test "is made on the value calculated under the consumption tax accounting method the company applies, that is, the tax-exclusive method or the tax-inclusive method"[NTA No.5265]. The same 11,000 yen meal comes out differently from one company to the next.
| Accounting method | Ceiling per person (dining taxed at 10%) | A meal at 11,000 yen per head (tax included) |
|---|---|---|
| Tax-exclusive | 10,000 yen before tax = 11,000 yen including tax | Can be excluded |
| Tax-inclusive | 10,000 yen including tax | Cannot be excluded (all of it is entertainment expenses) |
Tax-exempt businesses and companies on the simplified consumption tax system usually use tax-inclusive accounting, so their ceiling is 10,000 yen including tax. When you settle the bill, the rough guide is 10,000 yen per head on tax-inclusive accounting and 11,000 yen per head on tax-exclusive accounting. The whole entertainment expense calculation uses the same accounting method.
8 million yen or 50%: where the choice turns
For entertainment expenses other than step 1, a company with capital of 100 million yen or less elects one of the following[NTA No.5265].
- The flat deduction: up to 8 million yen a year is deductible (pro-rated by month if the fiscal year is shorter than 12 months); anything above it is not
- 50% of entertainment meal expenses: 50% of meal expenses with people outside the company (in-house meal expenses excluded) is deductible, and all other entertainment expenses are not deductible at all
- Flat deduction: 8 million yen deductible, 2 million yen not deductible
- 50% of entertainment meal expenses: 9 million yen x 50% = 4.5 million yen deductible, 5.5 million yen not deductible
- -> The flat deduction wins. The 50% method only comes out ahead once meals with people outside the company alone pass 16 million yen a year
A company with capital above 100 million yen and up to 10 billion yen has only the 50% method; above 10 billion yen nothing is deductible. This special measure was extended by three years in the 2024 tax reform, and it now applies to fiscal years beginning on or before March 31, 2027[NTA, outline of the amendments]. Being non-deductible does not mean the money is wasted. It means the payment is not an expense in the tax calculation, so you pay the corporate tax on that amount (roughly 20 to 30% in effective terms for a smaller company). You can check the burden in the effective corporate tax rate and what it costs at each profit level.
Where the line runs against meeting expenses, employee welfare and advertising
Booking as entertainment expenses something that is not entertainment expenses wastes the 8 million yen allowance. The main costs the NTA keeps outside the scope of entertainment expenses are these[NTA No.5265].
| Account | Examples given by the NTA | What decides it |
|---|---|---|
| Employee welfare expenses (福利厚生費) | Ordinary costs of a sports day, a show or a trip held solely to entertain employees | Open to all employees, and of a scale accepted as normal |
| Meeting expenses (会議費) | Ordinary costs of serving tea, snacks, boxed lunches and the like in connection with a meeting | There has to be a real meeting. A boxed lunch at an internal meeting is a meeting expense regardless of the 10,000 yen line |
| Advertising expenses (広告宣伝費) | Ordinary costs of giving away calendars, diaries, fans and hand towels | Handed out to the general public |
| Reporting costs | Ordinary costs of round-table talks and interviews for editing a publication or a broadcast programme | For media businesses |
An in-house drinking party is an entertainment expense (the 10,000 yen exclusion does not apply), but a year-end party open to everyone, at a cost the company bears within the normal range, is an employee welfare expense. A meal for a few directors only is an entertainment expense. For costs where the line is hard to draw, see the NTA's "Basic thinking on entertainment meal expenses"[NTA, basic thinking on entertainment meal expenses].
How this differs for a sole proprietor
The non-deductibility of entertainment expenses is a corporate tax rule (Article 61-4 of the Act on Special Measures Concerning Taxation). A sole proprietor's entertainment costs are judged under the general rule for necessary expenses in the Income Tax Act, by asking whether the cost was needed to carry on the business, and there is no ceiling such as 8 million yen. Having no ceiling is not the same as anything goes: you need records that explain who was there, why, and how it relates to the business, exactly as a company does. For how expenses work for an individual, see ten grey areas in sole proprietor expenses and the list of deductible expenses.
For anyone weighing up incorporation, the entertainment expense ceiling is "up to 8 million yen a year", so it rarely binds in practice. What does help is getting into the habit of keeping the document behind the 10,000 yen test, which makes a tax audit much easier to answer.
Frequently asked questions
At 12,000 yen per head, is 10,000 yen excluded and only 2,000 yen entertainment expenses?
No. Once the amount per head passes 10,000 yen, the whole of that meal expense becomes entertainment expenses. It is not only the excess that counts.
Can a drinking party with the president and employees be excluded if it is 10,000 yen or less?
No. A meal with only directors, employees and their relatives (in-house meal expenses) is outside the 10,000 yen exclusion and stays an entertainment expense. If it is an event open to everyone and within the normal range, it becomes an employee welfare expense.
If entertainment expenses pass 8 million yen, is the excess not an expense at all?
It is an expense in the accounts, but it is not deductible in the corporate tax calculation, so corporate tax falls on the excess. If the 50% method for entertainment meal expenses is better for you, you may elect that instead.
Is a receipt on its own enough for the 10,000 yen exclusion?
No. The condition is that you keep a document showing the date, the names and relationship of the people present, the headcount, the amount and the restaurant. Writing it in the margin of the receipt is enough.
Reference links (sources)
- NTA No.5265, The scope of entertainment expenses and the calculation of the non-deductible amount (the 8 million yen, the 50%, the 10,000 yen test, the items in the document, accounting methods, costs outside entertainment expenses)
- NTA, Outline of the 2024 amendments to corporate tax legislation (entertainment expenses) (the rise to 10,000 yen, the three-year extension)
- Ministry of Finance, Outline of the 2024 tax reform (applies to payments made on or after April 1, 2024)
- NTA, Basic thinking on entertainment meal expenses
Note: the worked example applies the NTA's calculation method ourselves. The deadline is taken as fiscal years beginning on or before March 31, 2027, from the fact of the three-year extension.
