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Overseas FX tax

Timing and methods for incorporating an overseas forex trading business: Explaining when it's pointless, as well as its advantages and disadvantages

Posted by: MoneyChat Editorial Department

Many people who start making stable profits from overseas forex trading will consider incorporating their business

However, if you don't know the right timing for incorporating your business or how to establish one, you may not be able to reap the benefits of incorporation

Therefore, this article explain the timing and methods for incorporating an overseas forex trading business .

This article also explains the advantages and disadvantages of incorporating your business, so please use it as a reference if you are considering incorporating

Regarding taxes on overseas forex trading, we recommend reading the complete guide to overseas forex taxation

Contents

Is incorporating an overseas forex business pointless?

Whether incorporating an overseas forex trading business is pointless depends on the specific case

The reason for incorporating an overseas forex trading account is to take advantage of tax benefits. Understanding the annual profits from a personal account, as well as the advantages and disadvantages of incorporation, will reveal that incorporation can be highly beneficial if it proves to be advantageous

Below, we will delve deeper into whether incorporating an overseas forex trading business is truly pointless

Incorporating offers greater tax benefits than operating as a sole proprietor

Generally speaking, when conducting business, sole proprietors can expect tax benefits compared to individuals

However, in the case of overseas forex trading, even if you become a sole proprietor, you won't receive much in the way of tax benefits

First of all, if you only engage in overseas forex trading, it's unlikely that your business registration will be accepted, as it may not be recognized as a legitimate business

There was a past court case in which a trader considered FX trading as business income and attempted to offset losses against their salary. However, FX trading was deemed to be "miscellaneous income" rather than a business, and the trader lost the case

The distinction between business income and miscellaneous income is determined by whether the economic activity that gave rise to the income "can be considered a business according to common sense." In making this determination, various factors should be considered, such as whether it is profitable, whether it is compensated, whether it is continuous, whether it is repetitive, whether it is planned and executed at one's own risk and expense, the degree of mental and physical effort expended on the transaction, whether there are human and material resources, the method of fundraising, the person's occupation, career, social status, and living situation. Furthermore, in order for something to be considered a business, there must be a possibility of obtaining stable profits over a considerable period of time.
As will be examined below, the transaction with Company A in this case does not seem to have any possibility of obtaining stable profits over a considerable period of time, and therefore does not constitute a business under the Income Tax Act. Accordingly, the income from the transaction with Company A in this case does not fall under business income, but under miscellaneous income.

Source: National Tax Agency | Tax Litigation Materials No. 263-122 (Serial No. 12246)

In short, FX trading is not considered a business, meaning you cannot file a blue return (a type of tax return in Japan). Therefore, even if you utilize expense deductions and other tax credits, you cannot expect significant tax savings

On the other hand, if you incorporate your business, FX trading will be considered a business, allowing you to offset profits and losses against other businesses and carry forward losses, which can significantly reduce your tax burden.

Based on the above, incorporating a business offers greater tax benefits than operating as a sole proprietor, and it can be said that incorporating is worthwhile for those with high annual incomes

The right time to incorporate is "annual income of 9 million yen or more."

time to incorporate your business is when your annual profit exceeds 9 million yen.

If your annual profit is less than 9 million yen, the tax rate is lower for individuals than for corporations, making it difficult to reap the benefits of incorporation

However, if your income exceeds 9 million yen, your personal tax rate will be 33%, and if your corporate income exceeds 8 million yen, it will be 23.2%, resulting in a significant tax burden for individuals.

Therefore, a good guideline for when to incorporate your business is when your profits exceed 9 million yen

Personal accountCorporate account
Annual Profittax rateAnnual Profittax rate
6.95 million yen to 9 million yen23%Under 8 million yen15%
9 million yen to 18 million yen33%Over 8 million yen23.2%

Furthermore, including expenses and deductions, it may be possible to reduce your tax burden compared to a personal account even if your income is less than 9 million yen

The timing of incorporating your business should be carefully considered in consultation with professionals such as tax accountants

Benefits of incorporating your business for overseas forex trading

For some people, incorporating their business for overseas forex trading can offer significant tax benefits

Below, we will introduce the advantages of incorporating your business for overseas forex trading

Tax burden can be reduced

Income from overseas forex trading is subject to a progressive tax system, meaning that regardless of whether you are a sole proprietor or a corporation, the more income you earn, the more tax you pay

However, if you have profits above a certain level (approximately 9 million yen or more), you can expect to reduce your tax burden by switching from a personal account to a corporate account.

Below is a summary of the tax rates for individual and corporate accounts

 Personal accountCorporate account
income formMiscellaneous incomebusiness income
tax rate5-45% income tax + 10
% local tax
Corporate tax of 19-23.2% + local corporate tax, corporate inhabitant tax, and corporate business tax
maximum tax rate55%Approximately 30-35%

While the tax rate for individual accounts is up to 55% (including local taxes), corporate accounts have a lower effective tax rate of 30%.

While profits are low, operate as a sole proprietor, and once profits exceed a certain level, consider incorporating

Losses can be offset against other income

If you incorporate your business for FX trading, you can also offset profits and losses against each other.

Loss offsetting : A system that allows businesses to offset losses against other income.

For individual accounts, only miscellaneous income such as cryptocurrency FX or affiliate income is eligible, and offsetting profits and losses with other businesses is not permitted

However, with a corporate account, you can combine all business-related items and offset them.

If you have businesses other than FX trading, incorporating your business will likely allow you to benefit more from tax advantages

Losses can be carried forward for up to 10 years

If you are trading overseas forex as an individual, you cannot carry forward losses, but if you incorporate your business, you can carry forward losses for up to 10 years.

Loss Carryforward: If losses cannot be offset during the calculation of profits and losses, the loss is carried forward to the following year and offset against profits in that year

  1. A loss of 3 million yen in 2025
  2. A profit of 3 million yen in 2026
  3. Losses and profits are offset, resulting in zero taxes in 2026

Offsetting losses against profits in subsequent years not only reduces the tax burden, but also increases the amount of money available for trading, making it easier to aim for high returns

The range of expenses that can be deducted, such as executive compensation and insurance premiums, will expand

In FX trading, both individual and corporate accounts allow you to claim expenses, but for individual accounts, the scope of deductible expenses is limited

Therefore, incorporating your business expands the range of expenses that can be deducted, and can lead to a lower tax burden compared to using a personal account.

For example, the following items can be claimed as expenses:

  • Executive compensation
  • Computer cost
  • Housing expenses
  • Retirement allowance

In addition to including executive compensation and retirement allowances as expenses, housing costs can also be included .

However, not all expenses may be accounted for, so if you have any questions about expenses, consult a tax professional

You can join the Employees' Pension Insurance

Incorporating your business will create an obligation to enroll in social insurance

Joining health insurance and employee pension plans not only increases the amount of pension you will receive in the future, but also provides the benefit of generous compensation such as sickness and injury benefits and maternity benefits

Furthermore, health insurance premiums can be recorded as a "deductible expense."

Deductible expenses: Expenses that can be deducted when calculating a company's income

The larger the expenses, the lower the taxable income, which can reduce the tax burden

Social credibility increases

Incorporating rather than operating as an individual increases social credibility

This will make it easier to recruit talent and raise funds, and will also make it easier to start businesses other than FX trading .

If your company is solely focused on FX trading, a limited liability company (LLC) is sufficient. However, if you are considering other businesses, it is recommended to establish a joint-stock company (Kabushiki Kaisha), which offers easier access to funding and higher social credibility

Disadvantages of incorporating a business for overseas forex trading

While I've mentioned that incorporating your business for overseas forex trading can reduce your tax burden, there are also several disadvantages to incorporating

Below, we will discuss the disadvantages of incorporating your business for overseas forex trading

Please carefully consider whether or not to incorporate your business after understanding the advantages and disadvantages

There are costs involved in establishing a corporation

There are always costs involved when establishing a corporation

Scroll to the right
LLCCo., Ltd
Registration license taxOver 60,000 yenOver 150,000 yen
Stamp duty for articles of incorporation40,000 yen40,000 yen
Articles of Incorporation Authentication Fee15,000 to 50,000 yen
Copy fee250 yen/sheet
Company seal purchase cost100 yen to 10,000 yen100 yen to 10,000 yen
Seal registration fee1,000 yen1,000 yen

The cost of establishing a limited liability company (LLC) or a joint-stock company (Kabushiki Kaisha) varies; it costs around 100,000 yen for an LLC and around 200,000 yen for a joint-stock company .

A limited liability company (LLC) has the advantage of quick decision-making and lower operating costs because the investors and managers are the same. However, a disadvantage is that LLCs are less familiar than corporations and have slightly less social credibility

On the other hand, while corporations have the disadvantages of high operating costs and time-consuming procedures, they have the advantage of high social credibility and easier access to funding

If you are establishing a corporation solely for the purpose of overseas forex trading, a limited liability company (LLC) should be fine. However, some overseas forex brokers may not allow the opening of a corporate account for an LLC, so it is advisable to inquire with the overseas forex broker you are considering beforehand.

Corporate inhabitant tax and consulting fees are among the maintenance costs incurred

Earlier, I explained that "establishing a company is expensive," but there are also other fixed maintenance costs such as corporate inhabitant tax and consulting fees.

Corporate inhabitant tax is a flat-rate tax, and for companies with capital of 10 million yen or less, the minimum is 70,000 yen, which must be paid even if the company is operating at a loss

Consulting fees the costs incurred when contracting with tax accountants or social insurance and labor consultants, and it's not uncommon for them to cost around 200,000 yen per year.

Incorporating a business makes tax processing and insurance procedures more complex, so you'll likely need to consult with tax accountants and social insurance specialists more often

When incorporating your business, it's important to keep in mind that you will incur fixed costs like those mentioned above

Unrealized gains are also subject to taxation

If you incorporate your business, you will need to record any gains or losses on your holdings at the end of the fiscal year.

Corporate tax and corporate inhabitant tax must be recorded once a year during the fiscal year-end, and taxes must be paid even if the company is operating at a loss

With a personal account, unrealized gains are not subject to taxation, so it was possible to adjust positions at the end of the year to reduce the tax burden

However, in the case of corporate accounts, unrealized gains are also subject to taxation, so be sure to declare them

Profits cannot be freely withdrawn

Individuals can freely use their profits, but corporations cannot freely withdraw money

When you incorporate, profits become the company's shared assets, and if you want to access those profits, you will receive a fixed amount each month in the form of "executive compensation."

Executive compensation can be changed annually, but the amount cannot be changed in a short period of time; it must be decided at a shareholders' meeting

If you are dissatisfied with not being able to freely withdraw money, it is recommended that you continue trading with a personal account rather than incorporating your business

How to establish a corporation for overseas forex trading

Below, we will explain how to establish a corporation for overseas forex trading

Before incorporating, decide on the basic details of the company

First, when incorporating a company, we will decide on the following basic company details

Company structureCorporations, limited liability companies, etc
Trade name (company name)Decide on a company name
Business purpose /business contentDetermine the purpose and content of the business
Head office addressCompany location
Board of Directors and CompensationDirectors (stock company), members (limited liability company) , and compensation amounts are determined.
capitalAmount of investment in the company
representativeA representative will be selected from among the board members
Fiscal year endDetermine the closing month

Once the above basic information has been decided, we will proceed with preparing the documents

The following documents are required for the incorporation process

  • Registration application form
  • Payment form for registration license tax
  • articles of incorporation
  • Resolution of the Founders
  • Letter of Acceptance of Appointment as Director at the Time of Establishment
  • Letter of Acceptance of Appointment as Representative Director at the Time of Establishment
  • Certificate of seal impression of the founding directors
  • Document certifying that the capital has been paid in
  • Seal registration form
  • A document listing the matters to be registered

After preparing the necessary documents, you can proceed with the registration application. The registration application process can be done by mail, in person, or online.

You won't receive a notification that your application is complete, but if there are any issues, the Legal Affairs Bureau will contact you, so be sure to respond accordingly

How to establish a limited liability company

The general process for establishing a limited liability company is as follows:

  1. Determining the company's basic information
  2. Creating a corporate seal
  3. Articles of Incorporation
  4. Payment of capital contributions
  5. Preparation of documents required for registration
  6. Submit the registration documents to the Legal Affairs Bureau that has jurisdiction over the location of the head office

The costs involved in establishing a limited liability company are as follows:

LLC
Registration license taxOver 60,000 yen
Stamp duty for articles of incorporation40,000 yen (0 yen if using electronic articles of incorporation)
Company seal purchase cost100 yen to 10,000 yen
Seal registration fee1,000 yen

Of the above, the registration license tax and the revenue stamp fee for the articles of incorporation are expenses that are always incurred when establishing a limited liability company. While there is no revenue stamp fee if the articles of incorporation are electronic, this requires more effort, so please choose the method that suits you best

Additionally, if you entrust the establishment of a limited liability company to a tax accountant or other professional, the fee will be approximately 50,000 to 150,000 yen

A limited liability company (LLC) can be operated at a low cost, and registration can be completed in about two weeks. If you are incorporating solely for the purpose of overseas forex trading, an LLC is recommended because the procedures are relatively simple.

How to establish a limited liability company

The general procedure for establishing a limited liability company is as follows:

  1. Decide on the initiators
  2. Company Profile Determination
  3. Company seal creation
  4. Articles of Incorporation
  5. Articles of Incorporation Authentication
  6. Payment of capital contributions
  7. Preparation of documents required for registration
  8. Submit the registration documents to the Legal Affairs Bureau that has jurisdiction over the location of the head office

The difference in how to establish a limited liability company (LLC) and a joint-stock company (Kabushiki Kaisha) lies in whether or not the articles of incorporation are notarized .

When establishing a limited liability company, you need to create articles of incorporation and have them certified by a notary public at a notary office that has jurisdiction over the location of the company's head office

The costs involved in establishing a limited liability company are as follows:

Co., Ltd
Registration license taxOver 150,000 yen
Stamp duty for articles of incorporation40,000 yen
Articles of Incorporation Authentication Fee15,000 to 50,000 yen
Copy fee250 yen/sheet
Company seal purchase cost100 yen to 10,000 yen
Seal registration fee1,000 yen

In the case of a stock company, authentication fees and certified copy fees are incurred when authenticating the articles of incorporation. Furthermore, the registration license tax is also higher for stock companies

It takes at least three weeks for a limited liability company to complete its corporate registration

If you want to open a corporate bank account as soon as possible, you should start the corporate registration process well in advance

If you find it difficult, it's also recommended to use a company incorporation service provider

The company formation process involves many tasks, such as drafting the articles of incorporation, obtaining certification, handling investment procedures, and registering the company, and it's easy to end up spending all your time on these procedures

In such cases, it's recommended to use a company incorporation service.

Using a company incorporation service means they handle all the necessary procedures for establishing a company, allowing you to dedicate more time to your own business

Furthermore, the fact that they not only handle the procedural aspects but also provide support and advice after the company is established is also a major attraction

The typical cost for using a company incorporation service is around 160,000 to 250,000 yen for a stock company and 20,000 to 100,000 yen for a limited liability company

If you're not confident in handling the company incorporation process yourself, consider using a company incorporation service

Points to note when incorporating a business for overseas forex trading

When incorporating your business for overseas forex trading, please keep the following points in mind

We will explain each point in detail

When opening a bank account, include details of your business activities other than FX trading

If you plan to open a bank account after incorporating your business, be sure to include details of your business activities other than FX trading

When applying to open a bank account, you may be asked to submit a copy of your articles of incorporation. If the articles of incorporation only describe your FX business, it may be difficult to gain the trust of the bank.

Furthermore, if you plan to engage in businesses other than FX trading in the future, there will be costs involved in adding business objectives to the articles of incorporation. Therefore, listing multiple business objectives from the beginning will allow for a smoother process when you decide to start additional businesses

If a salaried employee incorporates their business, they should check the company's employment regulations

If you are a salaried employee opening a corporate bank account, be sure to check your company's employment regulations beforehand

If you work for a company that doesn't allow side jobs, and your side job is discovered after you incorporate it, you could be fired

In some cases, a company may find out about a side job (FX trading) due to reasons such as "resident tax" or "social insurance."

If you can consistently generate profits over several years, one option is to quit your job and open a corporate bank account

If you are also working as a company employee and wish to continue working concurrently, please check your company's employment regulations and decide whether or not to continue at your own risk

Because filing tax returns is complicated, it is essential to hire a tax accountant

When filing your tax return using a personal account, the process isn't particularly complicated, and you can handle the procedures yourself

However, incorporating a business complicates tax procedures and makes preparing tax returns more time-consuming

To avoid unexpected problems such as "unintentionally engaging in tax evasion," it is recommended to entrust tax filing and other tax processing to a tax accountant who is knowledgeable about taxes related to overseas forex trading

Some tax accountants may have limited experience handling taxes related to overseas forex trading , so it's a good idea to gather information beforehand from official websites and other sources.

If your annual profits are not stable, I do not recommend incorporating your business

Even if you've been consistently making profits for several months with a personal account, if your profits fluctuate significantly from year to year, I wouldn't recommend incorporating your business

Incorporating your business allows you to implement tax-saving measures such as loss carryforward and offsetting gains and losses, and depending on your annual income, it can also reduce your tax burden

However, incorporating a business incurs ongoing costs, and even if you are operating at a loss, you will still have to pay "corporate inhabitant tax."

Incorporating a business when annual profits are unstable is likely to result in increased burdens rather than benefits, so it's safer to consider incorporation only after you've been able to consistently generate profits of 9 million yen or more for several years

Frequently Asked Questions about Incorporating an Overseas Forex Business

Finally, we will answer some frequently asked questions regarding incorporating an overseas forex business

Is it true that incorporating an overseas forex business is pointless?

Whether incorporating an overseas forex trading business is pointless depends on the specific case

Those whose annual profits are not stable may not benefit much from incorporating their business, and may even face an increased tax burden

However, those who can consistently generate a stable annual income will not only have their tax burden reduced but will also be able to enjoy various tax-saving benefits.

For those with an annual income of 9 million yen or more who want to reduce their tax burden, incorporating their business is one option to consider

What are the advantages of incorporating a business for overseas forex trading?

The advantages of incorporating your business for overseas forex trading are as follows:

  • Tax burden can be reduced
  • Losses can be offset against other income
  • Losses can be carried forward for up to 10 years
  • The range of expenses that can be deducted, such as executive compensation and insurance premiums, will expand
  • You can join the Employees' Pension Insurance
  • Social credibility increases

The biggest advantage of incorporating "reduced tax burden .

For individual accounts, a progressive tax system is in place where the tax rate increases as income rises, but if you incorporate, a flat corporate tax rate of 23.2% is applied

While corporate tax rates are lower for annual incomes exceeding 9 million yen, it is sometimes possible to reduce the tax burden even with an income below 9 million yen by utilizing deductions and expenses

In addition, it allows for loss carryforward for up to 10 years and offsetting profits and losses with other businesses, making it easier to implement tax-saving strategies

What are the disadvantages of incorporating a business for overseas forex trading?

The disadvantages of incorporating your business for overseas forex trading are as follows:

  • There are costs involved in establishing a corporation
  • Corporate inhabitant tax and consulting fees are among the maintenance costs incurred
  • Unrealized gains are also subject to taxation
  • Profits cannot be freely withdrawn

Many people are concerned about they "cannot freely withdraw profits .

Once a company is incorporated, profits become the company's shared assets, and therefore, money cannot be freely withdrawn

While executives receive money in the form of executive compensation, there are many restrictions, such as the fact that the amount cannot be easily changed and must be decided at a shareholders' meeting

Furthermore, since incorporation involves establishment and maintenance costs, those whose annual profits are not stable may find their financial burden increasing if they incorporate

What are the tax rates if you incorporate your business for overseas forex trading?

The tax rates for incorporating an overseas forex trading company are as follows:

Personal accountCorporate account
Annual Profittax rateAnnual Profittax rate
6.95 million yen to 9 million yen23%Under 8 million yen15%
9 million yen to 18 million yen33%Over 8 million yen23.2%

If your annual profit is 8 million yen or more, a flat corporate tax rate of 23.2% will be applied

In addition, corporate inhabitant tax and corporate business tax are also included, bringing the effective tax rate to approximately 30%

What is the break-even point for incorporating an overseas forex trading business?

The break-even point for incorporating an overseas forex trading business 9 million yen .

If your annual profit exceeds 9 million yen, the tax rate will be lower than that of a personal account, thus reducing your tax burden

Even if your income is less than 9 million yen, you may be able to take advantage of deductions and expense accounting to gain tax benefits, so be sure to consult with a tax professional about the timing of incorporating your business

If I incorporate my business for overseas forex trading, can I deduct executive compensation as a business expense?

If you incorporate your business for overseas forex trading, you can deduct executive compensation as an expense .

In addition, social insurance and retirement benefits can also be claimed as expenses

To minimize your tax burden, be sure to declare all your expenses

How much capital is required to incorporate a business for overseas forex trading?

When incorporating a company for overseas forex trading, recommended to have a capital of 1 million yen or more .

While it is technically possible to incorporate a business with as little as 1 yen, many banks require a minimum capital of 1 million yen when opening a bank account. Therefore, it's safer to have at least 1 million yen in capital to ensure a smooth process

Also, setting the capital to 10 million yen or more will result in higher corporate inhabitant taxes, so it is best to set the capital between 1 million yen and 10 million yen

How should I describe my business activities when incorporating my business for overseas forex trading?

If your business is solely focused on FX trading, you should write "Foreign Exchange Margin Trading."

However, if you include stocks and other investments, it is acceptable to describe it as "investment activities in stocks, bonds, foreign exchange, derivatives, funds, etc."

Furthermore, if you plan to expand into businesses other than FX trading in the future, one option is to describe the business activities as follows:

  • Internet advertising and promotion
  • Website creation service
  • writing business
  • SEO consulting services

Should I hire a tax accountant if I incorporate my business for overseas forex trading?

If you incorporate your business for overseas forex trading, I recommend hiring a tax accountant

Tax processing is more complicated for taxpayers than for individuals, and if you make mistakes such as failing to declare information when filing your tax return, it may be considered "tax evasion" and you could face severe penalties

While there will be fees involved when you request their services, hiring a tax accountant is a safer option if you want your tax processing to be done accurately and without errors.

summary

So far, we've discussed the timing, methods, advantages, and disadvantages of incorporating an overseas forex trading business

The key points explained are as follows:

  • Whether or not overseas forex trading is worthless depends on the specific case
  • Incorporating offers greater tax benefits than operating as a sole proprietor
  • The break-even point for incorporation is 9 million yen, but by utilizing deductions and expenses, it is possible to benefit even with less than 9 million yen
  • The benefits include "reduced tax burden," "the ability to carry forward losses for up to 10 years," and "a wider range of deductible expenses."
  • The disadvantages include "inability to freely withdraw funds" and "setup and maintenance costs."
  • When establishing a corporation, you need to decide whether to establish a "limited liability company" or a "stock company"
  • A limited liability company (LLC) costs around 100,000 yen to establish and takes about two weeks to complete corporate registration
  • The cost of establishing a limited liability company is approximately 200,000 yen, and the process of completing corporate registration takes about three weeks
  • If you want to ensure a smooth company registration process, using a "company incorporation service provider" is one option
  • When incorporating, set the capital between 1 million and 10 million yen
  • If your annual profits are not stable, avoid incorporating your business

time to incorporate your business is when you have an annual profit of 9 million yen or more and are expected to maintain that level of profit for several years.

Furthermore, incorporating a company for overseas forex trading involves costs and paperwork, which can be time-consuming. If you want to save time on these procedures, using a company formation service is one option.

If your annual profits are stable and you're looking for tax-saving strategies, you might want to consider incorporating your business

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