Staff Housing Tip

Staff Housing Tip

Japan's direct and indirect taxation levels for companies are among the highest in the world, and foreign senior managers often wonder how Japanese companies can survive. In actual fact of course, the overheads are hitting everyone really hard, but there are some tricks that can help you reduce your employee overheads significantly.

The one I want to talk about specifically today is staff housing. After the Second World War, the Japanese bureaucrats decided that the quickest way to return the country to prosperity was to bind the workforce tightly to their employers. Companies achieved this, amongst other things, by providing army-style dormitory accommodation for the single (and sometimes married) employees. If you travel out of Tokyo to any of the surrounding bed towns, you'll see stacks of 30-40 year old rabbit hutches, known as 'Shataku' (employee dormitories).

Shataku are still provided for employees today, typically for people who are trainees, or those who have been hired or transferred from other provinces in Japan. The system is that employees pay a nominal fee to live in such accommodation, and the company pays the rest. The Japanese tax law is a bit complicated as to how much can be subsidized, but effectively it can work out to be a very high percentage of the accommodation's market value.

The interesting thing about Shataku is that although it's an economic benefit to the employee, there is also the possibility of it being completely tax free to both the employee and employer. In fact, this is one of the few tax deductions a salaried worker can receive from their employer in Japan. Typically the tax saving can be substantial for lower paid employees for whom up to 40-50% of their salary can disappear on the high rents in Tokyo. For the employer, one of the major benefits is that a Shataku allowance is not part of the base salary for the employee, and thus is not subject to bonuses and other adjustments. This clearly then, is an opportunity to reduce the tax burden for a number of employees in your company as well as your business.

There are restrictions and downsides to the Shataku arrangement. First of all, you need to have a proper tax-compliant policy regarding who gets to stay in them, and therefore you'll need a suitably knowledgeable HR Officer. Second, there is a size limit, above which the accommodation is considered "luxury" accommodation and therefore the concept doesn't apply. This basically means that Shataku aren't typically available to expats (although locally hired people would probably be very happy with the sizes allowed). Third, it must be clearly defined and communicated who pays the deposit and who gets what refund when employees resign. Obviously, if you have significant turnover in a certain category of employee (such as trainees), the administrative burden could become excessive.

Although the use of this kind of employee housing has decreased, there are indeed still benefits that can favorably affect both a company and its employees' finances. Overall, Shataku will work well if a properly constructed plan is executed for longer-term employees who are happy with the company being the leasee of their apartment. To find out more about how the regulations and potential value of introducing Shataku allowances into your company, contact a competent tax accountant.

As always, my contact details are simply: Looking forward to getting some enquiries...