It Is Your Company, Yet You Cannot Freely Change Your Own Salary

By MISAWA Masaki, Certified Tax Accountant (Zeirishi, Reg. No. 157367) — formerly of Japan’s tax authorities · Published July 12, 2026 · Reviewed July 17, 2026

“Business is good this month, so I want to raise my salary.” “Cash flow is tight, so I want to cut it from next month.” If you own 100% of your company, it seems only natural to assume you can do either. Japanese corporate tax law, however, has rules that prevent directors’ compensation from being freely raised or lowered during the fiscal year.

The regular same-amount salary rule

For salaries paid to directors — the representative director, senior managing directors and so on — to be deductible as company expenses, they must in principle qualify as “regular same-amount salary” (teiki dōgaku kyūyo). This means salary whose payment intervals are fixed at one month or less and whose amount is the same at each payment date within the fiscal year. A monthly salary paid at the same time each month in the same amount is the typical example. Changes (revisions) to the amount are, in principle, limited to those made within three months of the start of the fiscal year. (See our note: When You Hire, You Hold Tax in Trust.)

Why does the rule exist?

Why does such a rule exist? If directors’ compensation could be raised or lowered freely, it would be easy to make adjustments such as increasing compensation to compress profit — and thereby reduce the tax payable — whenever profit looked likely before the year-end closing. This is why the rule was put in place: fixing the amount at the beginning of the year prevents after-the-fact manipulation of profit.

What a mid-year increase costs

What happens if the amount is increased mid-year? A worked example (assumptions: a company with a March fiscal year-end; monthly compensation initially set at ¥500,000; increased to ¥800,000 from the October payment and paid for six months through the following March; all other requirements are met). In this case, the part of the increased ¥800,000 that exceeds the continuing original ¥500,000 — that is, ¥300,000 × 6 months = ¥1,800,000 — is not deductible. Because this ¥1,800,000 is excluded from deductible expenses, the company’s taxable income increases by the same amount and the company bears corporate taxes on it.

Minutes as supporting evidence

The procedure for setting the amount also matters. The minutes of the shareholders’ meeting are the supporting evidence of when and how the amount was decided. Even in a company where you are the sole shareholder, you need to hold a shareholders’ meeting, resolve the amount of compensation, and prepare minutes.

Exceptions for deteriorated business performance

There are exceptions. One is a mid-year reduction where the state of the business has significantly deteriorated (a “revision due to deteriorated business performance”). This is understood to cover cases such as a considerable worsening of the figures in the financial statements, or situations where, because of the deterioration, the company has no real choice but to reduce directors’ compensation out of consideration for third-party stakeholders such as shareholders or its lending banks. Merely earning less profit than expected does not qualify.

Directors’ compensation cannot, in principle, be changed for one year. That is precisely why it needs to be decided carefully at the start of the fiscal year, in light of the profit outlook, cash flow and the projected tax burden. If you are unsure how to set it, we recommend discussing it with a professional soon after the fiscal year closes.