Director Compensation, Loans, and Liability — Overview

A company director can take out a loan from the company, get reimbursed for personal expenses, rent housing through the company under a preferential scheme, receive a bonus alongside or instead of salary, bear personal liability for certain actions, and serve as director of several companies at once. Real cases about the risks of nominal directors are also covered here. A loan from a director (借入) is documented with a loan agreement (貸付契約書) specifying the parties, amount, interest rate (or its absence), disbursement date, and repayment terms. A below-market interest rate can raise questions during an audit. 立替経費 (tatekae keihi, "expense advance") is when an employee or director pays for something out of pocket and is reimbursed; in freee this is booked under the director's 役員借入金 category. Note that if such expenses are routinely paid by the director personally, it is a potential audit red flag. 役員社宅 (yakuin shataku) is a scheme where the company rents housing for a director: the director pays the company a minimum "fair rent" calculated by the NTA using a formula based on floor area and building age; the actual rate can end up well below market — for example, around 30% of market rate in prestigious areas like Shibuya. A rule of thumb is not to exceed about 50% of market rate, to avoid drawing NTA attention (there are no hard-and-fast criteria, only precedents). A director's bonus is set in advance, before the fiscal year starts, with a narrow window for choosing the payment date; it can be paid before the fiscal year ends or, with a grace period, at the start of the following calendar year. A bonus is more tax-efficient than dividends for amounts up to roughly 10 million yen — dividends are taxed at a flat rate regardless of timing. A director bears personal (not corporate) liability for actions that go against the company's interests — for example, transferring money to a sanctioned account on a shareholder's instruction; directors-and-officers liability insurance is recommended (for example, AIG's マネジメントリスクプロテクション product, aig.co.jp/sonpo/business/product/mrp — one chat participant has not used it personally and offered no review). One person can be a director of two or more KKs simultaneously — this is practiced; director compensation (役員報酬) from two or more sources is taxed using a separate formula. Many companies deliberately avoid showing a profit for years, partly for tax reasons — participants report that immigration generally accepts this as normal as long as there are jobs and turnover/revenue (chat opinion, not officially confirmed). On a BM visa it is possible to draw no salary at all in the early years, reinvesting everything into growing the business. One chat participant, a business owner with more than 20 employees, considers hiring a nominal Japanese director a legal risk and a red flag if the business is genuinely operating. A real case of losing control of a company in another country because of a local nominal co-founder is cited as a warning against the practice of looking for "a Japanese director in Roppongi bars." In another case, a person planned to find a "non-fictitious" Japanese/resident co-CEO or director, sign a contract limiting his authority, open the company by year-end, then switch to a work visa as the company's employee, later obtain Highly Skilled Professional residency, and eventually take back the CEO position. The plan was approved by a lawyer, but carries the risk that a Japanese director can be difficult to dismiss under Japanese labor law. Source: https://www.aig.co.jp/sonpo/business/product/mrp — AIG directors-and-officers liability insurance product (マネジメントリスクプロテクション).