A fintech startup planned to launch a digital factoring service for small and mid-sized enterprises in Japan. The company required upfront tax and accounting structuring to ensure compliance with Japanese tax law and financial regulations. Epic was engaged before launch to build a robust and scalable tax framework.
The Challenge
The client intended to offer a new B2B factoring product via an online platform that facilitated early payment on receivables.
However, the tax treatment of factoring in Japan is nuanced and varies depending on whether it qualifies as loan, sale, or commission-based.
The team lacked internal tax expertise and needed guidance on transaction classification, invoicing, and appropriate accounting entries.
There were also challenges in defining revenue recognition rules, timing of income realization, and deductible expense treatment.
Given that some receivables might be purchased with or without recourse, multiple structures had to be modeled and tested.
The client needed to know whether their fees would be subject to consumption tax, and whether simplified tax schemes could be applied.
Handling of bad debts, risk provisions, and potential regulatory capital implications required integration with both tax and accounting policies.
As a startup, they also had to consider loss carryforward potential and early-stage financing structuring.
The timeline to launch was short, and there was a need to communicate clearly with investors, legal counsel, and accounting auditors.
All tax risks had to be understood in advance to avoid downstream issues that could impact product profitability or investor trust.
What did epic do?
Epic conducted a review of the planned business model and transaction flow to identify applicable tax treatments.
We advised on the proper classification of factoring transactions under Japanese tax law, and designed compliant accounting workflows.
Several alternative contract structures (with and without recourse) were simulated to assess tax and accounting impacts.
We provided guidance on the timing and method of revenue recognition under different business scenarios.
Epic assessed whether the revenue would fall under taxable or non-taxable categories for consumption tax purposes.
We also reviewed invoice formats and system requirements for proper documentation and audit readiness.
Our team collaborated with legal counsel to align the commercial terms with tax implications.
Finally, Epic produced a comprehensive tax memo, including risk assessments and recommendations, which was shared with the board and investors.
The Results
- Clear tax treatment defined for each type of factoring arrangement
- Revenue recognition policies established for scalable operations
- Correct classification for consumption tax and filing elections submitted
- Investor and board confidence strengthened through clear documentation
- Legal and commercial terms aligned with tax structure
