The Business Safety Mutual Aid (the Small Business Mutual Relief System for the Prevention of Bankruptcies) is originally a system to prevent chain-reaction bankruptcy when a business partner goes bankrupt. But because the premiums are fully treated as "loss (for corporations) / necessary expenses (for individuals)", it is also widely used as a tax-saving measure. However, since the money is taxed when received, it is a "deferral of taxation," and in October 2024 the rules for including premiums as a loss were tightened. This article accurately explains the mechanism, the tax-saving effect, the pitfalls at the exit, and the revision points, with sources from SMRJ and the Small and Medium Enterprise Agency.
① Premiums are ¥5,000–200,000 per month (in units of ¥5,000), up to a total of ¥8 million. The full amount becomes a loss / necessary expense[SMRJ].
② If you pay for 40 months or more, 100% of your premiums are returned even on voluntary cancellation (less than 12 months returns 0%).
③ However, the mutual-aid cancellation payment is a gain / income (taxable) when received. It is not tax saving but a "deferral of taxation," so an "exit" design — cancelling in a loss year or when paying retirement allowances — is important.
④ Revision effective October 1, 2024: if you cancel and then re-enroll, the premiums you pay within two years from the cancellation date cannot be treated as a loss or necessary expense[Small and Medium Enterprise Agency].
What is the Business Safety Mutual Aid?
The Business Safety Mutual Aid (the Small Business Mutual Relief System for the Prevention of Bankruptcies) is a mutual-aid system operated by SMRJ to prevent chain-reaction bankruptcy of small and medium enterprises. When a business partner goes bankrupt and you can no longer collect accounts receivable and the like, you can borrow without collateral or a guarantor (the borrowing limit is 10 times the total premiums paid, up to ¥80 million)[Small and Medium Enterprise Agency]. It is available to small and medium enterprises that have continuously operated a business for one year or more (with capital and employee requirements that vary by industry).
How premiums and tax saving work
- The monthly premium is ¥5,000 to ¥200,000 (in units of ¥5,000). You can accumulate up to a total of ¥8 million in premiums[SMRJ].
- Premiums can be included as a loss for corporations and as necessary expenses of business income for sole proprietors. Prepayment (within one year) can also be included all at once.
- For example, if you can expense ¥2.4 million a year (¥200,000 a month), you can reduce your taxable income for corporate tax and the like by that amount.
Premiums become expenses, but the cancellation payment you receive when you cancel becomes that year's gain (for corporations) / income (for individuals) and is taxed. In other words, you are only pushing the timing of paying tax to a later point; if you do nothing, you are taxed at the exit and the effect is offset. This is a system premised on an "exit strategy" of cancelling in a year of losses, a year of large repairs or capital investment, or a year you pay a director's retirement allowance, so as to offset it against profits.
The cancellation payment (how much comes back?)
The "cancellation payment" you can receive on cancellation varies in its return rate depending on the number of months you paid premiums (in the case of voluntary cancellation)[Small and Medium Enterprise Agency].
| Months of premium payment | Return on voluntary cancellation (guide) |
|---|---|
| Less than 12 months | 0% (forfeited) |
| 12–23 months | About 80% |
| 24–29 months | About 85% |
| 30–35 months | About 90% |
| 36–39 months | About 95% |
| 40 months or more | 100% |
* Please confirm the exact brackets and rates on SMRJ's official site. It is safest to plan to continue for at least 40 months (about 3 years and 4 months).
[Important] The October 2024 revision (restriction on including premiums as a loss)
Under the FY2024 tax reform, if you cancel on or after October 1, 2024 and then enroll again (re-contract), the premiums you pay up to the day two years after the cancellation date can no longer be included as a loss or necessary expense[Small and Medium Enterprise Agency].
This is a review in response to an increase in short-term tax-saving use — "cancel and immediately re-enroll, then expense the premiums again" (about 80% of people re-enrolled within less than two years after cancellation). Understand that tax saving by repeatedly cancelling and re-enrolling is no longer possible.
Who it suits, and points to note
Suits you if
- You are making a profit and have a prospect of a future exit (a loss, a retirement allowance, a large investment)
- You want to prepare for the risk of a business partner's bankruptcy
- You can comfortably continue for 40 months or more
Caution / not suited
- You have no exit plan (you are taxed at cancellation and the effect disappears)
- You plan to cancel in the short term (less than 12 months is forfeited)
- You repeat cancellation and re-enrollment (under the 2024 revision, you cannot expense for two years)
FAQ
Can a sole proprietor enroll?
Yes. It is available to small and medium enterprises that have continuously operated a business for one year or more, and for a sole proprietor the premiums can be included as necessary expenses of business income (with capital and employee-number requirements that vary by industry).
Does it really save tax?
The premiums are fully expensed, but the cancellation payment on cancellation is taxed as a gain / income. In other words, it is a "deferral of taxation," and unless you cancel at a timing when you can offset it against profits — such as a loss year or a year you pay a retirement allowance — the effect is offset.
What changed in the 2024 revision?
If you cancel on or after October 1, 2024 and then re-enroll, the premiums you pay up to the day two years after the cancellation date can no longer be treated as a loss or necessary expense. Tax saving by repeatedly cancelling and re-enrolling has been restricted.
How much can I accumulate?
Premiums are ¥5,000–200,000 per month (in units of ¥5,000), and you can accumulate up to a total of ¥8 million.
Data sources
- Premiums (¥5,000–200,000 per month / total ¥8 million) and inclusion as a loss: SMRJ — Premiums of the Business Safety Mutual Aid (in Japanese)
- System overview, enrollment eligibility, borrowing, cancellation payment, and the 2024 revision: Small and Medium Enterprise Agency — About the Small Business Mutual Relief System for the Prevention of Bankruptcies (in Japanese)
- System top page: SMRJ — Business Safety Mutual Aid (in Japanese)
* This article is general information, not tax advice. The inclusion of premiums as a loss, the taxation of the cancellation payment, and the revision details differ by individual circumstances, so confirm with SMRJ, the Small and Medium Enterprise Agency, or a tax accountant before enrolling or cancelling.