The Small Business Mutual Aid (Small Enterprise Mutual Aid) is a national scheme in which sole proprietors and officers of small companies build up "their own retirement money." Its biggest appeal is that the premiums are fully deductible from income for that year. You can prepare a retirement fund while saving on tax, which is why it is called the classic tax-saving move for sole proprietors. This article clearly organizes the rough tax-saving amount, enrollment eligibility, tax at payout, and cautions about receiving back less than you paid in, with sources from SMRJ and the National Tax Agency.
① Premiums are ¥1,000–¥70,000 per month (in ¥500 units). The full amount is deductible as the "deduction for premiums for small business mutual aid, etc."[SMRJ].
② For example, at ¥70,000 a month (¥840,000 a year) with a combined tax rate of 30%, that is about ¥250,000 in tax saving per year.
③ At payout, a lump sum is retirement income and installments are miscellaneous income of the public pension type; either way the tax treatment is very favorable[National Tax Agency].
④ However, a voluntary cancellation with a short number of premium-payment months results in getting back less than you paid in. It is safest to start with premiums you can manage comfortably, on the premise of continuing for a long time.
What is the Small Business Mutual Aid?
The Small Business Mutual Aid is a retirement-money scheme for small-scale businesses operated by SMRJ (the Organization for Small & Medium Enterprises and Regional Innovation, JAPAN). You build up premiums and receive them as "mutual aid money" upon closing your business or retiring. About 1.6 million people nationwide are enrolled[SMRJ]. For sole proprietors who have no company retirement pay or employees' pension, it is a system that lets you build retirement funds and save on tax at the same time. Alongside iDeCo (the defined contribution pension for individuals), it is a form of preparation for the self-employed, and you can enroll in both.
Premiums and the "full income deduction" mechanism
- The monthly premium can be freely set and changed between ¥1,000 and ¥70,000 (in ¥500 units)[SMRJ]. That is up to ¥840,000 a year.
- The premiums you pay can be deducted from income in full as the "deduction for premiums for small business mutual aid, etc." (prepaid amounts for up to one year are also covered)[National Tax Agency No.1135].
- This deduction is the same "deduction for premiums for small business mutual aid, etc." bracket as iDeCo, but the two systems can each be used up to their own limit (they are not combined).
| Taxable income | Combined rate of income tax + residence tax (guide) | Annual tax saving (guide) |
|---|---|---|
| ¥2 million | About 20% | About ¥168,000 |
| ¥4 million | About 30% | About ¥252,000 |
| ¥7 million | About 33% | About ¥277,000 |
| Over ¥9 million | About 43% | About ¥361,000 |
* Residence tax is estimated at a flat 10%. Income tax is a guide because it is progressive on the excess. You can estimate your actual tax saving with SMRJ's enrollment simulation[SMRJ].
Who can enroll (enrollment eligibility)
Mainly, this covers sole proprietors and officers of companies, etc., with 20 or fewer regular employees (5 or fewer in commerce and service industries 〈excluding lodging and entertainment〉), as well as co-managers[SMRJ]. On the other hand, salaried workers (employees) and business employees such as a spouse cannot enroll in principle. Be sure to check with SMRJ's official information before enrolling to see whether you qualify.
Tax when you receive it (the exit)
The tax category changes with the method of receipt, and in every case you get the same large tax preference as an employee's retirement pay or pension[SMRJ].
| Method of receipt | Tax category | Point |
|---|---|---|
| Receive as a lump sum | Retirement income | Light tax burden thanks to the retirement income deduction + taxation on one-half[National Tax Agency] |
| Receive in installments | Miscellaneous income of the public pension type | Eligible for the public pension deduction |
| Combination of lump sum + installments | A combination of the above | Conditions apply |
Saving on tax through the income deduction when you pay premiums, and being favored as retirement income or pension income at payout too, is why this system is called a "double tax saving." However, if you receive retirement pay or an iDeCo lump sum in the same year, they share the retirement income deduction bracket and your tax burden can increase, so planning the timing of receipt matters.
Cautions and drawbacks
- Voluntary cancellation carries the possibility of getting back less than you paid in: if you cancel for your own reasons while the number of premium-payment months is short, the cancellation benefit you receive is lower than the premiums you paid (there are also periods where, below a certain number of payment months, it becomes forfeited). The basic approach is to start with premiums you can manage comfortably, on the premise of continuing for a long time[SMRJ].
- Premiums can be raised, lowered, or prepaid: when cash flow is tight, you can reduce it to as low as ¥1,000 a month.
- Loans to contract holders: there is a system that lets you borrow at low interest for business funds and the like, within the range of the premiums you have paid[SMRJ].
How to file
Each year, you file using the "premium payment certificate" that SMRJ sends you. Sole proprietors enter it in the "deduction for premiums for small business mutual aid, etc." field of their tax return; company officers and others with salary only file it through the year-end adjustment.
FAQ
How much can I contribute?
You can set it from ¥1,000 to ¥70,000 a month, in ¥500 units (up to ¥840,000 a year). The full amount becomes an income deduction as the deduction for premiums for small business mutual aid, etc.
Can I enroll in both this and iDeCo?
Yes. Both are the "deduction for premiums for small business mutual aid, etc.," but they are not a combined limit — each can be deducted up to its own limit separately. Many people use both together to build retirement funds for the self-employed.
Do I lose money if I quit partway through?
With a voluntary cancellation for your own reasons, if the number of premium-payment months is short, the amount you receive falls below the premiums you paid, so you get back less than you paid in. Below a certain period it can also become forfeited, so it is safest to start with an amount you can keep up for a long time.
Can employees enroll too?
Salaried workers (employees) cannot enroll in principle. The scheme is for small-scale sole proprietors, co-managers, officers of companies, and the like. Please check the detailed eligibility with SMRJ's official information.
Data sources
- Premiums (¥1,000–¥70,000 a month) and full income deduction: SMRJ — Small Business Mutual Aid premiums (in Japanese)
- System overview, enrollment eligibility, receipt, and loans: SMRJ — Small Business Mutual Aid (in Japanese) / Mutual aid money estimate simulation (in Japanese)
- Deduction for premiums for small business mutual aid, etc.: National Tax Agency No.1135 (in Japanese)
- Tax on retirement income: National Tax Agency No.1420 (in Japanese)
* This article is general information, not tax advice. Enrollment eligibility, amounts, and tax treatment may be revised, so check the latest official information from SMRJ and the National Tax Agency before enrolling.