Sponsoring Open Source as a Japanese Company

Six years since my last post, I thought I’d get back into blogging. I plan to write about Web apps and things but I’d also like to talk a bit about running a company in Japan since there’s not a lot of good information on that in English.

Today, I want to share some notes about sponsoring Open Source through GitHub as a Japanese company.

A few years ago I started using React cosmos for iterating on UI components. I was previously using Storybook but it required babel, a separate webpack file, and a lot of configuration and maintenance. React Cosmos just worked and does everything I need.

Since my company is benefitting from Ovidiu’s hard work, when I saw he was developing the next major version I figured it was only right to support him.

But how does a Japanese business account for GitHub sponsorships?

It turns out others have already asked this question and the options generally given are:

1. Entertainment expenses (交際費)
2. Donation (寄付金)
3. Advertising/publicity (広告宣伝費)

So which one should you use?

Entertainment expenses

The idea with entertainment expenses is that if sponsoring a client’s event, for example, helps you to maintain a good relationship with them, you could call that an entertainment expense. (“Entertainment” here being “entertaining” clients to win their favour, not going to the movies, or watching ice blocks melt in the kitchen sink.)

That seems like a stretch in my case. Ovidiu is a swell bloke, but he’s not a client.

Donation

A donation would seem like the obvious choice but it’s tricky.

Firstly, the upper limit on tax-deductible donations is pitifully low. The formula is:

（資本金の額および資本準備金の額の合計額または出資金の額） ×当期の月数を12で割った数×1,000分の2.5＋所得の金額×100分の2.5〕×4分の1＝〔損金算入限度額〕

Source: https://www.nta.go.jp/taxes/shiraberu/taxanswer/hojin/5281.htm
Better still, see the 別表十四（二） PDF

i.e. $\mathrm{Deductible\; limit}=(\mathrm{Capital}\times \frac{\mathrm{No.\; of\; months\; this\; financial\; term}}{12}\times \frac{2.5}{\mathrm{1,000}}+\mathrm{Taxable\; income}\times \frac{2.5}{100})\times \frac{1}{4}$

So let’s plug some numbers in. Let’s assume a small company with 10M JPY in capital making a solid 10M JPY each year. The most you can write off as tax-deductible donations is:

Putting that in very rough dollar terms, a company making a profit of 100k USD could only deduct less than 7k in donations.

There are a couple of brackets, e.g. one for recognized charities (特定公益増進法人) and one for general donations (一般の寄附金) but even putting those together, the deductible limit is very low compared to other countries and really doesn’t encourage Japanese companies to be generous.

Secondly, the tax office indicates that gifts that are directly related to the execution of your business should not be donations:

金銭その他の資産または経済的利益の贈与または無償の供与であっても、 法人の事業遂行と直接関係のあると認められる広告宣伝および見本品の費用 その他これらに類する費用並びに交際費、接待費および福利厚生費とされるものは、 寄附金から除かれます。

https://www.nta.go.jp/taxes/shiraberu/taxanswer/hojin/5281.htm (Emphasis added)

Advertising

That leaves us with advertising. When you sponsor someone through GitHub sponsors your organisation logo shows up on the project homepage and you get a little “Sponsor” badge on your organisation’s page too. With any luck, the project will spotlight their sponsors in different ways as well. All of this could be reasonably expected to highlight your company, bringing it fame and great prestige.

In any case, my tax accountant agreed advertising was justified in this case which probably counts for more than anything else I’ve written in this post.

”Don’t let your left hand know what your right hand is doing”?

Some people might feel a bit awkward about advertising their contributions, however. In perhaps the most famous speech ever given, Jesus warned against “practicing your righteousness before other people to be seen by them” (Matt 6:1-18) particularly when it comes to giving to charity, praying, and fasting.

I think we often feel a bit skeptical when we see companies promoting their charitable donations and wonder, “Is that a genuine donation or just a marketing ploy? Can companies be genuine anyway?”

In any case, surely contributing to Open Source is not a charitable donation or act of righteousness but just a cost of doing business. Provided the project itself (or GitHub) is doing the advertising it needn’t be awkward self-promotion either.

Are there other options?

Some GitHub sponsorship plans promise benefits like dedicated support and development advice. I wonder if it would be possible to account for these as commission fees (支払手数料), outsourcing (業務委託 or 外注費), or compensation (支払報酬)? Who knows? A tax accountant would but I’ve troubled my tax accountant enough recently with my woeful bookkeeping to bother him again.

Implications for Open Source developers

I have no idea if any of this applies outside Japan, but in the very unlikely case that you are working on Open Source and would like Japanese companies to support you, the obvious implication is promote your sponsors. It makes it easier for them to justify the cost and probably lifts the image of your project at the same time.