An increasing number of corporations are introducing “soundproof rooms” to build in-house studios, create private booths for telework and online meetings, or as an employee benefit. For business owners and accounting managers, the biggest concern is likely: “How quickly can we expense (deduct) the millions of yen spent on a soundproof room to save on taxes?”
To cut to the chase, a soundproof room is undeniably an expense if it’s for business purposes. However, it is surprisingly little known that choosing a “unit-type (assembly)” over a “built-in (renovation)” can result in a difference of several decades in your cash flow.
In this article, we explain the “tax treatment of soundproof rooms (depreciation and fixed asset tax)” that business owners absolutely must know before introducing one.
1. The Crossroads of Fate: A Useful Life of “15 Years” or “47 Years”?#
Because a soundproof room is an expensive fixed asset, you generally cannot expense the full amount in the year you purchased it (immediate depreciation; excluding certain exceptions for small businesses). According to the “legal useful life” under tax law, it is divided and expensed (depreciated) over multiple years. What is most crucial here is the difference in classification depending on the “type” of soundproof room.
(1) For Unit-type (Assembly) Soundproof Rooms#
“Unit-types that can be dismantled and relocated,” such as Yamaha Avitecs, Kawai Nasal, and various office communication booths, are treated not as part of the building but as “Equipment and Fixtures (Movable Partitions).”
- Legal Useful Life: 15 years
- Advantage: Because it is expensed (deducted as a loss) over a relatively short period, an early profit compression effect (tax-saving effect) can be expected.
(2) For Built-in (Full Room Renovation) Soundproof Rooms#
If you perform full-scale soundproofing work that incorporates sound insulation materials into the walls and floor of an existing room, integrating it with the building, those costs are highly likely to be added to the acquisition cost of “Building Attachments” or “the Building Itself.”
- Legal Useful Life: If the building is reinforced concrete (RC), up to 47 years (varies by usage).
- Disadvantage: The speed of expensing is extremely slow, and it takes an enormous amount of time to recover the invested funds (the tax burden reduction effect).
[Management Decision] If you prioritize cash flow and early profit compression, as long as there are no issues with acoustic performance, you should undoubtedly choose the “unit-type.”
2. The Trap of the Hidden Cost: “Fixed Asset Tax (Depreciable Asset Tax)”#
Alongside depreciation, you must also pay attention to the Fixed Asset Tax (Depreciable Asset Tax) levied on the soundproof room.
Unit-Types are Subject to “Depreciable Asset Tax”#
Unit-type soundproof rooms fall under “Depreciable Assets.” If the total assessed value of depreciable assets owned by the corporation exceeds the tax exemption limit (1.5 million JPY), an annual depreciable asset tax of 1.4% is levied on the excess amount. If you introduce multiple high-spec soundproof booths, you need to incorporate the annual occurrence of this tax into your business plan as a running cost.
Built-in Work Increases “Building Fixed Asset Tax”#
On the other hand, if you renovate a building to create a soundproof room, it won’t be subject to depreciable asset tax. However, the assessed value of the house goes up, which may result in a tax increase on the building’s fixed asset tax.
3. The Trick to Maximizing Tax Effects: “Used” Unit-Type Soundproof Rooms#
For business owners who say, “I want to expense the full amount even faster!”, the strongest solution is to purchase a “used unit-type soundproof room.”
For used assets, there is a special provision (simplified method) to calculate a shorter useful life. For example, if you purchase a used soundproof room that has already passed its entire legal useful life (15 years):
Legal Useful Life 15 years × 20% = 3 years
In other words, it becomes possible to fully depreciate (expense) it in just 3 years. When aiming for significant profit compression in the short term, looking for a 15-year-old Avitecs rather than a brand-new one is often the grand prize in financial strategy.
Conclusion: Soundproof Room Introduction Guidelines for Business Owners#
- A soundproof room can be included as an expense (loss) if it is for business purposes.
- If you emphasize the financial aspect (cash flow), choose the “Unit-type” which can be depreciated in 15 years, rather than the “Built-in” type which has a long useful life.
- Upon introduction, take into consideration not only the initial cost but also the annual payment of the “Depreciable Asset Tax (1.4%).”
- If you are aiming for expensing over an ultra-short term, consider introducing a “Used Unit.”
The introduction of an expensive soundproof room is a wonderful investment that dramatically improves your office environment and the quality of your services. When making an introduction plan, it is strongly recommended to consult not only with the installation contractor but also with your advising tax accountant in advance regarding the “treatment of useful life.”
