Asked for an On-Site Inspection After Applying for a Subsidy? A Guide to Handling the Tachiiri Kensa

What Is an On-Site Subsidy Inspection, and Why Is It Conducted?

The Legal Basis and Purpose of the Inspection

The on-site subsidy inspection is an important part of how the government administers subsidies, conducted mainly under the Act on Regulation of Execution of Budget Pertaining to Subsidies, etc. (the Subsidy Budget Execution Adequacy Act). Its core purpose is to verify whether the applicant company has used the subsidy funds lawfully and efficiently, in accordance with the subsidy's conditions of use and the agreed plan.

Put simply, subsidies are taxpayers' money, and government agencies have a responsibility to monitor whether those funds are used appropriately. Statistics indicate that subsidy inspections conducted in Japan each year cover roughly 15–30% of all applicant companies, with the inspection rate for SME subsidies being comparatively higher.

Inspecting Bodies and Their Authority

The bodies that conduct on-site subsidy inspections mainly include:

• National treasury subsidies: Inspectors dispatched by ministries such as the Ministry of Economy, Trade and Industry (METI) and the Ministry of Health, Labour and Welfare (MHLW).
• Local subsidies: Conducted by the commerce and industry departments of prefectures or municipalities, or by SME support institutions.
• Third-party inspections: For some subsidies, a designated private inspection body (such as a certified public accountant's office) conducts the inspection on behalf of the authority.

Inspectors have the legal authority to enter company premises, examine books and records, and question relevant personnel. Refusing an inspection or concealing information is unlawful and can lead to full repayment of the subsidy, and even fines.

Warning Signs Before the Tachiiri Kensa: When Will You Receive an Inspection Notice?

Notification Methods and Lead Time

Generally, notice of an on-site subsidy inspection is given in the following ways:

1. Written notice (most common): Usually sent by registered mail, giving 7–14 days' advance notice. The notice specifies the inspection date, the inspector's name, and a checklist of materials to prepare.

2. Telephone notice: The company is first contacted by phone, followed by a formal written notice sent by mail.

3. Email notice: For subsidy programs that already have an electronic system in place, notice may be sent through a dedicated system.

Under the Subsidy Grant Guidelines (kofu yoko), the inspecting body should give at least 5 business days' advance notice, but in practice most cases provide 2–3 weeks, giving companies ample time to prepare.

Points at Which You May Receive an Inspection Notice

• 3–6 months after the subsidy application: the most common inspection timing.
• Within six months of the subsidized project's completion: acceptance-type inspections.
• Random spot checks: government agencies may conduct spot checks at any time.
• Complaint-triggered inspections: if someone reports that a company is misusing a subsidy, an inspection is launched immediately.

The Main Content and Flow of an On-Site Subsidy Inspection

The Five Key Areas of Inspection

1. Verifying the Flow of Funds

Inspectors check the use of subsidy funds item by item. They focus on:

• Whether the subsidy went toward the uses stipulated in the subsidy agreement.
• Whether any funds were diverted to other purposes.
• Whether the related receipts, invoices, and bank transfer records are complete.

For example, if you applied for JPY 5 million in subsidy to purchase production equipment, the inspector will verify whether that JPY 5 million was genuinely used to buy equipment, rather than to lease office space or repay debt.

2. Reviewing Books and Vouchers

Inspectors will ask to examine:

• The general ledger, journal, and subsidiary ledgers.
• Purchase and sales contracts, invoices, and receipts.
• Bank statements and passbooks.
• Progress photos and completion certificates for the work.

This is the most time-consuming stage, usually taking 2–4 hours. Chinese business owners should pay particular attention to the fact that Japan demands an extremely high standard of bookkeeping accuracy. Alterations, tearing out pages, or handwritten corrections in the books may be deemed non-compliant.

3. Physical Asset Verification

For subsidy projects involving the purchase of tangible assets such as equipment or property, inspectors will conduct an on-site inspection to confirm:

• Whether the equipment was actually purchased and put into use.
• Whether the asset is still held under the company's name.
• Whether the asset has been used and maintained in accordance with the agreement.

One Chinese owner of a manufacturing company was found by an inspector to have "insufficient efficiency in the use of subsidy funds" because the machinery he purchased had gone unused for a long time. Although he was ultimately not required to repay, he was issued a written recommendation for improvement.

4. Personnel and Payroll Inspection

If the subsidy was used to hire employees or raise wages, inspectors will verify:

• Contracts and proof of insurance enrollment for newly hired employees.
• Payroll ledgers and records of actual payments.
• Employee attendance records.
• The payment of social insurance and taxes.

Pay special attention here: Japanese law requires all employees to enroll in social insurance. If a company is found to be employing people in violation of the rules, not only will the subsidy be clawed back, but the company may also face penalties from the Labor Bureau.

5. Compliance Review

Inspectors will confirm:

• Whether the company meets the basic eligibility conditions of the subsidy (such as years since establishment, number of employees, etc.).
• Whether reports were filed and materials submitted as required.
• Whether the company received a subsidy in duplicate.
• Whether there is any conduct that contravenes subsidy policy.

A Typical Flow for an On-Site Inspection (Using a Schedule of About 2 Hours as an Example)

| Time | Content of Inspection | What to Prepare | |------|---------|---------| | First 15 minutes | Verification of inspector's identity; explanation of the inspection's purpose | Inspection notice, ID of the company's representative | | Minutes 15–45 | Questions about the company's basic situation | Company overview, organizational chart, materials describing the subsidized project | | Minutes 45–120 | Review of books and vouchers | Books, invoices, receipts, bank transaction records | | After minute 120 | On-site inspection (if needed); summary and feedback | Relevant assets, equipment, etc. |

Preparation Checklist After Receiving an Inspection Notice

Document Preparation Checklist (30 Core Documents)

After receiving the inspection notice, you should prepare your materials in the following order:

Finance-Related Documents (Essential)

• [ ] Subsidy grant decision and the subsidy agreement
• [ ] Report on the implementation of the subsidized project
• [ ] Originals of all receipts and invoices
• [ ] Copies of the bank passbook (all pages from receipt of the subsidy through disbursement)
• [ ] General ledger and journal
• [ ] Financial statements (balance sheet, profit and loss statement)
• [ ] Materials explaining the accounting treatment

Purchased Assets (If Applicable)

• [ ] Purchase contracts and quotations
• [ ] Invoices and delivery slips
• [ ] Delivery-date certificates or delivery confirmation slips
• [ ] Warranties and instruction manuals
• [ ] Photos of the assets (from an angle where the equipment model number is visible)

Personnel and Payroll (If Applicable)

• [ ] Employment contracts
• [ ] Proof of enrollment in employment insurance and social insurance
• [ ] Payroll ledger
• [ ] Time cards and work schedules
• [ ] Withholding tax slips (gensen choshu hyo)

Project Progress

• [ ] Business plan
• [ ] Progress reports
• [ ] Photos of project implementation (with dates)
• [ ] Interim reports (if any)
• [ ] Samples of deliverables

Organizational Management

• [ ] Certified copy of the corporate register (tokibo tohon)
• [ ] Articles of incorporation (teikan)
• [ ] Shareholder register
• [ ] Minutes of board meetings
• [ ] Organizational chart

Preparing the Environment and Arrangements

• Office cleanliness: The inspector's first impression on entering matters. Although cleanliness is not part of the inspection, a messy office may leave the inspector with an impression of "disorganized management," which is unhelpful for the review.
• Personnel arrangements: Assign staff familiar with the finances and the project to be present—ideally the head of finance and the project manager.
• Meeting room preparation: Prepare a quiet meeting room for the inspector to review documents, with enough desks and chairs.
• Interpreter arrangements: If the company's representative is not fluent in Japanese, arrange a professional interpreter in advance. Never have an employee serve as an ad-hoc interpreter, as this can lead to miscommunication.

Strategies and Precautions During the On-Site Inspection

Six Recommendations for the Day of the Inspection

1. Be Modest and Professional

This is the most important point. The inspector is there to verify how the subsidy was used, not to "catch mistakes." Adopt a cooperative and respectful attitude:

• Greet the inspector on time.
• Address the inspector as "〇〇-san" or "kensakan (inspector)."
• Proactively provide well-organized materials.
• Answer questions seriously; do not be dismissive or conceal information.

The head of one Chinese food-import company was cold and even repeatedly impatient toward the inspector, who ended up scrutinizing every single account entry; although nothing was wrong in the end, the company was still issued a "recommendation for improvement." By contrast, companies with a good attitude often earn the inspector's understanding and leniency.

2. Explain Proactively; Don't Wait to Be Asked

While the inspector reviews the books, if you spot something that might be confusing, explaining it proactively is far better than waiting to be asked:

• "This expense arose because the supplier temporarily adjusted the price…"
• "This contract was signed later, because…"

This shows that you have a firm grasp of your own accounts and gives the inspector an impression of "well-managed operations."

3. For Points You Are Unclear About, Say "I'm Not Sure" Rather Than Fabricate

If the inspector asks about something you are unsure of, never make up an answer on the spot. The correct approach is:

• "I'm not entirely sure about that detail; let me check."
• "That question requires consulting our accountant."
• Then supplement with an explanation and materials within the prescribed period.

Japan's inspection procedures allow companies to supplement explanations and materials within 7–14 days of receiving a question. Honesty is better than a rushed answer.

4. Protect Confidential Business Information

While cooperating with the inspection is important, you have the right to protect trade secrets:

• If a document contains key trade secrets (such as core customer information or product formulas), you may ask the inspector to sign a confidentiality agreement.
• You may selectively provide the necessary information while withholding the confidential portions.
• Inspectors will generally understand and respect such requests.

5. Be Prepared for a Long Inspection

Subsidy inspections often run longer than expected. Prepare:

• Enough tea and coffee.
• Sufficient lighting and power outlets (the inspector may use a laptop).
• Convenient access to restrooms.
• Patience—the inspection may last 4–6 hours, or even several days.

6. Obtain and Record Inspection Feedback

At the end of the inspection, the inspector will usually give verbal feedback on their initial impressions. At this point:

• Listen carefully to their comments.
• Ask whether there are any areas that need improvement.
• Obtain the inspector's contact details for follow-up communication.
• If you disagree, you may express it gently and request a written explanation.

Four Common "Deductions" and How to Avoid Them

| Type of Problem | Specific Manifestation | How to Avoid It | |---------|---------|---------| | Incomplete vouchers | Missing original invoices or receipts | Maintain good relationships with suppliers and promptly request reissued invoices | | Bookkeeping errors | Amounts, dates, or descriptions do not match | Establish a strict reconciliation process and reconcile with the bank monthly | | Unused assets | Purchased equipment or software not put into use | Draw up a detailed asset-utilization plan and keep photos of usage | | Duplicate claims | The same expense claimed across multiple subsidy programs | Maintain a subsidy ledger and clearly identify the source of each expense |

After the Inspection: What to Do When You Receive the Inspection Report

The Three Possible Inspection Outcomes

1. Full Compliance (the Best Outcome)

If the inspector finds no problems, you will receive a certificate that the inspection passed. Although this certificate has no legal effect, it shows that your use of the subsidy has been recognized. Even if you are reviewed again years later, this certificate has reference value.

2. Minor Non-Compliance (Improvement Required)

The inspector may find minor issues, such as:

• Some vouchers not being recorded in a sufficiently proper manner.
• The record of a certain expense not being clear enough.
• Some procedures being slightly incomplete.

In this case, you will receive a "notice of instruction to improve" (an improvement order), usually granting an improvement period of 30–60 days. You will need to submit an improvement report and supplementary materials as instructed. The key is to make genuine improvements within the deadline; this usually does not lead to repayment of the subsidy.

The Chinese owner of one HR company was asked for a supplementary explanation because the vouchers for employee wage payments were not clear enough (the bank transfer screenshots for some employees were blurry). He then had the bank reprint clear transfer records, and the issue was resolved.

3. Serious Violations (the Worst Case)

If the following are found, you may be required to repay all or part of the subsidy:

• The subsidy was diverted to other uses (repaying debt, personal spending, etc.).
• Vouchers were falsified or false reports submitted.
• The same expense was claimed more than once.
• The terms of the subsidy agreement were seriously breached.

In this case, the company has the right to make a statement and rebuttal. You may:

• Request a meeting with the inspecting body to explain your position.
• Submit a written statement of objection (igi moshitate sho).
• Seek legal assistance where necessary.

Avenues of Relief When You Receive an Unsatisfactory Inspection Result

Step 1: Internal Appeal (Administrative Review)

Within three months of receiving the inspection result, you may submit an administrative appeal request (gyosei fufuku shinsa seikyu sho) to the body that issued the subsidy. This is a relatively low-cost avenue of relief.

Step 2: Litigation

If the administrative review is also dismissed, you may bring a suit in an administrative court. This step usually requires engaging a specialized attorney and is more costly, but if a large amount is at stake (such as a repayment demand of JPY 1 million or more), it is worth considering.

Step 3: Seek Help From Professional Associations

Chinese companies operating in Japan may seek help from the Economic and Commercial Office of the Chinese Embassy in Japan or a local Chinese chamber of commerce to obtain legal consultation.

Frequently Asked Questions (FAQ)

Q1: Can an inspector conduct a "surprise inspection" without advance notice? Do I have to provide all original vouchers on the spot?

A: Under the Act on Regulation of Execution of Budget Pertaining to Subsidies, etc., while the government does in theory have the authority to conduct unannounced inspections, in practice Japanese subsidy inspections are almost always announced in advance, usually 7–14 days ahead. Surprise inspections are conducted only in special circumstances, such as when a report of misconduct has been received and there is evidence the company may destroy evidence.

As for providing vouchers, you do not need to provide all original vouchers on the spot. Inspectors usually accept copies or scans, and originals can be supplemented within a prescribed period after the inspection. If you cannot locate certain materials on the spot, you may explain the situation and promise to submit them within 7–14 days. Do not become flustered or defensive simply because you cannot find a document at that moment—doing so will only arouse the inspector's suspicion. In fact, most companies find that some materials are missing during an inspection, which is quite normal.

Q2: In the past, because my operations were not well-regulated, some of my expense vouchers are incomplete (for example, cash expenses with no receipts). How should I handle this during an inspection? Will I be required to repay the subsidy?

A: This is a concern for many Chinese business owners in Japan. First, incomplete vouchers do not necessarily mean non-compliant use. Although Japan's tax and subsidy administration systems are strict, they also acknowledge real-world difficulties. Key factors include: the size of the expense, how long ago it occurred, and whether it can be verified by other means (such as witnesses or photos).

For small cash expenses (such as JPY 100–500 for stationery or meals), even in the absence of formal receipts, they can usually be substantiated through entries in a "cash disbursement book" (genkin suito cho). For larger amounts (such as JPY 50,000 or more), inspectors will be stricter. Your strategy is to: (1) honestly explain why the voucher is missing; (2) provide alternative supporting materials, such as photos, emails, or witness statements; and (3) if it genuinely cannot be proven, proactively acknowledge it and express willingness to adjust the reimbursed amount for that portion of the expense. This proactive attitude usually earns the inspector's understanding, and you are unlikely to be required to repay the full amount—at most, you will be asked to return the portion that cannot be substantiated.

Q3: I used my subsidy to purchase machinery and equipment. During the inspection, the inspector asked me to provide photos of the equipment and proof of use. What happens if the equipment has never been used, or has already been resold?

A: This is a serious matter. Under the subsidy agreement, a company that purchases equipment must continue to use it for a prescribed period (usually 3–5 years). If the equipment is found to have gone unused for a long time or to have been resold, the inspector will find "insufficient efficiency in the use of subsidy funds," or even "improper use of the subsidy."

The specific consequences depend on several factors. If you have not used it temporarily due to business difficulties but have retained ownership and the intent to use it, you can submit a utilization plan explaining when it will be put into use, and the inspector may grant an improvement period. But if the equipment has already been resold, the situation is more serious. You will need to explain the reason for the resale and how the proceeds were used. If the resale proceeds continued to be used for the company's operations, it can sometimes be recognized as a "reasonable disposal of assets," but you may still be required to repay the resale-difference portion. In the worst case, you may be required to repay the entire subsidy for the equipment purchase.

Therefore, after purchasing equipment, you must draw up a clear utilization plan and keep photos of usage and operating records—these are important evidence to protect yourself.

Q4: Can I refuse or postpone a subsidy inspection? What should I do if the inspector's attitude is unfriendly?

A: Under Japanese law, a company does not have the right to refuse a subsidy inspection. Refusing an inspection is unlawful and can lead to full repayment of the subsidy, fines, and even being placed on a blacklist of "subsidy-violating companies," affecting future subsidy applications. However, you do have the right to request a postponement. If the inspection notice's date is inconvenient (for example, it conflicts with an important business matter), you may request a change of date in writing within 3–5 days of receiving the notice, and this is usually granted. The request for a change of date should state the reason, such as "there is an important client meeting that day" or "the head of finance will be away."

Regarding inspectors' attitudes, Japanese civil servants are held to a high standard of professional conduct. If you feel the inspector is disrespectful, asks questions outside the scope, or engages in other improper conduct, you may: (1) politely express your discomfort—"申し訳ありませんが、その質問はこの補助金と関係がないと思いますが" (I'm sorry, but I don't think that question is related to this subsidy); (2) record all improper conduct and the times it occurred; and (3) file a complaint with the inspecting body's superior department after the inspection. In practice, while such a complaint will not change the outcome of this inspection, it will be entered into the inspector's file and will prompt the inspecting body to supervise that inspector more strictly.

Q5: I've heard that some companies successfully "passed" an inspection by hiring a tax expert or accountant to prepare the inspection materials. Does that mean I also need to hire a professional? Roughly how much does it cost?

A: Hiring a professional does help with the inspection pass rate, but it is not "essential." It mainly depends on several factors: (1) company size—for companies with 50 or more employees and annual revenue of JPY 50 million or more, hiring a professional is advisable; (2) subsidy amount—if the subsidy exceeds JPY 10 million, hiring an expert offers excellent value; and (3) how well-regulated the company's accounting is—if the books are chaotic or there are clear signs of non-compliance, a professional's help is crucial.

Services a professional can provide include: (1) a pre-inspection audit and compliance assessment; (2) adjustment and standardization of the books; (3) preparation of supplementary materials and explanatory documents; and (4) representation in statements and objections. Costs are usually: JPY 30,000–50,000 for a preliminary assessment, JPY 200,000–500,000 for a full audit and preparation, and higher still if court representation is required. For small companies (subsidies of JPY 1–3 million), you can consider a minimum-cost option—hiring an accountant for 8–12 hours of book review and advice, usually costing JPY 100,000–200,000. From a cost-benefit standpoint, if professional help can prevent a single subsidy repayment (often a loss of JPY 500,000–5 million), this investment is entirely worthwhile.

Conclusion: Proactive Compliance, Preventing Problems Before They Arise

The on-site subsidy inspection (tachiiri kensa) may seem frightening, but for a well-run company it is simply a normal administrative procedure. The keys are:

1. Prepare properly from the application stage—do not submit false materials just to get approved quickly.
2. Establish strict accounting and asset-management systems—every expense should be traceable.
3. Keep in touch with professionals—consult a tax accountant or accountant regularly to catch problems early.
4. Don't panic when you receive an inspection notice—it is an entirely normal procedure; a sincere attitude and cooperation will get you through most risks.
5. Know how to seek relief if you disagree with the result—understand the avenues for appeal and litigation to protect your rights.

Many Chinese business owners in Japan, fearing that "once you're inspected, it's over," end up concealing or evading—which actually increases the risk. In fact, Japan's administrative system has a tolerance mechanism for companies that cooperate proactively and improve on their own initiative. As long as you show a sincere attitude and a determination to improve, most inspections can be passed smoothly.

If your company has already received an on-site subsidy inspection notice, or you have specific questions about the inspection process, you are welcome to contact us for a free consultation. We have extensive experience in handling subsidy inspections and can provide a tailored solution to help you pass the inspection smoothly and protect your legitimate rights.

Contact: [Business consultation channel]