What Expenses Can Be Covered by Subsidies? A Complete Explanation of Subsidy-Eligible Costs and Prohibited Expenses

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Core Definition of Subsidy-Eligible Expenses: Must Satisfy 3 Conditions

Subsidy-eligible expenses (補助対象経費) are not simply whatever expenses a business chooses to claim for reimbursement. The Japanese subsidy system imposes strict 「admission thresholds」 on every single expenditure. According to the standard definition set by METI's Small and Medium Enterprise Agency (中小企業庁), subsidy-eligible expenses must simultaneously satisfy the following 3 essential conditions:

First, expenses incurred during the subsidy business period. This does not refer to the invoice issuance date, but rather refers to payments actually completed during the 「subsidy business period (補助対象事業期間)」. Using the 2024 fiscal year Monozukuri Subsidy as an example, the subsidy business period typically runs from the date of grant approval through the designated end date (usually 12–24 months), and expenses outside this period are not recognized—regardless of invoice validity.

Second, expenses must be listed as line items in the subsidy application. This is the most common pitfall. The subsidy application form explicitly lists budgeted categories and amounts by item. Once submitted, you cannot randomly add new expense categories. For example, if you applied with 「marketing expenses: 1 million JPY,」 you cannot later reallocate 500,000 JPY of that to 「machinery and equipment purchases」—adjustments must stay within the original budgeted categories, and amounts exceeding the allocated item are not subsidized.

Third, expenses must be directly related to achieving the subsidy business objectives. This is the 「relatedness principle」—expenditures must connect directly to your declared subsidy project and goals. For example, if you applied for an 「e-commerce platform development project,」 purchasing servers and hiring programmers for that project are subsidy-eligible; however, office rent, if not exclusively dedicated to the project, is typically classified as an 「indirect expense」 and not recognized.

Table 1: Three-Tier Screening Mechanism for Subsidy-Eligible Expenses

| Condition Tier | Judgment Standard | Concrete Example | Non-Compliant Case | |---|---|---|---| | Timing | Payment within business period | Payment completed April 1, 2024–March 31, 2025 | Invoice or payment outside the business period | | Declaration Consistency | Expense category listed in application | Application explicitly states 「machinery purchase」 | New expense category added retrospectively; not mentioned in the original application | | Relatedness | Directly related to subsidy project | Project-dedicated equipment, direct labor | General office expenses, employee benefits |

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Subsidy Types and Subsidy Rates: Major Variations in Coverage Scope by Program

In Japan, subsidy-eligible expense scope is directly correlated with the subsidy rate (補助率). Higher subsidy rates typically entail stricter definitions of eligible expenses; lower rates sometimes offer more flexibility. Mastering this relationship is critical for budget planning.

Using the following three common subsidy types as examples:

1. Ministry of Health, Labour and Welfare: Career-Up (Regularization) Grant (キャリアアップ助成金)

• Subsidy Rate: 50–80% (varies by enterprise size and measure type)
• Subsidy-Eligible Expense Scope: Extremely Strict
  • ✅ Included: Training instructor fees, instructional materials, direct compensation for trainees (typically capped at 1.5× minimum wage per month)
  • ❌ Excluded: Wages of in-house trainers (paid according to national standard rates, outside subsidy scope), training facility rental, commute allowances
  • Real case: A Shenzhen-based business owner running a training center in Tokyo applied for this subsidy. He wanted to claim facility rental and employee meal costs, but was informed that such indirect costs typically must be borne by the enterprise—only external trainer fees and materials were approved.

2. Ministry of Economy, Trade and Industry: Monozukuri Subsidy (ものづくり補助金)

• Subsidy Rate: 1/2～2/3 (varies by enterprise size; small-to-medium enterprises typically 50–66%)
• Subsidy-Eligible Expense Scope: Relatively Flexible
  • ✅ Included: Machinery and equipment costs, system development costs, external processing/subcontracting costs, personnel costs (new hires or project-dedicated staff), prototype manufacturing costs, intellectual property acquisition costs
  • ❌ Excluded: Routine/ordinary expenses (office supplies, general administrative items), financial fees, tax consulting fees, depreciation of existing assets
  • Data reference: 2023 fiscal year Monozukuri Subsidy total budget allocation was approximately 114.4 billion JPY, with average subsidy per application around approximately 8.5 million JPY, approval rate roughly 40–45%

3. Tokyo Metropolitan Government: Small Business Support System-Linked Subsidy (Tokyo Disaster Prevention and Business Continuity Enhancement Support Program)

• Subsidy Rate: Maximum 2/3
• Subsidy-Eligible Expense Scope: Moderate Strictness
  • ✅ Included: Building seismic retrofitting, disaster prevention equipment installation, business continuity plan (BCP) consultant fees
  • ❌ Excluded: Single items under 500,000 JPY, duplicate applications for expenses already receiving other subsidies, consultant fees exceeding 50% of total subsidy-eligible expenses
  • Experience data: Review cycle approximately 4–6 months; average review process requires supplemental documentation 2–3 times

Table 2: Major Subsidy Programs—Subsidy-Eligible Expense Comparison

| Subsidy Name | Subsidy Rate | Machinery | Personnel | Subcontracting | Consulting | Rent | Approval Rate | |---|---|---|---|---|---|---|---| | Career-Up Grant | 50–80% | ❌ | ⚠️ Strict | ❌ | ⚠️ | ❌ | ~60% | | Monozukuri Subsidy | 50–66% | ✅ | ✅ | ✅ | ⚠️ Limited | ❌ | ~40% | | Business Restructuring Subsidy | 50–75% | ✅ | ✅ | ✅ | ✅ | ⚠️ Limited | ~30–40% | | IT Adoption Subsidy | 1/2～3/4 | ⚠️ Software only | ❌ | ✅ | ✅ | ❌ | ~50% |

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Detailed Checklist of Subsidy-Eligible Expenses: Complete Analysis of 8 Major Categories

To help Chinese business owners intuitively grasp 「what can be claimed and what cannot,」 we provide category-by-category analysis following Japan's standard expense classification for subsidies. The following data references METI's publicly released Subsidy-Eligible Expense Guidelines (2024 Edition).

Machinery and Equipment Costs (機械・装置費)

Definition and Subsidy Rate: Newly purchased machinery, equipment, and apparatus directly used for the subsidy project. Subsidies typically cover 50–80% of the purchase price (depending on enterprise size and subsidy type).

✅ Reimbursable:

• New machinery purchases (brand-name equipment and OEM equipment both eligible, but domestic price benchmarking required)
• Machine transportation fees, installation fees, and adjustment fees (claimed together with purchase price; typically capped at 10–15% of the equipment cost)
• Software bundled with machinery—the software portion is also reimbursable
• Used machinery (must demonstrate suitability for business needs and reasonable pricing—third-party appraisal typically required)

❌ Not Reimbursable:

• Retrofit costs for existing assets (repairs or upgrades to machinery you already own—not classified as 「new purchase」)
• Lease payments (other than finance leases—finance leases may be eligible under specific subsidies, but ordinary leases are not)
• Finance charges (interest, processing fees, guarantee fees)
• Excessive packaging costs (packaging must be reasonable; amounts exceeding market-standard prices are deemed 「wasteful」 and not approved)

Real Case: A Shenzhen-based food processing company in Osaka applied for the Monozukuri Subsidy to purchase cold-chain processing equipment. The equipment's original list price was 30 million JPY, but through international procurement, could be obtained for 25 million JPY. When applying, the domestic benchmark price (28–30 million JPY) must be used as the basis, not 25 million JPY—otherwise the subsidy calculation base will be compressed. Additionally, associated installation and adjustment fees (approximately 800,000 JPY) must be listed separately and will be deemed as 2.7% of the equipment cost, within the acceptable range (typically capped at 15%).

Personnel Costs (人件費)

Definition and Subsidy Rate: Direct labor costs for newly hired employees or project-dedicated staff for the subsidy business. Subsidy rate typically 50–66%.

✅ Reimbursable:

• Base salary and social insurance contributions for new hires (must be new positions created during the subsidy period, not salary increases for existing staff)
• Overtime pay for project-dedicated employees (must clearly demonstrate overtime is directly related to the subsidy project; must be documented via timesheets)
• External training instructor fees (per-session or project-based fees for external instructors; typically 50,000–150,000 JPY/day)
• Temporary employee costs (daily or short-term hires; requires employment contracts and salary documentation)

❌ Not Reimbursable:

• Current salaries of existing employees (even if they spend time on the subsidy project, their existing salary cannot be claimed)—Exception: if existing employees receive promotion or salary increase due to project participation, the new/additional amount may be recognized in special circumstances, but requires extremely detailed supporting documentation (typically subject to strict review)
• Bonuses and performance awards (typically outside subsidy scope)
• Fringe benefits (meal allowances, commute allowances, health checkups, etc.)
• Severance pay (退職金 for departing employees is not eligible)
• Management and executive salaries (Salaries for company representatives (代表取締役), directors, and other executive-level personnel are typically not recognized, except in special project structures)

Data Reference: Ministry of Health, Labour and Welfare Career-Up Grant caps personnel costs at 1.5× minimum wage per month. Using Tokyo's minimum wage of 1,113 JPY/hour as an example, if training hours total 40/month, the maximum reimbursable amount is approximately 67,000 JPY/month.

Real Case: A Chinese-based creative agency in Fukuoka applied for a subsidy to develop a new design management system. The company hired 2 young designers dedicated full-time to the project at 250,000 JPY/month each, with an 18-month project timeline. Reimbursable personnel cost = 250,000 JPY × 50% × 18 months × 2 employees = 4.5 million JPY (assuming 50% subsidy rate). However, if the company wanted to include the existing creative director (monthly salary 800,000 JPY) even if the director spent 50% of their time on the project, this would not be reimbursable—executive salaries are generally not recognized.

External Processing and Subcontracting Fees (外注加工費・委託費)

Definition and Subsidy Rate: Fees paid to external contractors to complete portions of the subsidy project. Subsidy rate typically 50–66%. This is the second most common pitfall (second only to rent issues).

✅ Reimbursable:

• Project-specific subcontracting fees (such as prototype manufacturing, professional design outsourcing, specialized process outsourcing—requires detailed subcontracting agreements)
• Professional consulting fees (market research, product development consulting, intellectual property application consulting; typically subject to caps, such as 20–30% or less of total subsidy-eligible expenses)
• Testing and inspection costs (third-party testing and certification agency fees)
• International standard acquisition support fees (ISO, CE, and other international certification consulting)

❌ Not Reimbursable:

• Routine orders from existing suppliers (if the subcontracted work was already being performed, it is not part of a 「new business」 and is not recognized)
• Subcontracting to related companies (subsidiary, parent company, or joint venture—requires special 「independent third party」 justification and typically very difficult to approve)
• Excessive consulting fees (consulting fees exceeding 30% of subsidy-eligible expenses will be questioned; may require reduction)
• Advisor and advisory fees (long-term advisory contracts are typically not recognized; only project-based 「consulting」 is eligible)

Key Data: According to METI review cases, applications where external processing costs exceed 50% of subsidy-eligible expenses show a 15–25 percentage point lower approval rate. The rationale is that reviewers must confirm the enterprise itself has substantive participation and is not acting as a mere intermediary.

Real Case: A Shanghai-based software company in Tokyo applied for an IT Adoption Subsidy to develop an inventory management system. Total planned subsidy-eligible expenses: 10 million JPY, of which 8 million JPY for software development outsourced to a well-known vendor. This application approach faces major risk—the outsourcing ratio reaches 80%, and during review, officials will ask: where is your company's R&D value? If the outsourcing vendor controls the entire technical solution and your company is merely procuring, this fails to meet the 「novelty and innovation of the business」 requirement. The safer approach: of the 8 million JPY outsourced development, have the core development done by the external vendor, but ensure 2–3 in-house technical staff participate throughout the project, overseeing requirements and testing. This internal personnel cost can be claimed as subsidy-eligible expenses. This way the outsourcing ratio will be deemed 「40%」 (external processing 5 million JPY + internal personnel 3 million JPY), with significantly higher approval odds.

System Development and Software Costs (システム構築費・ソフトウェア費)

Definition and Subsidy Rate: Software, systems, and applications developed or purchased specifically for the subsidy project. Subsidy rate typically 50–75%.

✅ Reimbursable:

• Custom software development costs (requirements analysis, design, programming, and testing phase expenses)
• System implementation costs (deployment and implementation costs for new ERP, CRM, production management systems, etc.)
• License fees (initial license fees for newly purchased professional software; typically only the first-year license is reimbursable—renewal licenses are not)
• Database development and migration costs (database design, construction, migration of existing data from legacy systems)
• Security implementation costs (system encryption, authentication, protective software—typically recognized as 15–20% of system total cost)

❌ Not Reimbursable:

• Off-the-shelf packaged software purchases (Microsoft Office, Adobe Creative Suite, etc. are general-use software and typically not recognized, even if professional versions directly related to the project; usually not approved)
• Annual cloud service licenses (SaaS software such as Salesforce, Adobe Cloud, etc. monthly/annual subscriptions—initial deployment and configuration fees may be reimbursable, but monthly/annual license fees are not)
• Maintenance and support costs (maintenance fees after the subsidy business period ends are completely ineligible; if maintenance during the project period requires reimbursement, it must be limited to 5% or less of total costs)
• Existing software upgrade costs (upgrade fees for software already owned are not eligible)

Data Reference: IT Adoption Subsidy (2024 fiscal year) sets a software cost cap of 4.5 million JPY per application (large enterprise standard). System development costs average market rates of 120,000–150,000 JPY per person-month (calculated by market standard rates; application amounts exceeding market price will be requested to reduce).

Real Case: A Beijing-based e-commerce company in Yokohama applies for a subsidy to develop a private domain shopping system from scratch. Total planned investment: 20 million JPY from an external professional company. The report classifies as follows:

• System design and requirements analysis: 2 million JPY ✅
• Programming and development: 12 million JPY ✅
• Testing and quality assurance: 3 million JPY ✅
• Security implementation: 1 million JPY ✅
• Initial operational support (first 3 months): 1 million JPY ✅ (maintenance capped at 5% of period duration)
• Annual cloud licenses (AWS, etc.): 1 million JPY ❌ (license fees outside scope)

Total Subsidy-Eligible Expenses = 19 million JPY (1 million JPY in cloud license fees excluded from 20 million JPY). At 50% subsidy rate, subsidy amount = 9.5 million JPY.

Prototype and Development Costs (試作品製作費・開発費)

Definition and Subsidy Rate: Costs for manufacturing prototypes and pilot products developed for the subsidy project. Subsidy rate typically 50–75%.

✅ Reimbursable:

• New product and new service prototype manufacturing costs (initial sample manufacturing, prototype development, market trial product production)
• Material and component costs (cost of materials and components used in prototypes—generally calculated based on market rates)
• Trial manufacturing equipment costs (equipment purchases limited to trial purposes; must demonstrate trial nature, with post-project disposal plan)
• Testing and evaluation costs (prototype performance testing, quality evaluation, third-party testing institution fees)

❌ Not Reimbursable:

• Purchases of products already mass-produced (this is not called 「prototyping」—it is procurement)
• Failed prototype material disposal costs (disposal costs for failed or defective products during development are considered enterprise self-funded expenses)
• Excessive prototype iteration costs (subsidies assume 「efficient development」; costs from excessive trial-and-error are subject to reduction)
• Merely customizing existing products (if the enterprise already owns an off-the-shelf product and only customizes it—not eligible, as this is not new development)

Data Reference: Average Monozukuri Subsidy prototype manufacturing costs are 4–6 million JPY (varies by enterprise size).

Real Case: A Taipei-based precision parts manufacturer in Nagoya applies for a subsidy to develop a new IoT sensor. The prototype plan includes:

• Material and component costs (5 prototype units): 1.5 million JPY ✅
• Trial 3D printer purchase: 2 million JPY ⚠️ (recognized if usable for other projects after trial; reduced if highly project-specific)
• Third-party performance testing (outsourced): 1 million JPY ✅
• Failed prototype disposal: 500,000 JPY ❌ (considered enterprise responsibility)
• Second-round prototype refinement and iteration: 2 million JPY ✅ (must explain process efficiency)

Total Reimbursable Prototype Costs ≈ 6.5 million JPY (failed prototype disposal excluded; 3D printer fully recognized if of general applicability).

Intellectual Property Acquisition Costs (知的財産權取得費)

Definition and Subsidy Rate: Costs for acquiring patents, utility models, designs, trademarks, and other intellectual property rights related to the subsidy project, including application and registration fees. Subsidy rate typically 50–75%.

✅ Reimbursable:

• Patent application and registration fees (filing fees to Japan Patent Office, examination fees, registration fees—multiple-country international patent applications are also recognized)
• Patent attorney fees (patent attorney fees for patent applications—based on market rates; typically 200,000–500,000 JPY per application is standard)
• Trademark registration fees (brand trademarks, logo design trademarks application and registration)
• Design registration fees (product design and appearance registration)
• Examination costs (specialized institution prior art search fees, patentability assessment fees)

❌ Not Reimbursable:

• Maintenance fees for already-acquired intellectual property (renewal registration fees, annual maintenance costs—maintenance of existing property is enterprise self-funded)
• Excessive patent attorney fees (fees exceeding 2× market rates are 「inappropriate expenses」 subject to reduction)
• Design logo creation costs (design fees not included; only design application and registration fees recognized)
• Piracy countermeasures and IP litigation costs (intellectual property infringement countermeasures are outside scope)

Data Reference: According to Small and Medium Enterprise Agency statistics (2023), average subsidy per patent application is approximately 300,000–400,000 JPY. When combining domestic and overseas patents (U.S., Europe, etc.), subsidy-eligible costs can reach approximately 3–5 times domestic applications, making this favorable for enterprises pursuing international expansion.

Real Case: A Guangzhou-based IoT company at Osaka subsidiary plans intellectual property development for a new sensor. Contents:

• Japan domestic patent application (attorney fees + filing fees): 350,000 JPY ✅
• U.S. patent application (same): 600,000 JPY ✅
• European patent application (same): 550,000 JPY ✅
• China patent application (commissioned to related entity): 300,000 JPY ⚠️ (related-company commissioning may be outside scope)
• Trademark registration (3 countries): 150,000 JPY ✅
• Patent novelty assessment service: 200,000 JPY ✅

Total Reimbursable IP Costs ≈ 1.85 million JPY (China patent application excluded). At 50% subsidy rate, subsidy amount = 925,000 JPY.

Market Research and Marketing Costs (市場調査費・マーケティング費)

Definition and Subsidy Rate: Market research, marketing surveys, and commercial promotion expenses necessary for market entry and commercialization of the subsidy project. Subsidy rate typically 50–66%. This is one of the most controversial expense categories.

✅ Reimbursable:

• Market research and demand survey costs (outsourced research to third-party market research institutions—typically 500,000–2 million JPY market rate)
• Limited sales and trial campaign costs (new product limited sales, sample distribution, promotional activities)
• Trade show and exhibition participation costs (booth fees, panel production, transportation and setup—typically limited to domestic trade shows)
• Website and catalog production costs (new product/service introductory promotional material production)
• Sales personnel training and development costs (training for sales staff for new product sales)

❌ Not Reimbursable:

• General brand advertising and TV commercial costs (brand strengthening for existing business outside subsidy scope)
• Influencer and social media advertising costs (routine promotional activity on existing platforms generally outside subsidy scope)
• Previously implemented sales activity costs (retroactive applications for past sales expenses are ineligible)
• Excessive trade show participation costs (amounts exceeding 2 million JPY per show require verification)
• General sales travel and transportation costs (salesperson business trip expenses are typically outside subsidy scope)

Data Reference: In Business Restructuring Subsidies, when market research costs exceed 20–25% of subsidy-eligible expenses, reviewers typically ask 「is direct commercialization activity sufficient?」 Approval rates also show 30 percentage point decline.

Real Case: A Shenzhen-based food manufacturer in Kumamoto launches a new health food product. Marketing expense applications include:

• Market research institution (consumer preference survey): 800,000 JPY ✅
• Limited sales campaign (3 supermarkets, 1-month trial period): 1.2 million JPY ✅
• Product introduction website design: 500,000 JPY ✅
• Industry trade show participation (2 shows): 1 million JPY ✅
• Influencer social media advertising (Instagram, etc.): 800,000 JPY ❌ (generally outside scope)
• Sales personnel training: 300,000 JPY ✅
• Television commercial broadcast: 2 million JPY ❌ (brand advertising outside subsidy scope)

Total Reimbursable Marketing Costs ≈ 3.8 million JPY (social media advertising and TV commercial excluded). At 50% subsidy rate, subsidy amount = 1.9 million JPY.

Travel and Expedition Costs (旅費・外出費)

Definition and Subsidy Rate: Travel and expedition costs directly necessary for implementing the subsidy project. Subsidy rate typically 50–66%. This category has strict regulations and is frequently rejected.

✅ Reimbursable:

• Market research/investigation travel (domestic travel for market investigation directly related to the subsidy project, such as visiting target customers, suppliers, or market locations; requires detailed travel purpose documentation)
• Technical training and study abroad (overseas training for acquiring technologies or skills critical to subsidy project success; typically individual cost caps of 150,000–300,000 JPY per person, maximum 5–10 persons)
• Trade show/exhibition participation travel (airfare and accommodation for participating in industry exhibitions—must directly relate to the subsidy project)
• Professional consultation site visits (travel to meet with external consultants, technical experts, etc. for project guidance)

❌ Not Reimbursable:

• General business travel (routine business trips unrelated to the subsidy project)
• Daily commuting costs (regular commutes to office or project site)
• Meal and entertainment allowances (meal per diem and entertainment expenses are separate from reimbursable travel and typically ineligible)
• Accommodation exceeding market rates (e.g., luxury hotel stays exceed reasonable business lodging; excess portion not recognized)
• Family member or companion travel (travel costs for non-employees, family members, or companions)

Key Regulation: Travel costs must generally be documented with receipts, itinerary, and business purpose statement. Vague descriptions like 「business trip」 without specific project connection will be rejected.

Real Case: A Hangzhou-based manufacturing company in Kobe applies for Monozukuri Subsidy to develop new production technology. Travel plan includes:

• 3 engineers visiting German equipment manufacturers for technical investigation: 1.5 million JPY (airfare + accommodation, 2 nights each) ✅
• Technical expert participation in international conference in Singapore: 800,000 JPY ⚠️ (questionable—conference participation alone not always recognized; specific technology acquisition relevance must be proven)
• Meal allowances during travel: 200,000 JPY ❌ (per diem outside subsidy scope)
• Hotel costs: 500,000 JPY (at 120,000 JPY/night, exceeds domestic standard 80,000 JPY/night; 200,000 JPY excess portion not recognized) ⚠️

Total Reimbursable Travel Costs ≈ 1.8–2 million JPY (depending on conference relevance review; meal allowances and excess hotel costs excluded).

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Common Pitfalls: Real Case Studies of Cost Rejection

Understanding the rules is one thing; seeing real-world rejections helps internalize the boundaries.

Pitfall 1: Misclassifying Personnel Costs

Scenario: A Taiwanese business owner in Nagoya wants to apply for Career-Up Grant to train 20 existing employees in digital skills. She budgets:

• External trainer fees: 500,000 JPY
• Trainee compensation during training (lost productive time): 2 million JPY
• Internal training coordinator salary (existing HR staff): 400,000 JPY

Expected Subsidy: 80% rate → (500,000 + 2,000,000 + 400,000) × 80% = 2.32 million JPY

Reality: Review result rejected 70% of the application

• External trainer fees: 500,000 JPY ✅ approved
• Trainee compensation: 700,000 JPY only (recognized as 1.5× minimum wage, not full market wage) ⚠️
• Internal training coordinator: 0 JPY ❌ (existing employee salary not recognized)

Actual Subsidy: (500,000 + 700,000) × 80% = 960,000 JPY (59% of original expectation)

Lesson: You cannot package 「lost productivity」 of existing employees as a trainee compensation expense. The subsidy only recognizes standardized compensation, not market wage replacement.

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Pitfall 2: Exceeding Consulting Fee Caps

Scenario: A Shanghai business owner in Fukuoka applies for Business Restructuring Subsidy with 50 million JPY total eligible expenses. He plans:

• Consulting fees for comprehensive business model design: 15 million JPY
• Marketing research and implementation support: 5 million JPY
• Technical implementation: 30 million JPY

Expected Subsidy: 50% rate → 50 million × 50% = 25 million JPY

Reality: Review result approved with significant reduction

• Consulting fees exceeding 30% of total eligible expenses are capped
  • Allowable cap: 50 million × 30% = 15 million JPY maximum for consulting
  • Applied: 15 + 5 = 20 million JPY (exceeds by 5 million JPY)
  • Adjustment: Only 15 million JPY consulting recognized
• Adjusted eligible expenses: 15 + 30 = 45 million JPY

Actual Subsidy: 45 million × 50% = 22.5 million JPY (10% reduction from expectation)

Lesson: Consulting, research, and support services typically have strict proportional caps. Going over creates the appearance that the subsidy is funding 「professional services」 rather than the enterprise's own 「business execution.」

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Pitfall 3: Rent Cannot Be Claimed as Direct Expense

Scenario: A Korean business owner in Saitama applies for Monozukuri Subsidy. He leases a factory specifically for the new product line and budgets:

• Factory rental during 18-month project period: 3.6 million JPY (200,000 JPY/month)
• Utilities for the factory: 800,000 JPY
• Production equipment: 10 million JPY
• Personnel: 5 million JPY

Expected Subsidy: 50% rate → (3.6 + 0.8 + 10 + 5) million × 50% = 9.7 million JPY

Reality: Review result rejected rent entirely

• Factory rental: 0 JPY ❌ (real estate costs are 「general overhead」 not 「subsidy-eligible」)
• Utilities: 0 JPY ❌ (same reason)
• Production equipment: 10 million JPY ✅
• Personnel: 5 million JPY ✅
• Adjusted eligible expenses: 15 million JPY only

Actual Subsidy: 15 million × 50% = 7.5 million JPY (23% reduction)

Lesson: Rent, regardless of whether the facility is 「dedicated」 to the project, is classified as general business overhead (基本経費), not subsidy-eligible direct costs. This applies across almost all Japanese subsidy schemes. The only exceptions are specialized subsidies (e.g., disaster recovery rent support post-natural disaster), which explicitly list rent.

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Avoiding Pitfalls: 5-Step Verification Framework Before Submission

To prevent costly mistakes, use this 5-step checklist before finalizing your subsidy application:

Step 1: Period Compliance Check (期間適合性チェック)

Question: Does every expense fall within the official subsidy business period?

• ✓ Confirmed eligible dates from METI notice or local government notice
• ✓ All invoices, receipts, payment records show dates within the official window
• ✓ Payment settlement dates (not invoice dates) fall within the period

Action if uncertain: Request a written clarification from the Certified Support Agency (認定支援機関) or local subsidy administrator. Do not assume based on invoice dates alone.

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Step 2: Declared Consistency Check (申告一貫性チェック)

Question: Does every expense appear as a listed line item in my original application budget?

Checklist:

• Application budget form (様式) lists expense category X with amount Y
• Actual expense falls under category X (not reclassified to category Z post-hoc)
• Actual amount does not exceed budgeted amount by >20% (small overages under 20% often tolerated; larger overages require formal amendment requests)

Action if uncertain: Before purchasing, cross-reference the approved budget breakdown. Any planned expenses not explicitly listed should be formally amended before committing funds.

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Step 3: Relatedness and Necessity Check (関連性・必要性チェック)

Question: Can I clearly articulate why this expense is essential to achieve the declared subsidy business objectives?

Evidence gathering:

• ✓ Project proposal document explains the specific role of each expense category
• ✓ For subcontracting/consulting, written subcontractor scope of work clearly ties to project objectives
• ✓ For equipment, I can demonstrate equipment specifications match declared project requirements
• ✓ For training, curriculum and trainee selection demonstrably link to new business skills needed

Action if uncertain: Create a simple 「expense justification document」 (費用根拠書) for each major category explaining the direct link to project success. This proactive documentation often prevents reviewer rejection.

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Step 4: Market Rate Reasonableness Check (市場相場妥当性チェック)

Question: Are my planned expenses within market-reasonable ranges, or do they appear inflated?

Common benchmarks:

• Personnel costs: Market wage for the region and skill level
• Equipment: Domestic supplier list prices (not discounted overseas prices)
• Consulting: 50,000–200,000 JPY/day for typical consultants; premium experts 200,000–400,000 JPY/day
• Outsourcing labor: 80,000–150,000 JPY per person-month (varies by skill)
• Travel: Domestic airfare 50,000–120,000 JPY; accommodation 80,000–120,000 JPY/night

Action: Gather 3 competing quotes for major purchases. If your quote is 30%+ below market, reviewers will suspect collusion or under-specification; if 30%+ above, they will demand reduction.

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Step 5: Subsidy Program-Specific Rule Check (補助制度別ルール確認)

Question: Does my expense fit the specific program's rules?

Quick reference:

• Career-Up Grant: Does the expense relate to employee training? Personnel costs capped at 1.5× minimum wage.
• Monozukuri Subsidy: Is the equipment new and directly project-related? Rent not eligible, but prototyping and external processing eligible.
• IT Adoption Subsidy: Is the software development or implementation fee? Hardware costs generally not eligible unless bundled with software.
• Business Restructuring Subsidy: Is the new business model significantly different from existing operations? Consulting capped at 30% of total.

Action: Create a simple spreadsheet mapping each planned expense to the 「eligible」 vs 「ineligible」 category in your specific subsidy program rules. Have a Certified Support Agency or expert gyoseishoshi review this mapping before submission.

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Resources and Getting Expert Help

Many Chinese business owners in Japan attempt subsidy applications alone to save costs, often resulting in rejection or major reductions. The ROI of hiring professional help is typically 2–3× the consulting fee.

Recommended Professional Roles

1. Certified Support Agency (認定支援機関 / Certified Support Organization)

   • Free initial diagnosis (無料診断) available
   • Can formally support subsidy applications (申請支援) with higher approval odds
   • Examples: Chambers of Commerce (商工会議所), small business associations

2. Sharoshi/社労士 (Registered Social Insurance and Labor Consultant)

   • Expert on Career-Up and other labor-related subsidies
   • Can optimize personnel cost claims
   • Typical fee: 500,000–1 million JPY per application

3. Zeirishi/税理士 (Tax Accountant)

   • Ensures expense classification aligns with tax law and subsidy rules
   • Manages subsidy income tax implications
   • Typical fee: 300,000–800,000 JPY per application

4. Gyoseishoshi/行政書士 (Administrative Law Specialist)

   • Handles complex application paperwork and documentation
   • Manages appeals if initially rejected
   • Typical fee: 300,000–1 million JPY per application

5. SME Management Consultant/中小企業診断士 (Chu-Sho Kigyo Shindan-Shi)

   • Conducts comprehensive business feasibility assessment
   • Helps align project description with subsidy goals
   • Typical fee: 800,000–2 million JPY per project

Red Flags When Choosing Service Providers

❌ 「Guaranteed approval」 (絶対に採択されます) — No legitimate provider guarantees approval. Subject to reviewing authority's decision always.

❌ No-Approval, No-Fee Model abuse (成功報酬制) — If a provider claims 「no fee unless approved」 but asks for 「documentation fees」 upfront, be cautious. Legitimate success-fee providers charge only upon actual subsidy receipt.

❌ One-Stop Shop that handles everything — Beware providers claiming they manage all legal, accounting, and consulting in one package. Quality typically suffers. Coordinate separate specialists.

✅ Specialists with industry track record — Ask for references from prior clients in your industry who successfully received subsidies.

✅ Transparent fee structure in writing — Fees clearly itemized, payment schedule tied to milestones, no hidden charges.

✅ Willingness to reference check — Legitimate agencies encourage you to contact prior clients.

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Conclusion: Master the Framework, Increase Your Odds

The difference between 「subsidy rejection」 and 「full approval」 often comes down to a handful of misclassified expenses—many correctable with proper understanding of the 「three essential conditions.」

Key Takeaways:

1. Subsidy-eligible expenses must satisfy three conditions: correct timing, declared consistency, and direct relatedness to project goals.

2. Subsidy rates and eligible expense scope vary significantly by program. A 50% subsidy rate does not mean 50% of business expenses are covered—only specific categories matter.

3. The most commonly rejected expenses: rent (almost never eligible), existing employee salaries, advisory/consulting above 30% cap, and retrofit costs to existing assets.

4. Three highest-risk expense categories requiring extra documentation: consulting fees (audit-intensive), external subcontracting (relatedness questioned), and personnel costs (time-tracking required).

5. Proper categorization and market-rate verification before submission can increase approval odds by 30–50% and prevent 20–30% reductions to approved subsidy amounts.

For Chinese business owners in Japan, the stakes are high. Navigating Japanese subsidy systems requires fluency in local business administration norms, regulatory Japanese terminology, and program-specific rules. Investing in professional support (Sharoshi, Gyoseishoshi, Certified Support Agencies) typically pays for itself through higher approval odds and larger approved subsidy amounts.

With the framework above, you now have a practical blueprint to vet your own budget and communicate clearly with professional advisors—dramatically reducing the risk of the costly mistake: 「this expense is not in the subsidy-eligible scope.」