What is Japanese Consumption Tax?
Japanese Consumption Tax (JCT) is roughly equivalent to sales tax, similar to VAT in many European countries. It must be collected for both B2C and B2B transactions.
At the time of writing the standard rate is 10%, with a reduced rate of 8% for specific categories of goods such as food products and beverages[1]. The Consumption Tax rates are comprised of the following:
For the purposes of general taxation, we can assume a rate of 10%, which is applied in a similar manner to VAT in European jurisdictions.
However, there are some key differences to VAT in terms of registration requirements, which we will explain in this article.
[1] https://www.jetro.go.jp/en/invest/setting_up/section3/page6.html
Do I need to register for JCT?
There is no strict registration requirement for JCT. However, you will be required to file a Consumption Tax (CT) return after reaching a sales threshold of ‘taxable sales’ within any given ‘taxable period’.
In order to do so, you will need to register for JCT. A ‘taxable period’ is defined as follows:
- Sole traders: calendar year (i.e. 1st January – 31st December)
- Corporations: fiscal year, as defined by the corporation
The threshold for filing is set at JPY 10 million in any given taxable period. The obligation to file is effective if the threshold is reached within the first 6 months of the taxable period, even if the taxable period has not yet ended, and businesses should immediately register to ensure that they are able to file on time.
On the contrary, this means that businesses who do not trade over the threshold do not strictly need to apply for JCT, as they are not required to file. It is nonetheless possible to voluntarily register for JCT, even if under the threshold.
The introduction of ‘qualified invoicing’ from October 2023 may have a further impact on those that have opted not to apply – more details are available below.
Additionally, businesses that have not registered for JCT are still liable to pay CT on any purchases made from other Japanese sellers, and cannot reclaim any CT paid (as input tax) without filing a CT return.
Once a business is registered for JCT, they will be obligated to file, regardless of their sales volume.
FAQ's
Most frequent questions and answers
Japanese Consumption Tax (JCT) is a form of sales tax – similar to VAT in Europe. It applies to all businesses who are engaged in ‘taxable sales’.
Taxable sales are defined by the National Tax Agency as sales which are:
- Effectuated (i.e. made) in Japan
- Effectuated by a business for its business purposes
- Effectuated for compensation (i.e. monetary benefit)
- Effectuated by the transfer or lease of assets/provision of services (i.e. where a transfer of property/services occurs)
For example, this can include goods being sold by a foreign business to Japanese customers, which covers the vast majority of e-commerce operations.
There is no strict registration requirement, however, businesses (both domestic and foreign) will be required to make an annual CT filing once they reach the sales threshold of JPY 10 million within their fiscal year (also known as the ‘taxable period’).
The fiscal year is as defined by the business; for sole traders, this is assumed to be a calendar year.
It is only possible to file a CT return after registering for JCT. It is strongly recommended for businesses to apply for JCT as soon as possible if they anticipate that they will reach the threshold.
Once businesses are registered for JCT, they will be obligated to make an annual filing, regardless of whether they have reached the sales threshold of JPY 10 million.
Businesses that consistently operate under the sales threshold of JPY 10 million are not strictly required to register for JCT. However, they will be unable to take advantage of some standard tax practices, such as:
- Reclaiming any CT paid as input tax (i.e. B2B tax reclaims)
- Issuing CT invoices (‘qualified invoicing’) to business customers
Upon successful registration, the National Tax Agency will issue a 13-digit Corporation Number. The JCT number is composed of T + Corporation Number.
From the 1st of October 2023, businesses in Japan will need to register for JCT in order to issue a ‘qualified invoice’. A qualified invoice is similar to a VAT invoice issued in the EU, which allows business buyers to reclaim sales tax (e.g. CT or VT) as input tax.
Not registering for JCT may therefore have a detrimental impact on potential B2B sales.
Sellers are still able to sell on Amazon.co.jp without a JCT registration, subject to the filing threshold of JPY 10 million per fiscal year.
However, Amazon will highlight and prioritise sellers who have registered for JCT and are able to issue a qualified invoice.
Additionally, if you are importing inventory into Japan, your inventory may be subject to additional import CT, which cannot be reclaimed if you do not register for JCT.