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Japan Consumption Tax

Japan
Consumption
Tax

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Japan Consumption Tax Guide for Businesses

This page gives the main tax compliance deadlines for a small or medium-sized company operating in Japan with a fiscal year ending December 31st of the calendar year.

Companies in Japan are free to choose the month in which their fiscal year will end. In those cases, the fiscal year will end on the last day of the chosen month. In practice, subsidiaries of foreign companies generally align their Japan fiscal year to correspond with the end of the fiscal year for their parent company.

What is the Standard VAT (GST) Rate
in Japan?10%

Number of returns per year: 1

The current consumption tax rate is 10 % (increased from 8 % on 1 October 2019). A reduced tax rate of 8 % still applies to certain supplies (see further explained below).

Requirement to Register for VAT

There is no requirement for companies to formally register with the Japanese tax authorities for CT. The tax authorities regards the first tax filing (see below) as the application for registration, and a tax office will be allocated to the company.

A foreign, non-resident trader is required to appoint a Japanese resident tax agent. The agent is responsible for all communications between the company and the Japanese tax authorities.

In principle, a business that makes taxable supplies in Japan exceeding 10 million Japanese yen (JPY) in the base period or the specified period automatically becomes a taxpayer.
Further, for a newly established company, it will automatically be a taxpayer if either its paid-in capital at the beginning of the fiscal year exceeds JPY10 million or it is controlled by a person (including individuals and companies) whose amount of taxable sales corresponding to the theoretical base period of the newly established company exceeds JPY500 million.

Yes, upon filing of an election to become a taxpayer.

Yes, it is available for an overseas company. An overseas company is required to nominate a fiscal representative upon election.

VAT Filing Frequency
and Deadlines

Exports and certain services from Japanese residents to non-residents are taxed at a zero rate. Specified transactions, such as sales or lease of land, sales of securities, and provision of public services, are not subject to taxation.

10M JPY is the main criteria, no matter where the business based. However, foreign companies engaged in business in Japan without a physical presence, but possessing warehousing and distributing goods in Japan, may be classified as having a permanent establishment in Japan. In this situation, the company could also be subjected to direct, as well as indirect taxes like Consumption tax.

The companies with taxable sales lower than JPY 10 mln during the base period are exempted from the consumption tax obligation.
“Base Period” is a benchmark period for determining whether or not a business is a “Taxable Person”.
In principle, the Base Period for sole proprietors is the second preceding year before the Taxable Period, and the Base Period for corporations is the second preceding business year before the Taxable Period.

Invoicing Requirements

Whenever the business supplies standard-rated or reduced-rated goods or services it must issue a VAT invoice. However, there is no need to issue a VAT invoice if the customer is not VAT registered, for zero-rated supplies, if the customer operates self-billing arrangements or for gift of goods on which VAT is due.

please note that Japan’s consumption tax law currently has not adopted a VAT invoicing system, although Japan’s consumption tax works like a credit method consumption tax. Instead, Japan requires taxpayers to either maintain books and records to support amounts claimed for the credit or to use a simplified system for estimating the credit. All valid tax invoices must contain the following particulars:

  • the full name of the supplier
  • the date of the taxable transaction
  • the description of the taxable transaction
  • the total amount charged on the taxable transaction (by the applicable rate from 1 October 2019)
  • the full name of the person to whom the goods or services are supplied.

It is proposed that an invoicing system, that is similar to a VAT invoicing system, will come into effect from October 2023. A 4-year transitional period will be provided for the period from October 2019 to October 2023. During this period, in principle, business operators will need to indicate items subject to a reduced rate under the multiple-rate system and the total sales amounts by each tax rate in preparing their accounting records and invoices. It is acceptable to use a simplified method to calculate the tax amount based on an estimate of sales eligible for the reduced rate for small business operators whose taxable sales during the base period do not exceed JPY50 million.

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