What are ‘taxable sales’?
The National Tax Agency of Japan defines taxable sales as sales that satisfy the following factors[1]:
- Effectuated in Japan
- Effectuated by a business for its business purposes
- Effectuated for a compensation
- Effectuated by the transfer or lease of assets or by the provision of services (Referred to as “transfer of assets etc.”)
Certain businesses/business activities are considered tax-exempt – most of these exemptions apply to domestic businesses that are registered in Japan.
As a general guideline, foreign businesses without a physical presence in Japan (e.g. e-commerce sellers) are very likely to be engaging in taxable sales, namely 1) the sale of physical goods, and 2) providing electronic services.
Foreign businesses that operate warehouse/distribution centres within Japan may also be subject to additional taxation measures and are required to appoint a Japanese tax agent/representative.
[1] https://www.nta.go.jp/english/taxes/consumption_tax/01.htm
JCT Reclaims:
Some CT payments can be considered as input tax, and are therefore reclaimable upon filing. It is mandatory to register for JCT in order to file.
CT applies when inventory is imported into Japan and clears customs (import CT) – this is paid in a similar manner to import VAT. Likewise, it is reclaimable as input tax, as long as the importer’s registered name on the ‘Importer Notification’ matches the taxpayer’s registered name on their JCT registration.
CT must also be paid for B2B purchases and is reclaimable upon filing. From October 2023, new qualified invoicing rules will apply to B2B CT reclaims.
Qualified Invoicing
From the 1st of October 2023, new qualified invoicing rules will come into effect, bringing the JCT system in line with other European VAT regimes[1].
Any Consumption Tax reclaims (as input tax) will require a ‘qualified invoice’ to be issued by the business seller.
In order to issue a qualified invoice, the business seller must obtain a Tax ID, by registering for JCT. Qualified invoices must display the following:
- Invoice issuer details (i.e. business name)
- JCT ID (CT Tax ID – ‘JCT Number’)
- Item details, including the applicable tax rate(s) applied for each item
- Total invoice amount, including applicable tax rate(s)
- Total CT amount, with the applicable tax rate(s) applied
- Customer’s details (e.g. customer/business name)
From the effective date of the new regulations, Consumption Tax payments can no longer be reclaimed as input tax without a valid qualified invoice issued by a JCT-registered seller.
Businesses are therefore encouraged to register for JCT regardless of their sales volume, as the inability to issue a qualified invoice may have a detrimental impact on sales.
Please check out our dedicated FAQ for specific guidance on Amazon.co.jp, and how qualified invoicing requirements may affect your business.
[1] https://japanconsult.com/new-japan-consumption-tax-system/
FAQ's
Most frequent questions and answers
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.
You may be required to appoint a tax agent if the National Tax Agency deems that your business has a permanent physical presence in Japan, including operating warehouse/distribution centres within Japan.
This is however different from fiscal representation – your tax agent does not act as a guarantor for your tax liabilities.