Filing – Calculation Methods:
There are three different calculation methods for filing, depending on your trading activity. For the purposes of this section, we have defined the following:
- Output Tax: CT collected from buyers on sales
- Input Tax: CT paid and eligible for reclaiming (e.g. import CT)
- Standard filing
By default, the standard CT rate of 10% is applied, unless transactions are eligible for the reduced CT rate. CT liability is calculated as:
Total CT payable = Output Tax – Input Tax
Any input tax deductions must be supported by evidence such as purchase receipts (qualified invoices from October 2023), customs clearance documents etc.
- Simplified Taxation System (STS) – ‘simplified filing’
Businesses that have had a turnover of less than JPY 50 million for the previous two fiscal years are eligible to apply for STS. The application must be made before the new tax reporting period. CT liability is calculated as:
Total CT payable = Output Tax – (Output Tax x Deduction %)
There are 6 business types available, and the deduction percentage will depend on which type your business falls under. For example, online retailers are eligible for a deduction rate of 80%.
Deduction Rates:
Under this simplified filing method, input tax is not deductible – it cannot be reclaimed.
After two fiscal years, the business must reapply for simplified filing, or submit an application to return to standard filing.
- 20% Special Measure filing (1st October 2023 – 30th September 2023)
Businesses who have voluntarily registered for JCT are eligible for this filing method, which is intended as a temporary scheme to help smaller businesses transition to the new regulations.
For example, this may include businesses that have a turnover of less than JPY 10 million per fiscal year but have nonetheless registered for JCT. CT liability is calculated as:
Total CT payable = Output Tax x 20%
Businesses do not need to apply for the 20% exemption in advance. It can simply be indicated at the time of filing.
Payment:
If the CT liability for the previous tax year exceeds JPY 615,300, the Japanese Tax Office will require a prepayment to be made in advance.
The prepayment is an estimated tax amount made based on previous tax liabilities. It may be split into multiple instalments, based on the previous tax liability – the thresholds are set by the Japanese Tax Office.
After payment is made, it can be offset during the annual filing. This will result in either a refund, or an additional payment, depending on the actual tax liability that is reported.
What do I need to apply?
As with other VAT registrations, basic company information is required:
- Company certificate
- Director’s details
- Details of majority shareholders
- Details of business activities in other jurisdictions (e.g. other VAT numbers held)
- Declaration of types of products sold
Specific documents/declarations are also required for Japan:
- Articles of Association
- Declaration of the company’s fiscal year
- Start date of trading activity in Japan
- Declaration of any previous business activity in Japan
- Declaration of any physical presence in Japan
- Declaration of intent to apply for simplified filing (if applicable)
FAQ's
Most frequent questions and answers
A single annual filing is required 2 months after the end of the fiscal year. There are multiple reporting methods available, depending on the nature of your business and previous trading activity.
Most businesses will report CT through the standard method (basic rate of 10%), with any input tax deductible from their overall liability.
However, some businesses will be eligible for the Simplified Taxation System (‘simplified filing’) or the 20% Special Measure scheme.
STS (‘simplified filing’) can be applied for if your business had a turnover of less than JPY 50 million during the two preceding fiscal years.
STS applies a percentage deduction to your tax liability, and the deduction is dependent on your trading activity (categorised as ‘business types’).
Input tax cannot be reclaimed. However, the percentage deduction may result in a lower tax liability compared to standard filing with input tax reclaimed.
We have more information available on our dedicated JCT information page.
The 20% Special Measure scheme applies to businesses who have voluntarily registered for JCT. This includes businesses who have not reached the threshold of JPY 10 million, or those that were previously tax-exempt and only applied for JCT to meet the qualified invoicing requirements.
This scheme is available as a temporary measure under a transitionary period which runs from 1st October 2023 – 30th September 2023.
The scheme allows businesses to deduct their CT liability by 80% – only 20% of the CT liability is due.
Payments can be made on a monthly, quarterly or annual basis, depending on the total sales volume of your business. Your tax provider will be able to advise you accordingly.
If the business turnover exceeds JPY 615,300 for the previous fiscal year, the Japanese Tax Office will produce an estimated tax liability for the next reporting period.
The prepayment must be made in advance, and instalment arrangements may be available depending on the previous turnover amount.
The final tax liability is then settled when the annual filing is made – this will either result in a refund in the event of overpayment, or an additional payment if additional tax is due.
If the business turnover exceeds JPY 615,300 for the previous fiscal year, the Japanese Tax Office will produce an estimated tax liability for the next reporting period.
The prepayment must be made in advance, and instalment arrangements may be available depending on the previous turnover amount.
The final tax liability is then settled when the annual filing is made – this will either result in a refund in the event of overpayment, or an additional payment if additional tax is due.