Selling in Japan? Find out more about Japanese Consumption Tax!

Did you know that Japan operates a sales tax system that is very similar to Value Added Tax (VAT)? It’s known locally as Japanese Consumption Tax, or JCT.

Just like VAT, it is charged for both business-to-consumer (B2C) and business-to-business (B2B) transactions.  The standard rate of JCT is 10%, with a reduced rate of 8% for specific categories of goods and services (e.g. food products, beverages).  

However, unlike European VAT, the registration requirements for JCT can be very different.  If you’re thinking of expanding your business to Japanese customers, it’s therefore vital to ensure that you are aware of your obligations!

In this article, we’ll cover the basics behind JCT, when you should register, and why you might want to consider voluntary registration even if you are not formally required to register.

JCT Registration Requirements

JCT registration is mandatory for businesses that meet certain criteria, primarily based on their sales turnover.

The threshold for mandatory registration is ¥10 million in taxable sales in the base period, which typically refers to the second fiscal year before the current one. If a business exceeds this threshold, it must register for JCT and begin collecting and remitting JCT.

New businesses, or businesses that expect to exceed ¥10 million in taxable sales within the first six months of their current fiscal year are also required to register.

If you’re a sole trader, your fiscal year will be based on the calendar year (from January – December in any given year).

This applies to both domestic and overseas businesses operating in Japan or selling goods and services to Japanese customers, including digital services such as software, media, or digital subscriptions.

Voluntary Registration in Japan

If you have determined that your business is not required to register for JCT, you may still benefit from voluntary registration.

Registering for JCT allows your business to reclaim any JCT payments your business has made as input tax. 

For example, if your business has purchased supplies from another Japanese company, any JCT you have paid on the transaction will become reclaimable. 

Likewise, if you have paid import JCT when importing goods into Japan, you will be eligible for a refund. 

The introduction of qualified invoicing in October 2023 means that if you frequently conduct business with other Japanese businesses, it may also be beneficial for your business to apply for JCT so that you can issue qualified invoices to your customers.

It’s important to note that once you register for JCT, you must comply with all tax filing obligations, even if you fall below the taxable threshold in subsequent years. This is an important consideration for small businesses that may experience fluctuations in revenue.

Qualified Invoicing

In October 2023, Japan introduced new invoicing rules which bring the JCT system in line with other EU VAT jurisdictions. 

This means that any JCT reclaims now require a ‘qualified’ invoice to be issued by the relevant supplier(s).  A ‘qualified’ invoice follows a very similar format to EU VAT invoices – they must show the following details:

• Business name of the issuer
• JCT Tax ID (JCT number)
• Item details, including the applicable tax rate(s) for each item
• Total JCT amount charged
• Customer details (including customer/business name and address)

Filing JCT Returns

The standard frequency of JCT filings depends on your turnover. 

Businesses with taxable sales over ¥10 million in the base period are required to file annually – this is the standard filing frequency. 

However, larger businesses—those with taxable sales exceeding ¥400 million—must file quarterly or monthly returns, depending on their precise turnover. 

What happened to the other filing methods?

Both the simplified taxation system and the 20% special measure have been discontinued.  New applicants will no longer be eligible for either system and must instead use the standard filing method.

Why Register with TBA?

TBA Global offers a dedicated team of experts that can assess your individual situation, and advise you on any potential compliance issues.  We’re here to help you get started with JCT registration, and comply with any ongoing obligations for trading in Japan.

For more information, get in touch with us at info@tbaglobal.com for a free one-to-one consultation.