Japan– indirect tax guide
Japan– indirect tax guide
Explore the requirements and rules that apply to indirect taxes in Japan.
General
Consumption tax.
Standard rate:
The current consumption tax rate is 10 percent (increased from 8 percent on 1 October 2019). A reduced tax rate of 8 percent still applies to certain supplies (see further explained below).
What supplies are liable to the standard rate?
Sale or lease of an asset in Japan; supply of services (other than digital services) originating in Japan or the supply of digital services destined for individual residents of Japan or Japanese companies when carried out for consideration as part of a business carried on by an individual or company.
Are there any reduced rates, zero- rates or exemptions and if so, what do they apply to?
Zero-rated supplies include exported supplies, including the transfer or lease of goods representing an export from Japan as well as other export-related activities such as international transportation.
Non-taxable (exempt) supplies include the sale or lease of land; certain sales of securities and similar instruments; monetary transactions including loans, guarantees, distributions from joint operation trusts or other investment trusts and insurance premiums; medical treatments provided under public medical insurance law; social welfare activities; school tuition and examination services; residential rent; services related to childbirth, burial, home help and welfare centers for aged and disabled persons.
A reduced tax rate of 8 percent applies from 1 October 2019. It will be applicable to sales of food/beverages (excluding alcoholic beverages) and certain newspapers under subscription contracts.
VAT/GST registration
Who is required to register and what is the threshold?
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.
Is voluntary registration possible?
Yes, upon filing of an election to become a taxpayer.
Is voluntary registration available for an overseas company or a fiscal representative?
Yes, it is available for an overseas company. An overseas company is required to nominate a fiscal representative upon election.
VAT/GST compliance
What is the typical frequency of returns?
A final/annual tax return is due for all relevant taxpayers within 2 months of the end of the fiscal period for companies or the calendar year for individuals, respectively. Interim returns and payments may be required if the tax payable exceeds certain thresholds. The tax payable can be based on the tax payable for the prior year or on actual transactions for the current period. Any remaining net balance arising from the actual supplies in the current year is payable when the annual return is due.
VAT/GST recovery
Are there any items that a registered business cannot recover consumption tax on?
No, however, the amount of creditable input tax can be restricted, based on specified formulas. Essentially, the input consumption tax that is identified to correspond to nontaxable sales is not creditable.
Can an overseas company recover consumption tax if it is not registered?
No, it cannot.
How long does it typically take to obtain a consumption tax refund following a return filing?
Usually, within 1 to 2 months of filing the return.
Invoices
Are there specific requirements for the content of invoices to be considered valid for consumption tax purposes?
Yes, however, 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.
Special indirect tax rules
Rulings
Other indirect taxes
Disclaimer
All information within this guide is provided by KPMG professionals in Japan and based on information available as of September 2019.