Indirect tax - Japan

Japan’s Value Added Tax (VAT), or consumption tax, is an 10% indirect value-added tax on most goods or services transactions in Japan. As with VAT in other jurisdictions, collection of the tax is the obligation of businesses at all stages of production, while the economic burden of the tax is ultimately borne by the end consumer.

With limited exceptions, any business that transfers goods or provides services in Japan for consideration is required to file a consumption tax return on at least an annual basis, and more frequently if selected by the taxpayer or if consumption tax payable in the prior fiscal year meets certain thresholds.

Businesses can generally reclaim consumption tax paid on their purchases of goods or services. If tax paid to suppliers (input tax) exceeds tax collected on sales (output tax), the business may claim a refund for the difference. If output tax exceeds input tax, the difference is payable to the tax authority.

Consumption tax applies, with limited exceptions, to any transfer of a good or service for consideration in Japan, and to the removal of goods from a Japan customs area. Because the tax is intended to apply only to goods and services consumed domestically, export transactions are not subject to the tax. This includes most services provided to non-residents, transactions of goods to be directly exported, and goods to be shipped outside Japan that enter and are temporarily held in Japan customs.

For various policy reasons, certain types of non-export transactions that would otherwise fall within the scope of consumption tax are also non-taxable. These transaction categories include:

• lease or sale of land
• sale of stocks or bonds
• transfer of commercial paper
• interest and insurance fees
• government fees
• school tuition and fees
• certain nursing care or welfare services
• residential rent.

Consumption tax is based on the transaction itself. If it is a taxable transaction, then consumption tax should be charged regardless of whether the seller or service provider files tax returns. This enables the purchaser to claim a credit for the tax paid in their consumption tax return.

Whether an enterprise needs to file a tax return to report the consumption tax charged on its sales depends on their taxable sales in previous periods. An enterprise is exempt from consumption tax reporting obligations for a given tax year if consumption taxable sales in both the base period (the tax year two years prior) and the first six months of the immediately preceding fiscal year, are below JPY 10M.

Newly established domestic or foreign enterprises (ie enterprises without a base period for the given tax year) with capital below JPY 10M at the beginning of the tax year, and foreign corporations with no sales in Japan during the base period, are also exempt. An enterprise is exempt only if its taxable sales are below JPY 10M in both the first six months of the previous fiscal year and the base period.

Taxpayers anticipating to be in a refund position may apply in advance of the tax year to select a more frequent payment (refund) period than what would otherwise be required. If a payment period is elected, it cannot be changed for at least two years.

Yes.

Books, music, advertising etc. distributed through telecommunication lines (collectively telecommunicated services) will be deemed to be provided in the location of the purchaser.

Cross-border telecommunicated services provided by foreign enterprises fall into two categories, ‘B2B’ transactions and ‘B2C’ transactions. B2B transactions are cross-border service transactions established through telecommunication lines such as internet or telephone lines where the recipients of the services are identified as enterprises with reference to the nature of service or trading terms etc. B2C transactions are cross-border service transactions provided both inside and outside of the country through telecommunication lines such as internet or telephone lines, which do not fall under the definition of B2B transactions with reference to the nature of service or trading terms etc.

Foreign enterprises engaging in B2B transactions will need to make it clear to domestic enterprises (recipients of the service) that the purchase of the services is subject to consumption tax.

Foreign enterprises engaging in B2C transactions will be required to file a consumption tax return and pay consumption tax to the government.

In the case of B2C transactions, the recipients will not be allowed to take credit for the consumption tax on the transactions unless the foreign enterprises are registered. If this is the case, the services are categorised as B2C transactions from a registered foreign enterprise and the recipients will be able to take credit for the consumption tax paid under certain conditions.

The national tax authorities publish the name of registered foreign enterprises on the internet. Please check the national tax agency website for further details.

Overseas entities with no presence in Japan that are either, required or elect to file a consumption tax return must appoint a tax agent to handle their filing obligations.

The annual consumption tax return and corresponding payment are due within two months of the end of the applicable tax period. For a corporation, the tax period is its fiscal year. More frequent filing and payment are required if consumption tax payable in the prior tax period meets certain thresholds:

• Tax payable of above 48 million (JPY) in prior year: Monthly filing and payment frequency
• Tax payable of 4 million to 48 million (JPY) in prior year: Quarterly filing and payment frequency
• Tax payable of 480,000 to 4 million (JPY) in prior year: Semi-annual filing and payment frequency
• Tax payable of below 480,000 (JPY) in prior year: Annual filing and payment frequency

Late filing

• Voluntary late filing: 5% of total tax payable
• Non-voluntary late filing (late filing in response to a request from the tax office or in anticipation of an assessment, etc.): 15% of total tax payable on amounts up to JPY 500,000, 20% on amounts above JPY 500,000

Understatement of tax

10% annual interest charge on unpaid tax up to the greater of JPY 500,000 or the declared liability amount, 15% thereafter.

No.

No.

As described above, an overseas business that anticipates a refund can elect to be a consumption tax return filer. The election is irrevocable for two years. If the business does not have a presence in Japan, a tax agent needs to be appointed to act on their behalf.

An invoice must show:

• an invoice number which is unique and sequential
• the seller name and address
• the invoice date
• the time of supply (also known as tax point) if this is different from the invoice date
• the customer name and address
• a description sufficient to identify the goods or services
• the rate of any cash discount
• the total amount of consumption tax

Where a consumption tax invoice includes non-taxable or export services, it must:

• show clearly that there is no consumption tax payable on those goods or services
• show the total of those values separately.