Section 3. Taxes in Japan

3.6 Overview of consumption tax

The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject to consumption tax. In principle, the consumption tax rate is 10% (inclusive of local consumption tax rate of 2.2%) . The reduced tax rate of 8% (inclusive of local consumption tax rate of 1.76%) will be applied to sales of food and beverages, except for alcoholic drinks and dining out, and sales of newspapers published more than twice a week (under subscription contracts).

  1. (1)

    Domestic transactions: the transfer or rental/lease of assets or the provision of services as a business in Japan by an enterprise for consideration.

  2. (2)

    Import transactions: foreign cargo retrieved from a bonded zone

Financial transactions, capital transactions and certain transactions in the areas of medical care, welfare and education are deemed non-taxable. Export transactions and export-like transactions such as international communications and international transport are exempt from consumption tax.

3.6.1 Tax exemption for enterprises

Enterprises whose taxable sales*1are 10 million yen or less for the base period*2 are exempt from consumption tax filing/liability (such enterprises are referred to as “tax exempt enterprises”). With regards to foreign corporations, for taxable periods starting on or before September 30, 2024, the tax filing requirement will be determined based on taxable sales in the base period regardless of when the business started in Japan, and for taxable periods starting on or after October 1, 2024, the tax filing requirement will be determined in the same manner as for newly established corporations at the start of business in Japan, even if the corporation has a base period. However, tax exempt enterprises can opt to be taxable by submitting an advance notification.

Tax filing/liability will not be exempt for certain corporations and enterprises, such as a newly established corporation with capital of 10 million yen or more, a newly established corporation whose capital is less than 10 million yen but is established by a group of enterprises whose taxable sales are more than 500 million yen with the group having more than a 50% stake (only for two years after the establishment, for either case), and an enterprise whose taxable sales*3 during the first half of last year or the previous fiscal year are more than 10 million yen.

  1. *1

    In the case where a corporation’s base period is not one year, the taxable sales during the base period are the amount obtained by prorating the balance during the below-mentioned base period in the prescribed manner.

  2. *2

    Base Period: The base period is the full accounting period two years prior to the current accounting year. A corporation may not have a full base period if it was a) newly established or b) changed its accounting period during the two-year prior period. The base period for such corporation is found by combining all accounting periods that commenced during the one year from one day before two years prior to the first day of the current account year.

  3. *3

    Amount of salary paid can be used instead of taxable sales. However, from the tax periods starting on or after October 1, 2024, amount of salary cannot be applicable to determine the filing requirement of foreign enterprises.

3.6.2 Deduction of purchase tax

Consumption tax on taxable purchases may be deducted from consumption tax on taxable sales when calculating the amount of consumption tax to be paid. In order for the consumption tax on purchase to be deducted, both account ledgers and invoices that describe certain matters have to be retained according to the following classifications.

  1. (1)

    From October 1, 2019 to September 30, 2023

    • account ledgers indicating matters necessary for tax rate categories classification
    • invoices that describe tax rate categories, etc.
  2. (2)

    On or after October 1, 2023 (after the implementation of the so-called ‘invoice system’)

    • account ledgers indicating matters necessary for tax rate categories classification
    • qualified invoice, etc. (invoice) issued by business issuer of qualified invoice *

On or after October 1, 2023, as a general rule, taxable purchases other than those from business issuer of qualified invoice will no longer be eligible for deduction of consumption tax on purchases. However, a transitional measure has been established to treat a certain percentage of the amount equivalent to the consumption tax on purchases to be deductible as follows:

  • From October 1, 2023, to September 30, 2026: 80% of the amount equivalent to the consumption tax on purchases
  • From October 1, 2026, to September 30, 2029: 50% of the amount equivalent to the consumption tax on purchases

Furthermore, the following burden reduction measures are provided for small businesses.

  • If a tax-exempt enterprise becomes a taxable enterprise by registering as a business issuer of qualified invoice, the amount of tax due can be 20% of the sales tax for three years from the start of the invoice system.
  • If the amount of consideration (including tax) paid for taxable purchases made during a certain period in a taxable period in which taxable sales in the base period is 100 million yen or less, or taxable sales in the first half of the previous fiscal year is 50 million yen or less is less than 10,000 yen per transaction, the full credit of purchase tax can be claimed by retaining only accounting ledgers .

The amount of the deduction, however, varies depending on factors such as the proportion of taxable sales to total sales. For certain cross-border supplies of electronic commerce by foreign enterprises, only the consumption tax on purchases that are subject to the reverse charge system (see 3.6.3) and on purchases that are received from registered foreign enterprises can be deducted.

If taxable sales during the base period amounted to 50 million yen or less, the amount calculated by multiplying the consumption tax on taxable sales by a specific percentage given to each industry may be considered the consumption tax on purchases to be deducted and allowed as a deduction if advance notification is submitted (such system is called the “simplified tax system”). However, this simplified tax system will no longer be applicable to certain foreign enterprises for taxable periods beginning on or after October 1, 2024.

  1. *

    Business issuer of qualified invoice refers to a consumption tax paying business that has applied for and been registered as a “business issuer of qualified invoice” by the District Director of the tax office of jurisdiction.

3.6.3 Self-assessment and payment

Enterprises engaged in domestic and/or import transactions are obliged to file and pay consumption tax. (If the amount of consumption tax on purchases to be deducted is more than the amount of consumption tax on taxable sales, the difference can be refunded by filing in a tax return.) In the case of certain cross-border supplies of electronic commerce by foreign enterprises, Japanese enterprises who have received the provision of services are responsible for filing and payment (reverse charge system). As for certain electronic commerce transactions conducted by foreign enterprises through certain digital platforms on or after April 1, 2025, certain platform operators that provide such digital platforms will be required to file a tax return and pay tax. Regarding certain cross-border supplies of electronic commerce to consumers, foreign enterprises providing services are responsible for filing and payment. The tax return filing and payment deadline is within two months from the day after the taxation period (in principle, the last day of the business year in the case of corporations)

  1. Note:

    For corporations that are subject to the extension of the filing deadline for their corporate tax returns, taxable periods that include fiscal years ending on or after March 31, 2021 became eligible for a one-month extension by notification.

  2. Note:

    “Certain cross-border supplies of electronic commerce to consumers” is defined as the services not classified as B2B electronic services which includes “Provision of services that are normally limited to businesses, considering the nature of the services, or the terms and conditions relating to the provision of the services.”

As mentioned in 3.3.10 above, with respect to consumption tax, corporations (excluding foreign corporations) with share capital or contributed capital exceeding 100 million yen are also required to submit final returns and interim returns via electronic filing from fiscal years beginning on or after April 1, 2020.

Laws and Regulations on Setting Up Business in Japan Pamphlet

The pamphlet "Laws & Regulations" is available in PDF, and outlines basic information about laws, regulations and procedures related to setting up a business in Japan. It is available in 8 languages (Japanese, English, German, French, Chinese (Simplified), Chinese (Traditional), Korean and Vietnamese).
You can download via the "Request Form" button below.

Section3:Documents businesses are required to submit to authorities

Section3
(Section1)
Documents Where documents are listed within the URL The competent authorities and relevant web pages
3.3.1
(1.6)
Notification of Corporation EstablishmentExternal site: a new window will open See Guidelines 1. Notification of corporation establishment National Tax AgencyExternal site: a new window will open
3.3.1
(1.6)
Notification of Corporation/Branch Establishment (for submission to Tokyo Metropolitan when establishing an office in Tokyo)External site: a new window will open See "1.Notification of Incorporation (example form)" under the "Duties" headline. Tokyo Metropolitan Government Bureau of TaxationExternal site: a new window will open
3.3.1
(1.6)
Notification about Becoming Foreign Ordinary CorporationExternal site: a new window will open See Guidelines 2. Notification about Becoming Foreign Ordinary Corporation National Tax AgencyExternal site: a new window will open
3.3.10(3)
(1.6)
Application Form for Approval of Filing Blue ReturnExternal site: a new window will open See Guidelines 6. Application form for Approval of Filing Blue Return National Tax AgencyExternal site: a new window will open
3.4.2
(1.6)
Notification of Establishment/Relocation/Closure of a Salary-Paying OfficeExternal site: a new window will open See Guidelines 10. Notification of Establishment/
Relocation/Closure of a Salary-paying office
National Tax AgencyExternal site: a new window will open
3.3.10(1)
(1.6)
Application for Special Provision for Extension of the Due Date for Filing a Final ReturnExternal site: a new window will open See Guidelines 5. Application for Special Provision for Extension of the Due Date for Filing a Final Return Form National Tax AgencyExternal site: a new window will open
3.4.1
(1.6)
Application for Approval Made in Relation to the Special Provision for Due Dates for Withholding Income TaxExternal site: a new window will open See Guidelines 11. Application for Approval Made in Relation to the Special Provision for Due Dates for Withholding Income Tax National Tax AgencyExternal site: a new window will open
3.3.10(1)
(1.6)
Notification/Application Form for the Extension of Submission Deadline to File Tax Statement (for submission to Tokyo Metropolitan)External site: a new window will open See Tax (Metropolitan Tax) section "2.Notification/Application for Extension of Time to File Tax Statement (example form) " under the "Duties" headline Tokyo Metropolitan Government
Bureau of TaxationExternal site: a new window will open

Materials listed as ‘Reference’ contain samples of documents regarding registration, visa, taxation, personnel and labor matters that are necessary when a foreign company establishes a corporation or other entity in Japan. These documents are not published by competent authorities and therefore are not official. For those who are going through the official procedures, please obtain the latest official documents from the competent authorities and related bodies or consult a person who specializes in advising on such information and procedures.

The information contained in this documents should be used at the reader’s independent discretion. While JETRO makes every effort to ensure the accuracy of the information it provides, no responsibility is accepted by JETRO for any loss or damage incurred as a result of actions based on the information provided in these documents or provided by the external links listed on these pages.

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