3.6 Overview of Consumption Tax
The following domestic and import transactions, except for certain transactions deemed non-taxable, are subject to consumption tax. The consumption tax rate is 8% (national consumption tax rate of 6.3% and local consumption tax rate of 1.7%).However, the consumption tax rate will increase up to 10% (including local consumption tax rate of 2.2%) from April 1, 2017.

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 Self-Assessment and Payment
Enterprises engaged in domestic transactions (excluding enterprises that are exempt from consumption tax) and parties engaged in import transactions must file and pay consumption tax on their taxable bases by the methods and procedures respectively provided for them. (If the amount of consumption tax on the taxable base of an enterprise (unless a tax-exempt enterprise) is less than the amount of consumption tax on purchases calculated as being deductible by the prescribed method, the shortfall is refunded by filing.) To ensure that double taxation does not occur at the production and distribution stages, a scheme has been adopted allowing the deduction of consumption tax on purchasing from consumption tax on sales. In case of the prescribed cross-border supplies of electronic commerce by foreign enterprises, the Japanese enterprises who receive the provision of services on or after October 1, 2015, or foreign enterprises who provides the services on or after October 1, 2015 are responsible for tax filing.

3.6.2 Deduction of Purchase Tax
Consumption tax on purchasing (receipt of the transfer or rental/lease of assets or the provision of services from another party) may be deducted from consumption tax on the taxable base when calculating the amount of consumption tax to be paid. The amount of this deduction is limited, however, depending on the percentage of taxable sales. If taxable sales *¹ during the base period *² amounted to 50 million yen or less, the product of consumption tax on the taxable base multiplied by a given percentage determined by industry may be considered the consumption tax on purchasing for the current taxable year and allowed as a deduction if the prescribed notification is submitted to the director of the tax office.

3.6.3 Tax Exempt Enterprises
Enterprises whose taxable sales *¹ are 10 million yen or less for the base period *² (excepting enterprises that have opted to be taxable)and that meet certain conditions are exempt from consumption tax filing/liability for the current year. However, enterprises can elect to be taxable enterprises if the prescribed notification is submitted to the director of the tax office. A company that has no base period, such as a newly established company, whose capital at the start of the taxable year is 10 million yen or more and in certain other cases cannot be a tax-exempt enterprise in that taxable year.

*1 In 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 Base period: The base period is the full accounting period two years prior to 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 this two-year prior period.