Japan Consumption Tax

Overview

Japanese consumption tax is a VAT style tax applied to the supply of certain goods and services within Japan. It is similar in nature to European VAT and Australian GST. Note that Japanese consumption tax / VAT is not the same as a sales tax (which may be more familiar to clients from the United States.) 

The current rate of consumption tax applied to taxable transactions is 10%. 

At a high level, Japan’s consumption tax system is reasonably straightforward. However, the application of Japan’s consumption tax rules in specific circumstances can be extremely complex. Therefore, the following should be treated as a high level, non-technical introduction only.

The following article provides additional information about Japan consumption tax.

Important Consumption Tax Issues For Foreign Companies in Japan

Some important Japan Consumption Tax related issues that we often address with our foreign clients are as follows:

  • Japanese Consumption Tax / VAT Issues Arising at the Time of Incorporation in Japan. When a new company is incorporated in Japan, the manner in which it is established will affect whether the new company will need to file an annual Japan Consumption Tax return. For example, companies with at least JPY10 million paid in capital will automatically be required to make an annual filing.
  • If a Company is Not Automatically a Japan Consumption Tax Filer From the Time of Incorporation, Should the Company ELECT to Become a Japan Consumption Tax Filer? Typically, a company that is not required to file a Japan consumption tax return would elect to file a return only if it expected to be in a refund position.
  • Issues That Arise From the Tax Structure Being Utilized in Japan
    Tax structure means the method utilized by a foreign company to recognize income in Japan – for example a Buy-Sell Model or a Cost-Plus Model.The tax structure utilized in Japan will often impact the Japan Consumption tax situation. For example, a buy-sell structure will be both paying Japan consumption tax and collecting Japan consumption tax (on expenses and revenue respectively). By contrast, under a Cost-plus structure, the Japan entity will typically not collect Japan Consumption tax since it’s sole revenue will come from a foreign parent company and such international transactions will be Zero Rated (i.e., taxed at a rate of 0%).

    A Japan Representative Office may have the option to file a Japan consumption tax return however may choose not to do so in order to minimize it’s compliance burden.

  • Should a Japanese Consumption Return Be Filed Annually or More Often?Most foreign companies in Japan will make an annual Japan Consumption tax filing. However, in cases where substantial refunds may be available, an election can be made to file more often – for example on a quarterly basis.Should a FOREIGN company register for Japanese Consumption Tax

    In certain case a non-Japanese / foreign company may register for Japan consumption tax. This is usually done in order to recover Japanese consumption tax that has been paid in Japan.

This article provides an Introduction to Japan Consumption Tax – The Basics For Foreign Companies Doing Business in Japan.

Contact JAPAN VISA™ to learn how we can assist with your Japan Consumption Tax requirements.

The above is provided for general information purposes only and does not constitute advice to undertake or refrain from undertaking any action. Only qualified Japanese professionals are able to advise on Japan immigration, legal, and tax matters.