Japan VAT Tax

Consumption Tax Basics

• Tax Type: Japan has a consumption tax, which functions similarly to a value-added tax (VAT) system.
• Taxable Transactions: The consumption tax is levied on:
  • Business enterprises' transfer of goods.
  • Business enterprises' provision of services.
  • Importation of goods into Japan.
  
  
  

  Consumption Tax Rates

  • Standard Rate: The general consumption tax rate is 10%.
  • Reduced Rate: A reduced rate of 8% applies to:
    • Food and beverages (excluding those consumed in restaurants, and alcoholic beverages).
    • Newspaper subscriptions that meet specific criteria (published more than twice a week).
    
    
    

    Exempt Transactions

    • Specific transactions are not subject to consumption tax. These include:
      • Sales or leasing of land.
      • Sales of securities.
      • Provision of certain public services.
    
    
    

    Input Tax Credits

    • Credit/Refund: Businesses that pay consumption tax on their purchases can generally receive a credit or refund. This is applicable to the extent that these purchases are related to taxable revenue.
    • Requirements: To claim the credit/refund, businesses must:
      • Record the transactions in their accounting books.
      • Keep relevant invoices.
    
    
    

    Qualified Invoice System (QIS

    • Effective Date: A Qualified Invoice System (QIS) was introduced on October 1, 2023.
    • Input Tax Credit Eligibility: Under the QIS, a consumption taxpayer can, in principle, only claim an input tax credit if they receive a "qualified invoice" from a registered seller.
    • Qualified Invoice Issuer: Sellers must register to become a Qualified Invoice Issuer (QII) to issue qualified invoices.
    • Invoice Requirements: Sellers must include their QII number on invoices.
    
    
    

    Consumption Tax on Digital Services

    • Cross-border Provision: Consumption tax applies to the cross-border provision of digital services (e.g., e-books, music, advertising) by foreign service providers.
    • B2B Transactions: A reverse-charge mechanism is used for business-to-business (B2B) transactions.
    • B2C Transactions: Foreign service providers may need to register for consumption tax purposes for business-to-consumer (B2C) transactions.
    • Platform Taxation System: A platform taxation system was introduced in 2024. Qualified platform operators are responsible for reporting and paying taxes on B2C digital services provided via their platforms by foreign service providers.
    
    
    

    Tax Exemption for Small Businesses

    • Businesses with taxable sales of 10 million yen or less during the base period are exempt from filing/liability.