Japanese national consumption tax

Japanese consumption tax (JCT) is the equivalent of value added tax (VAT) or goods and services tax (GST). It’s similar to the European Union’s (EU) VAT system, requiring re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.

The current rate is set at 10% for all items excluding groceries, drinks, and newspaper subscriptions, which have a reduced tax rate of 8%.

Non-taxable transactions in Japan include:

• The sale or rental/lease of land

• Housing rental to an individual

• Interest, loans, guarantee fees

• Insurance premiums, social insurance

• Postage stamps, revenue stamps, prepaid cards, gift certificates

• School tuition, admission fees, textbooks

• Medical treatment under public medical insurance laws

• Cancellation fees, penalties, damage compensation

  
  

History of consumption tax in Japan

JCT was introduced in Japan in April 1989, initially at a rate of 3%, to finance social welfare spending. The rate was raised to 5% in 1997, then to 8% in 2014.

The most recent increase was to 10% in October 2019.

There is an annual JCT compliance threshold of JPY 10 million in Japan, based on the base year of two years prior to the tax year.

Companies are not required to formally register with the Japanese tax authorities for JCT. The tax authorities regard the first tax filing as the application for registration, and a tax office will be allocated to the company.

Foreign businesses providing goods or services in Japan may face a statutory obligation to charge JCT. This includes the ongoing compliance requirements to file periodic tax returns and pay any JCT due to the Japanese government.

Typical situations requiring JCT compliance include:

• Where goods are delivered within Japan

• If the foreign trader imports goods into Japan

• Supplies of services, e.g. consulting services, sport and entertainment events

  
  

Foreign traders with no premises in Japan, but who may be warehousing and distributing goods in Japan, may be subject to being classified as a permanent establishment (PE). In this situation, their company could also be subject to direct as well as indirect tax.

A foreign, non-resident trader is required to appoint a Japanese resident tax agent. The agent is responsible for all communications between the company and the Japanese tax authorities.

Tax-free shopping (consumption tax refund)

Foreign tourists visiting Japan can enjoy tax-free shopping under the tax exemption system, provided their stay in Japan is less than six months (and they cannot work in Japan). Japanese who live abroad and are staying in Japan for less than six months can also enjoy tax-free shopping.