Japan consumption tax compliance and rates

Japanese consumption tax (JCT) is an indirect national tax levied on goods and services sold in Japan, goods and services imported into Japan, and digital services sold by overseas businesses to customers in Japan.

JCT is not a sales tax, but is similar to other indirect taxes such as value added tax (VAT) or goods and services tax (GST).

The JCT rate is currently set at 10% for most goods and services. There’s also a reduced tax rate of 8% for certain food and beverage items, as well as newspaper sales. These rates are a combination of the national consumption tax rate and a local consumption tax rate.

Exports are taxed at a zero rate.

There are a number of consumption tax exemptions in Japan for domestic transactions. These include the transfer or lease of assets for use outside the country, services for non-resident companies of Japan, sales or leases of land, sales of securities, certain medical care and treatments, social welfare activities, school tuition and examination services, rental of housing, services related to childbirth, and certain services for disabled people.

Businesses must register for consumption tax if they meet the threshold of JPY 10 million in the base period, which is the calendar year two years prior to the current calendar year.

Once registered, businesses must collect consumption tax on taxable sales and pay consumption tax to the Japanese tax authority.

Non-resident businesses are required to have an office located or a tax representative in Japan.

Once a business is registered for JCT it must file periodic returns. The frequency of these returns depends on the turnover of the business.

The tax filing lists all of the business’s transactions related to the supply of the relevant goods or services.

Any consumption tax due should be paid simultaneously with the filing of a tax return. The tax authorities will require payments of consumption tax liabilities to be made in Japan at an authorised bank or post office.

In the case of a tax credit (where the consumption tax incurred by the company exceeds the consumption tax charged on its sales in the reporting period), documentary proof related to the transactions is often requested by the tax office.

There is provision in Japan for tax reclaims, along the lines of the European Union’s 8th and 13th VAT Directives.

There are however strict time limits, and a local tax representative must be appointed to liaise with the Japanese authorities.