Japan Consumption Tax

In Japan, the equivalent of VAT or GST is known as Consumption Tax (‘CT’), and was introduced in January 1989. It is similar to the European Union’s VAT system, requiring re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.

Should you register for Japanese Consumption Tax

For foreign companies providing goods or services in Japan, there may be a statutory obligation to charge CT. This includes the on-going compliance requirements to file periodic tax returns, and pay over any CT due to the Japanese tax office. Typical situations requiring Japanese CT compliance include:

  • Where goods are delivered within Japan;
  • If the foreign trader imports goods in Japan; and
  • 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 PE (permanent establishment).  In this situation, their company could also be subject to direct as well as indirect tax.  There may be options to avoid this.

Consumption Tax registration threshold

There is an annual CT compliance threshold of YEN 10 million, based on the base year of two years prior to the tax year.  For resident companies or for PE's of foreign entities where the start-up capital is greater than YEN 10 million, then immediate CT compliance is required.

Exporters with taxable supplies below this limit may elect to become taxable businesses to facilitate the recovery of an input CT.

Registering for Consumption Tax

There is no requirement for companies to formally register with the Japanese tax authorities for CT. The tax authorities regards the first tax filing (see below) as the application for registration, and a tax office will be allocated to the company.

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.

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