From October 1, 2023, Japan has implemented a new qualified invoice system that companies must use in their business transactions. In many aspects, it is similar to the invoices used in EU countries, where VAT needs to be specified separately for each applicable category (8% or 10%), and VAT numbers must be included in business invoices.
For many smaller Japanese businesses, the new system means they must decide whether to register as a company for Consumption Tax (CT). Under the old system, small businesses with taxable sales of less than ¥10m were exempt from filing for CT, and the CT paid by their customers was considered additional income. Additionally, the customers were unable to deduct the CT paid as a tax credit.
Under the new system, once a company registers for the invoice system and issues invoices in line with the system, the customer will be able to receive a tax credit. However, it will also mean that the company becomes liable for paying CT. This change has caused significant uproar, as it puts small businesses at risk of losing clients if they are unwilling to register and also leads to the loss of their CT income once they have registered. To address the concerns of previously exempt businesses, the Japanese government has introduced a 3-year grace period, during which only 20% of the CT needs to be paid.
For most EU companies involved in business with Japan through import/export transactions, the new invoice system will have little impact, as these transactions are exempt from CT. However, in case it involves a taxable activity (for example, if your company is asked to provide maintenance and support services concerning your product inside Japan), even though it is optional, Japanese counterparts might require EU companies to register, which in turn will make them liable to file for CT in Japan.
The Japan Tax & Public Procurement (JTPP) Helpdesk is organizing a webinar on September 26, 10:30-11:30 CET, where an expert will explain more about the implications of Japan’s new invoice system. If you want to register for this event, please use the following link:
Published: August 2023
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