Qualified Invoice System

From October 1 2023, Japan has introduced a qualified invoice system that companies need to use in their business transactions. In many aspects, it is similar to invoices used in EU countries, where VAT needs to be specified separately for each applicable category (8% or 10%) and VAT-numbers included in business invoices.

The system means that businesses in Japan will have to register as qualified invoice issuers (適格請求書発行事業者), if they want to be able to claim Consumption Tax (CT) credits. Registered companies will receive a registration number, which they have to include in their qualified invoices. Japan's National Tax Agency (NTA) provides a short explanation about the invoice system. 

The change in the system is regarded by many small business with annual taxable sales lower than ¥10m as a significant setback. In the old system these small companies were exempt  paying CT and kept the CT proceeds as an additional source of income. Under the new system, small business can elect not to register, but then risks losing customers as they can lonely receive tax credit on invoices issued by registered invoice issuers.  (For an explanation of the impact of the new invoice system, see this article by HLS Global) 

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 an activity that is taxable (For example, in case 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 obtain an invoice number, which in turn will make you liable to file for CT in Japan.

For foreign companies not based in Japan, it is not possible to register online as a qualified invoice issuer, as you need a Digital ID, which requires a legal presence in Japan. However an application on paper is possible. NTA provides an explanation of the procedures here. (In Japanese)

(Last update: 20230802)