Main points

  • The Consumption tax rate is currently 8% and an increase the tax rate to 10% in October 2019 is under debate
  • It has to be collected and paid between professionals (B2B transactions)
  • The amount paid during B2B transactions is compensated by the amount collected during sales
  • Price tags have to include the Consumption tax amount

Consumption tax is a national tax levied against the volume of business and through self-assessment. The consumption tax rate has been raised to 8% since 1st of April 2014, from the previous 5%, and it is expected to reach 10% from 1st October 2019. This raise has been decided as a measure to help reduce the national debt.

Domestic transactions subject to consumption tax include the transfer or rental of assets or the provision of services as a business in Japan by an enterprise. Import transactions such as cargo retrieved from a bonded zone are also liable.

Notable exemptions include export transactions and export-like transactions such as international communications and international transport. Capital transactions, financial transactions, and some transactions in the fields of medical care, welfare and education are non-taxable.

[4] JETRO, Taxes in Japan: Overview of Consumption Tax, 2013

Under the Japanese Consumption Tax Law (JCT), small enterprises with taxable sales of ¥10 million or less in the base period (e.g. the period two terms prior to the current tax year) do not need to file a JCT return. This is only an exemption from filing, and as such, tax-exempt companies are still required to pay JCT to the vendor or service supplier when purchases are made.

Likewise, the JCT Law does not prohibit tax-exempt enterprises from charging JCT to its customers. Tax-exempt enterprises are, in effect, allowed to keep the collected taxes minus the JCT on purchases. For some businesses this may result in significant windfalls; although these are subject to corporate income tax.

[5] PWC, Summary of Restrictions on the Use of Exempt Enterprise System for Consumption Tax Purposes, 2012

The Consumption tax has to be collected on all transactions made by companies, even business to business transactions. It means that a company will also pay the Consumption tax when it purchases goods or services for its business activities. But the amount of Consumption tax paid will be compensated with the amount of the Consumption tax collected. Companies collecting Consumption tax in their business activities must file returns and pay only the difference between the amount received and the amount paid during the taxable period.

Consumption tax is due on all incomes deriving from domestic business transactions done by companies. In retail business, price tags will have to include the Consumption tax amount. In a business-to-business environment though, invoices are usually issued with the net value of the service rendered on which Consumption tax is separately applied to result in the total amount due.

Tax returns and withholding of tax

Self Assessment and PaymentEnterprises engaged in domestic transactions (excluding enterprises that are exempt from consumption tax) and parties engaged in import transactions must file and pay consumption tax on their taxable bases by the methods and procedures respectively provided for them. If...

Foreign business and consumption tax

Foreign companies doing business in Japan without physical presence on the Japanese territory, but warehousing and distributing goods in Japan, may be classified as having a permanent establishment in Japan. In this situation, the company could also be subjected to direct as well as indirect...

Other taxes

Although corporate and consumption taxation issues are those you will have to deal with in your daily business activities as an SME, there are also a number of other taxes and rules that might have effect on your business dealings.  Some of these are introduced on this page. Please use the...

Tax exemptions

The following domestic business transactions are exempted from Consumption tax:Export transactions,Transfer or lease of a tangible or intangible asset for use outside of Japan,Performance of services for a company resident outside Japan,Sales or leases of land,Sales of securities and similar...

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