Foreign companies engaged in business in Japan without a physical presence, but possessing 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 taxes like Consumption tax.
In this case, a foreign, non-resident company will be required to appoint a Japanese tax agent. This tax agent will be responsible for all communications between the company and the Japanese tax administration.
Consumption tax refunds
EU-businesses accustomed to receiving quarterly consumption tax refunds in their countries, should be aware that the system works slightly differently in Japan. Filing for a refund of taxes is usually done within two months after the end of the business year, including for consumption taxes.
Companies with taxable sales lower than JPY 10 mln during the base period are exempted from the consumption tax obligation.
EU companies with no taxable sales in Japan, are not eligible for a refund of consumption tax paid on business expenses incurred within Japan.
Consumption tax for cross-border service provision
In May 2015, a number of reform measures were taken related to cross-border (digital) service provision, such as online books, music and services and consumption taxation. This involved the following:
- Revision of place of supply criteria for provision of digital services, such as books, music and adverts from location of office of provider to the person receiving the service.
- Implementation of a reverse charge mechanism for B2B transactions
- Method of taxation for B2C transactions and measures to secure appropriate taxation, where providers of B2C digital services will have to pay consumption tax
- Establishment of an overseas business registration system
- Tax exemption for small businesses
- If taxable sales during the base period do not exceed 10 million yen, the Japanese consumption tax law provides an exemption from consumption tax obligations under certain circumstances
For more details see: NTA
Consumption tax for overseas entertainment and sports providers
The reverse charge mechanism for consumption tax for these business transactions related to entertainment and sports provided by foreign businesses came into effect from April 1, 2016. Tax payment obligation will shift from recipient to the provider.
See also: NTA