I’m just writing a guidance for English speakers about which consumption tax status to choose.
Consumption tax status – exempt or non-exempt?
If you are setting up a new company, there are several tax choices you have to consider and make decisions before actually start running your business. Being whether exempt or non-exempt of the Consumption tax is one of them, because a wrong decision may cause substantial loss in money.
In a nutshell, if your business is expecting revenues from overseas, your choice will probably be non-exempt. Or, if your business plan requires large initial investment (e.g. opening a restaurant that requires renovation or furnishing), that will probably the case as well.
(Marunouchi District. Taken while jogging)
The below is an explanation of how the Japanese consumption tax work.
- Are you liable to pay consumption taxes to the tax office?
First two years, SMEs (small/medium sized enterprises) are exempt of consumption tax by default for the first two years. The definition of SMEs is a company with its paid in capital of less than 10MM yen.
- How to calculate consumption taxes which you are liable to pay to the tax office.
Your sales: 1,500,000 JPY
8% consumption tax on the sales: 120,000
Your expenses: 600,000
8% consumption tax you paid as credit: -48,000
Total consumption tax payable: 72,000
If the bottom line becomes negative, you will get a refund.
Please note that certain categories of expenses do not count for the calculation because they are not taxable (e.g. salary, social insurance contribution).
- Choose to be non-exempt status to receive tax return.
The way to get the consumption taxes refund is to choose to be “non-exempt status” of consumption taxes.
This has to be submitted to the tax office by the end of the first fiscal year. Once the non-exempt status is chosen, the company has to remain non-exempt for the next 2 years.