Japanese Tax Blog in English

日本の税務情報を英語で書くブログ by みなと国際会計事務所

Which to choose -exempt or non exempt of consumption tax

time 2016/05/14

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.


  1. 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.


  1. 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).


  1. 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.





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