Export transaction free of Japanese Consumption Tax

Export sales are not taxable of Japanese consumption tax. The said reason is because Japanese government wants to encourage Japanese exports by reducing burden of the tax on domestic exporters to compete against foreign competitors.

The criteria to determine whether a transaction is taxable (domestic) or exempt (export) is different between things and services.

For things, selling or buying of a products are taxable if the thing is located in Japan at the time of purchase and is meant to be delivered to domestic location. It does not matter whether the buyer is a resident or non-resident.

In opposite, for services, it is determined by where the buyer is located. If the buyer is a non-resident, it will be regarded as “export” of service, and therefore, it will be exempt of consumption tax.

The concept is confusing. At least it was for me. Let me use an example to explain the situation. If you are a photographer or a writer living in Japan. Your client is a foreign news agency, who is a non-resident of Japan. Because all your services are produced in Japan by taking and editing photos or writing, the results are to be sent to the news agency abroad. That is why it is regarded as export of service.




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