みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo

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Ex-work is not what you want for consumption tax refund

time 2017/06/01

This post is about claiming refund of Japanese Consumption Tax.

The rule about Japanese consumption tax is complex at first glance. If you are not a law person or accounting person, you may want to leave this matter to your accountant. But there are not that many that you need to know. Actually, you only need to know a dozen or so of rules and that will cover most of the important rules. It is manageable if you are ready to spare some time to go through and understand each rules.

It is well known that you will get refund of consumption tax back if your sales are generally made to overseas customers, no matter whether is is a tangible product or intangible service.

You will have to meet three conditions to get a refund.

You have to be a tax filer of consumption tax

By default, small and medium sized company are exempt from consumption tax liability for its first two years. Japanese government gives the tax privilege to free the burden of the newly introduced indirect tax when it came 20 years ago. The company will stay exempt in the third year when its sales for the first year was less than 10 million yen.

But if you wish to claim for refund, you have to be a tax filer of consumption. You can choose it by applying the status explicitly. It will be done by submitting a form. Remember that there is a deadline for this. It has to be before the beginning of the fiscal year that you want to be a tax filer. The only exception is the first year. The form to elect a tax filer status has to be submitted by the end of the first year.

Once you elect a tax filer status, you will be a tax filer at least for two years. You will remain a tax filer for three years in case you receive a refund by purchasing a capital expenditure bigger than 1 million yen (as opposed to receiving a refund by export sales).

FOB, CIF, Ex-Work

There are standard terms for international transactions. Either FOB or CIF is ok for consumption tax refund but Ex-Work not. Ex-Work is a condition where seller should deliver his products to buyers in front of his factory. This means the delivery will occur in the origin country, which is a domestic transaction but not international export. It will of course be a taxable transaction of Japanese Consumption Tax and it will cause the seller rather consumption tax to pay.

When you claim for the tax refund, the tax office will always ask the invoice and receipt of the sales to verify it was export sales. They will also ask for export permission certificate (輸出許可証) issued by Customs. It says on the document the term of the transaction such as FOB, CIF or Ex-Work.

Revenue from overseas customers for service is also regarded as “export”. But a permission certificate will not be required for service export, of course.

Non-taxable Income

Consumption tax paid to purchase residential property is not refundable. Consumption tax is deductible only from consumption tax on taxable income. Because rent is not taxable for residential property, for a political reason, consumption tax on its cost are not deductible.

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