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

みなと国際会計事務所 Accounting Intelligence blog by a CPA in Tokyo, tax tips, accounting, running business

Japanese Consumption Tax Explanation

Starbucks_Arkhills
(Starbucks at Ark Hills in Roppongi, Tokyo in June 28th, 2016)

Overview

A business entity is obliged to collect 8% on her sales (things or services) and pay to the government. The 8% the business entity pays on her expenses is deductible from the the tax payable.

For example, if your sales in a fiscal year is 32,400,000 Yen, your collected consumption tax payable is 2,400,000 yen. On the other hand, if you paid expenses during the fiscal year, which is, say, 10,800,000 yen, 800,000 yen is deductible from 2,400,000 yen.

Your net consumption tax payable is 1,600,000 yen (2,400,000 – 800,000).

The deadline for a legal entity is 2 months after the end of its fiscal year. For a natural person, her fiscal year is always from Jan. 1st to Dec. 31st, and there is no choice. And its deadline is March 31st of the next year.

Non deductible expenses

The following expenses are not deductible from what you collect on your revenue:

1) salary
2) tax and social insurance contribution
3) rent for residential properties
4) interest
5) insurance expenses (e.g. life insurance, car insurance)
6) international call, flight, expenses incurred out of Japan, and
7) depreciation expense (they are only deductible when fixed assets are purchased.

These categories of expenses do not include consumption tax when you pay. This means that even though you pay those expenses, your consumption tax payable will not be deducted.

Exempt or non-exempt

A small/medium sized legal entity (company) and individuals are exempt of the consumption tax, as default. But there are certain situations that you want to be “non-exempt” andyou can choose to be so by submitting an application to the government.

Here is more detailed explanation.
Which to choose, exempt or non-exempt status

Here is another writing of unfortunate situations where you will rejected of refund.
Consumption Tax Refund from investing in Japanese properties

Export is free of Japanese Consumption Tax

To avoid double tax of Japanese Consumption tax and VAT in a destination country, Japanese Consumption Tax is free on export sales of both things and services.

Here is more detailed explanation.
Export transaction free of Japanese Consumption Tax

Standard method or simplified method?

You have choices in regards to how to calculate your consumption tax payable. It may make considerable difference in amount depending on your choice.
You will see more detailed information with an example.
Tax Saving Tip – Consumption Tax – Simplified Method

Applying for refund

You will get refund of the consumption tax if consumption tax included in your expenses is bigger than what you receive.
I will put more detailed information here shortly…

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