Companies and sole proprietors doing business in Japan will be required to put its CT (Consumption Tax) Number on your invoices for your customers to claim the Consumption Tax they have paid to you against their CT liabilities.
The new system will come into effect from Oct. 1, 2023. Companies and sole proprietors who want to register in order to get a CT number have to to file an application form to the tax office 6 months in advance. The deadline is Mar. 31, 2023.
In case you miss the deadline, you will probably not be registered to get your CT number by Day 1 (Oct. 1, 2023) and your customers will not be able to claim the CT fully on your invoice (that does not have CT Number) against their Consumption Tax liability. You will not look good because you will cause your customers a loss by the amount of the tax.
So, it is important to apply for the number by the deadline.
You will be a Consumption Tax Filer automatically by being registered with CT Number.
SMEs (companies with paid-in capital under 10MM yen and sole proprietors) in Japan are exempt of Consumption Tax for the first two years by default. And companies and sole proprietors with revenue under 10MM yen in its base year (i.e. 2 years ago) are aslo exempt.
For those SMEs, it may be a difficult decision to register as a Qualified Consumption Tax Invoice Issuer or not because once you become qualified, you will lose the benefit of tax free status of CT and you will have to file and pay the tax.
The dilemma is when you register, you will automatically be a CTax filer. If you don’t register, you will not have a CT Number, and your customers will know that you are not registered, and therefore, they may refuse to pay the consumption tax on your bill that was perfectly ok to charge in the past because it was a kind of tax privilege the government gives to encourage SMEs to start businesses.
We will be happy to give you a consultation for free to either register or not register for the CT number.