Japan’s Consumption Tax Refund System
In Japan, businesses that are registered as consumption tax payers can claim a refund on the consumption tax (similar to VAT) they paid on purchases and expenses related to their business. This is done by filing a consumption tax return, usually once a year. If the amount of tax paid on purchases exceeds the amount collected from sales, the difference can be refunded by the tax office. To qualify, proper invoices and records must be kept, and the business must meet certain registration requirements.
How to Register as a Consumption Tax Payer in Japan
In Japan, a business becomes a consumption tax payer either automatically or by voluntary registration.
- Automatic Registration:
If a business exceeds certain revenue thresholds (for example, over 10 million yen in taxable sales during a base period), it is automatically required to pay consumption tax. - Voluntary Registration:
Even if a business does not meet the threshold, it can choose to become a consumption tax payer by submitting a form called the “Application for Selection as a Taxable Proprietor” (in Japanese: 課税事業者選択届出書) to the tax office. - Timing:
This form must generally be submitted before the start of the fiscal year in which the business wants to become taxable. - Minimum Period:
Once registered voluntarily, the business must remain a consumption tax payer for at least two years. - Register as a Qualified Invoice Issuer:
You can also register as Qualified Invoice Issuer in Japan to become a consumption tax payer.
In Japan, under the new Qualified Invoice System (commonly known as the “Invoice System”), businesses can choose to register as Qualified Invoice Issuers in order for their customers to claim input tax credits on consumption tax if your taxable revenue in the base year (2 years ago) is under 10 MM yen.
What is a Qualified Invoice Issuer?
A Qualified Invoice Issuer is a business that is authorized to issue invoices containing specific information required under the Invoice System, which started on October 1, 2023.
Who Can Register?
Only consumption tax payers can apply. If a business is not already a consumption tax payer, it must first register as one before applying.
How to Apply:
Businesses must submit a form called “Application for Registration as a Qualified Invoice Issuer” (in Japanese: 適格請求書発行事業者の登録申請書) to the tax office.
This can be done either online via e-Tax or by submitting a paper form.
Registration Number:
Once approved, the tax office will issue a registration number, which must be shown on all qualified invoices.
Importance for Clients:
Businesses that deal with other registered tax payers may lose clients or credibility if they are not registered as invoice issuers, since their invoices would not allow buyers to claim tax credits.
Proper registration allows the business to claim input tax credits and receive tax refunds if applicable.