Japanese Consumption Tax Explanation

Overview

Any business entity is obliged to collect 10% on top of its revenue (it can be either sales of goods or fees of your services), pays 10% on its expenses at its purchases and the difference of the tax collected and the tax paid on top of the expenses will be liable to pay at the end of fiscal year to the government.

For example, if your sales in a fiscal year is 33,000,000 Yen plus , your collected consumption tax payable is 3,000,000 yen (Consumption tax is always deemed to be included in the total price). On the other hand, when you paid expenses during a fiscal year, which is, say, 11,000,000 yen, 1.000,000 yen is consumption tax you already paid and therefore it is deductible from 3,000,000 yen.

Your net consumption tax payable is 2,000,000 yen (3,000,000 – 1,000,000).
The deadline for a company to file and pay the tax 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 the deadline is March 15th in the following 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

Small/medium sized companies with paid-in capital under 10MM yen and individuals are exempt of the consumption tax by 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…