Consumption tax invoice system in Japan

What is the invoice system to be launched in Japan?

In Japan, a consumption tax invoice system is scheduled to be introduced on October 1, 2023.

Japan’s consumption tax is a value-added tax, but currently it is not based on the so-called invoice method, but on the bookkeeping method.

When the invoice system is launched, invoice issuers are required to register and must include mandatory information on the invoice, such as the registration number, applicable tax rate, and consumption tax amount.

Who will be affected by the introduction of the invoice system?

The main affected parties by the introduction of the invoice system are current tax-exempt business entities and business partners of tax-exempt business entities. Please refer to another article for a detailed explanation of consumption tax-exempt business entities.

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(1) Registration as a qualified Invoicing business entity will disqualify you from being a tax-exempt business.

Even after the introduction of the invoice system, there are no plans to change the criteria for qualifying as a tax-exempt business entities. Therefore, tax-exempt business entities will remain tax-exempt if they do nothing.

On the other hand, a business entity cannot issue a qualified invoice without registering as a qualified invoicing business entity.

It is possible for a tax-exempt business entity to register as a qualified invoicing business entity, but in this case, the business entity is assumed to be subject to consumption tax, so once registered, it is no longer a tax-exempt business entity and its consumption tax burden will increase.

(2) Affects transaction partners with tax-exempt business entities.

From the perspective of a business entity that purchases from a tax-exempt business entities, it is not possible to receive a qualified invoice and therefore cannot claim the purchase tax credit for that transaction. In other words, the burden of the consumption tax equivalent of the transaction will increase.

Due to this situation, it is expected that a transaction partner will pressure the tax-exempt business to register as a qualified invoicing business entity, or in some cases, change the supplier to a registered business entity.

Tax-exempt business entities should comprehensively consider whether to register, not only for their own tax advantages, but also in relation to their business partners.

(3) No significant impact on taxable businesses

For current taxable business entities, the impact is not so great, except for the transactions with tax-exempt business entities mentioned above.

There is not much change from the current situation if we pay attention to the items on invoices and the paperwork involved in transactions with tax-exempt business entities.

In addition, even after the start of the invoice system, the simplified taxation system can still be selected if the requirements are met, thus reducing the administrative burden in addition to the tax benefits.

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