Overview of transactions subject to consumption tax in Japan

The consumption tax is imposed only on domestic transactions and import transactions, and is treated differently depending on the nature of the transaction.

Domestic Transactions

Transactions conducted outside of Japan

  • Untaxable transactions

Import transactions

  • Taxable transactions
  • Non-taxable transactions

*1 Transfer of assets refers to the transfer or loan of assets and provision of services for consideration as a business.

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Taxation of consumption tax on provision of services

Consumption Tax Criteria for Service Transactions

Where such services are provided in Japan, consumption tax shall be imposed (Consumption Tax Act Article 4.3.2).

In cases where the services are provided in Japan and in regions other than Japan, or where the place where the services are provided is not clear, if the location of the office, etc. related to the provision of the services of the person providing the services is in Japan, the services shall be deemed to have been provided in Japan (Order for Enforcement of Consumption Tax Act 6.2.6).

Export transactions are tax exempt

Services provided to non-residents of Japan are considered exports, and export transactions are exempt from consumption tax (Consumption Tax Act Article 7.1.5, Order for Enforcement of Consumption Tax Act 17.2.7).

Exception to consumption tax on cross-border electronic services

If the address of the cross-border electronic service recipients is in Japan, the service transaction is subject to consumption tax (Consumption Tax Act Article 4.3.3).

Electronic services are defined as services provided via electronic and telecommunication networks in the Consumption Tax Act Article 2.1.8-3, and in the NTA’s guidance material, “Services that allow customers to use software and databases in the cloud” is listed as an example of transactions covered by the “provision of electronic services”.

Technically, Japanese government does not have real control over the service providers outside its own jurisdiction. Therefore, the Japanese government is attempting to ensure effective tax payment by providing incentives for service recipients to be eligible for purchase tax credit. Specific taxation methods will be explained in a separate article.

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Consumption tax interim filing

The shortened taxable period explained in the previous article requires a final tax return for each shortened taxable period.

Unlike this, the interim consumption tax return system explained here assumes that the taxable period is one year, the same as the fiscal year, and a final tax return is filed once a year. Apart from that, the obligation to file one or more interim returns will arise depending on the size of the tax amount.

Companies with a shortened taxable period are not required to file an interim return.

The amount of consumption tax for the previous taxable period (a)Interim payment tax amountNumber of consumption tax returns filed per year
480,000 yen or lessNoneNo interim filing is required.
1 final return.
Over 480,000 yen to 4million yen6/12 of the (a)1 interim filing.
1 final return.
Over 4 million yen to 48 million yen3/12 of the (a)3 interim filing.
1 final return.
Over 48 million yen1/12 of the (a)11 interim filing.
1 final return.

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Taxable period and Base period for consumption tax

Principle of taxable period

For the Japanese consumption tax, which is a value-added tax, the taxable period for corporations is, in principle, the fiscal year.

The base period refers to the period on which the determination of tax liability is based, which in the case of a corporation is the two fiscal years prior to the current fiscal year.

More details on consumption tax liability will be explained in another article.

Exceptions to the taxable period

A company can use 3 months or 1 month as its taxable period if it notifies the tax office of the special exception.

It is often used by companies that file consumption tax refunds, such as exporting companies, for cash flow reasons.

Under the Consumption Tax Law, base period is defined on the basis of “fiscal year” rather than “taxable period”.

The reason why the base period is defined based on “fiscal year” instead of “taxable period” is to ensure that the result of determination of tax liability is consistent even when the special exception for shortened taxable period is applied.

Therefore, even if the taxable period is shortened, the determination of tax liability is made based on the “fiscal year,” and the tax liability for the shortened taxable period included in the “fiscal year” is unified.

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