As previously reported, Japan will introduce a new qualified invoice regime for Japanese Consumption Tax (JCT) with effect from 1 October 2023. The new system will align the JCT regime more closely with European-style VAT regimes, and in order to claim input tax credit, the purchaser will be required to retain ‘qualified invoices’ issued by ‘qualified invoice issuers’. This change will greatly impact not only companies conducting their business physically within Japan, but also foreign companies providing digital services to customers in Japan.
Please see below for further details of the new system, along with a link to a short webcast which highlights some key points that taxpayers should be particularly mindful of. The webcast (available from 12 July 2021 to 11 July 2022) also identifies certain practical issues that may arise, and is a starting point for taxpayers looking to plan their transition to the new invoice system.
- Japanese consumption tax (“JCT”) is similar to VAT regimes in other countries. However, it is quite unique in some aspects. E.g., taxable person is not identified by a specific ID number system. Input tax credit can be claimed without retaining invoices under certain conditions.
- With effect from 1 October 2023, a new “qualified invoice system” will be introduced. This will align the JCT regime more closely with European-style VAT regimes.
- Under the new system, in order to claim input tax credit, the purchaser will be required to retain “qualified invoices” issued by “qualified invoice issuers”. A qualified invoice issuer must be registered as a JCT taxable person.
Registration of qualified invoice issuers
- Only qualified invoice issuers, who have obtained a registration number through the necessary registration procedure, can issue a qualified invoice.
- Only taxable persons are eligible to register as qualified invoice issuers. Qualified invoice issuers cannot be JCT exempt enterprises (i.e., cannot be exempt from the obligation to file a JCT return and remit JCT).
- Unlike the current system, this requirement applies even if the enterprise’s taxable sales for the base period are JPY 10 million or less.
Taxable purchases from a JCT exempt enterprise
- After the introduction of the qualified invoice system (i.e., after 1 October 2023), in principle, input tax credit cannot be claimed from any purchases from a JCT exempt enterprise or a consumer
- Grandfathering rules allow partial input tax credit for the subsequent six years:
- 1 October 2023 – 30 September 2026: 80% of input tax creditable
- 1 October 2026 – 30 September 2029: 50% of input tax creditable
Actions to take before 1 October 2023
The fundamental change in the taxation system requires taxpayers to restructure their operations and systems. Actions to take in order to be compliant with the new JCT regime would include:
- Set up project team + internal trainings
- Identify transactions and processes for issuing / receiving invoices
- EDI/Cloud, other systems or manual operations etc.
- Alignment on output side
- Determination of invoice format, including self-invoicing and rebate invoice
- Modification of invoicing system
- Review of domestic intra-group transactions
- Special cases, e.g. retailers, commissionaire arrangements, platform operators, consignment sales, rebates, etc.
- Alignment on input side
- Internal process/system for validation of vendor’s registration number and other information, and for checking invoice errors
- E-archiving compliance for EDI (e.g., time stamp rules, searchability requirements, etc.)
- Allocation of tax codes, e.g., to purchases from JCT exempt enterprises
- Update employees expense reimbursement policy
- Communication policy regarding supplies from non-registered parties (e.g. non-resident vendors, sole proprietorship etc.)
- Preparation for tax filing
- Consider accounting method to be coordinated with JCT calculation method (aggregation / recalculation method)
- Registration as qualified invoice issuer
- Application for registration can be submitted from 1 October 2021. To become a registrant by Day 1 (i.e. 1 October 2023), the application must be filed no later than 31 March 2023
We have prepared a short webcast, which highlights some key points that taxpayers should be particularly mindful of. The webcast also identifies certain practical issues that may arise. This webcast is a starting point for taxpayers looking to plan their transition to the new invoice system.Free Webcast – Introduction to the new Japanese consumption tax invoice system.
Available from July 12 2021 to July 11 2022
● Overview of qualified invoice system
● New system to the invoice issuing / receiving process
● Required application
Please access the webcast and feel free to contact the above-mentioned if you have any questions on the new Japanese consumption tax invoice system.
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