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Certain digital services provided by foreign suppliers to Japanese business customers and Japanese private consumers have been categorized as domestic transactions subject to Japanese consumption tax (JCT) from October 1, 2015.
Foreign businesses may therefore have to fulfil several compliance requirements, including registration as a consumption tax payer and appointment of a tax agent in Japan.
The JCT rate is currently 8%. This is broken down into national (6.3%) and local (1.7%) tax. However, this is subject to change and there are ongoing discussions in relation to increasing this rate.
Businesses who are not already registered for consumption tax in Japan, but who make supplies of consumer-oriented services to Japanese customers will need to comply with these new rules.
Yes. The existing threshold rules apply, so a business must register if it exceeds the threshold of JPY 10m in taxable sales to Japanese customers in one of several potential historic periods.
In addition, other tests are applied to determine the registration obligation, such as applying the threshold test on a pro rata basis or looking to the paid-in capital of the business and taxable sales of controlling/related companies.
You should file returns once a year. You should pay and file within 2 months from the last day of each accounting period.
Assuming your product/services qualify as digital goods/services in Japan and you are above the threshold to pay consumption tax in Japan, then complete the following steps:
- Log into the Taxamo portal and go to My account > Tax regions.
- Enable in test mode or live mode for the relevant dates.
- If you have registered as a foreign business in Japan, enter your registration number.
Note: If you are using an integration other than the API, or the Taxamo checkout form, please confirm that your integration type has been upgraded to support Japan.
With effect from 1 October 2015, digital services which are consumer-oriented by nature such as computer games, electronic books and music downloads are subject to Japanese consumption tax, reportable and payable by the supplier.
This is irrespective of whether the purchaser is a business or private customer.
On the other hand, business-oriented digital services (e.g. advertising) supplied to Japanese customers are subject to the reverse charge, so that the customer, rather than the supplier, must account for the applicable consumption tax.
If I sell in currencies other than Japanese Yen to Japan residents, how do I convert these for tax payment?
You will need to convert the foreign currencies using the transaction date’s Telegraphic Transfer Middle-rate (T.T.M.).
The T.T.M. is a mid-market rate issued by the banks in Japan.
If you received refunds against goods you sold, or services you provided, you should deduct the tax amount on the value of refunds from the tax amount on sales (tax base) in your tax returns for the taxable period when you received refunds or made discounts.
Filing in Japan, you need to retain information about sales in Japan.
If you have any deductible tax, you need both books and bills, etc. In principal, books and documents related to the transactions should be retained for 7 years after 2 months of the tax period you have filed.
For ‘registered foreign businesses’, when providing a Japanese business with B2C electronic services, an invoice should state:
- The name of the document issuer and its registration number
- The date of provision of the services
- The content of the services
- The payment amount
- Indication that the registered foreign business is liable for consumption tax
- The name of the business (customer) receiving the invoice.
Issuing an invoice electronically is acceptable.
Note: A registered foreign business has a duty to issue such invoices upon the service recipient’s request.
To be able to register for consumption tax, file returns and pay over tax to the authorities, foreign businesses must appoint a tax agent (“zeimu dairinin”).
The tax agent will be responsible for liaising with the tax authorities and handle the cash payments to the tax authorities’ account.
KPMG’s Asia Pacific Indirect Tax Compliance Centre provided content for these FAQs and can advise businesses in more detail on whether they are affected by the rule changes.
KPMG in Japan can also act as a foreign business’ tax agent, if this is required, according to the rules outlined previously.
For more information please email Adrienne McStocker firstname.lastname@example.org.
Note: There is no link between Taxamo and KPMG Asia, both companies are independent of each other.