Unlike the EU measures relating to the Value-Added Tax (VAT) in the Digital Economy initiative, expected to be introduced over the next few years, significant changes will become effective in Japan on October 1, 2023.
Japan’s consumption tax (with a current rate of 10%) is similar to the EU VAT rules and is levied when a business enterprise transfers goods, provides services or imports goods into Japan. Consumption tax paid by a Japanese business is typically creditable/refundable by filing consumption tax returns like the treatment of input VAT incurred by EU businesses in their operations that generate taxable revenue.
Qualified Invoicing System
As of October 1, a new Qualified Invoicing System (QIS) will be introduced. Under QIS, a Japanese taxpayer who files consumption tax returns can only credit consumption tax incurred if the taxpayer receives a qualified invoice from a seller or business that is registered as both a Japanese Taxpayer (JCT) and a qualified invoice issuer. The new system will require sellers active in Japan to include their Qualified Invoice Issuer (QII) number on invoices issued to businesses in Japan if those enterprises are planning to take an input credit for JCT in their returns. The QII number is not issued automatically but needs to be applied for with the tax office in Japan. Business operators should submit this application before March 31, 2023, to ensure they will be registered as QII by October 1, 2023.
Finally, under Japan’s 2022 tax reform measures (which included a number of clarifications) foreign corporations or non-residents that provide taxable services in Japan and are therefore Japanese Taxpayers must appoint a local tax agent for the QII request to be accepted. An example of taxable activities by foreign entities in Japan for purposes of this consumption tax is the provision of digital services to consumers located in Japan. This rule is similar to the current EU rules with regard to electronically provided services to EU customers subject to local VAT at the rate of the location of the consumer.
Contact us or your BPM tax representative for more information or a deeper discussion of the new Japanese rules.