Japan's Tax System

Japan's Tax System

Starting with the introduction of a multiple tax rate system in 2019, Japan is in the middle of a multi-year process of upgrading its consumption tax system. Through this significant change, the Japanese government seeks to solve a tax leakage problem that has existed for years.

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Japan's tax reforms

The recent series of tax reforms in Japan started with the introduction of its multiple tax rate system on 1 October 2019. Following this, changes in the country’s indirect tax, the Japanese Consumption Tax (JCT), started to take place. To counter systemic problems caused by the current ledger system structure, anew system – the Qualified Invoice System –will be introduced from 1 October 2023. The key difference from the current system is that a Qualified Invoice must include a breakdown of applicable tax rates for that given transaction.

Not long after these changes were announced, a new organisation, the E-Invoice Promotion Association (EIPA), was established in July 2020. It aims to promote digitization of overall commercial transactions. Leveraging the opportunity presented by the new Qualified Invoice System, the EIPA began to work on developing a standard specification for electronic invoices.

Since January 2021, the EIPA – with support from the Japanese government – has been working with the OpenPEPPOL team to develop a Japanese specification that meets the country’s regulatory framework and business demands. In September 2021, Japan acquired PEPPOL Authority status and aims to allow businesses to issue and receive electronic invoices through PEPPOL in the Autumn of 2022.

Kyoto, Japan springtime in the historic Higashiyama district art dawn.

Japan's tax system quick facts

  • Under the new system, only registered JCT payers can issue qualified tax invoices. On the buyer side, taxpayers will only be eligible to input tax credit where a qualified invoice has been issued
  • Taxpayers must register with Japan’s National Tax Agency (NTA) to issue qualified invoices. Registration began in October 2021 and must be completed before 31 March 2023
  • Invoices must be archived according to Italian-style storage requirements: to be compliant, taxpayers must either timestamp their invoices or draw up a Storage and Maintenance Guideline describing how the invoices are archived and how this meets applicable requirements
  • Invoices should be stored in such a way to guarantee the integrity, authenticity and availability during the storage period
  • Foreign storage is allowed provided it fulfills the requirement for storage under Japanese law
  • Outsourcing of invoice issuance is allowed with no restrictions or requirements

Japan's mandate rollout dates

  • 1 October 2019 – Japan introduces its multiple tax rate system
  • 14 September 2021 – the Japanese Digital Agency obtained PEPPOL Authority status
  • 1 October 2022 –EIPA aims to enable businesses in Japan to issue and receive electronic invoices through PEPPOL
  • 31 March 2023 – Latest date to apply for registration with the NTA to issue qualified invoices
  • 1 October 2023 – Qualified Invoice System will be introduced

Quick facts about Japan's Consumption Tax

Introduced in January 1989, it’s the indirect tax charged on the consumption of goods and services in Japan. There are national and regional levies, and a reduced rate of Consumption Tax in Japan.

Japan’s Consumption Tax is the equivalent of VAT which is charged across the European Union.

Consumption Tax in Japan is levied when a business transfers goods, provides services or imports goods into Japan.

A refund of Consumption Tax in Japan isn’t possible for businesses without taxable sales in the country.

How Sovos can help

As Japan implements its Consumption Tax System updates, requirements for Japanese taxpayers will change. Need help ensuring your business stays compliant with all future Japanese Consumption Tax system updates?

Our experts continually monitor, interpret and codify regulatory changes from around the world into our software, reducing the compliance burden on your tax and IT teams.