When you buy something in Japan, you are charged 8% extra fee. That is consumption tax. You pay the tax to shops, restaurants and etc. So when you do business and receive the 8% consumption tax, where and when do you have to pay the tax? In this page, you’ll find the outline of consumption tax in Japan.
What’s consumption tax in Japan?
Consumption tax is tax imposed on domestic transactions and import transactions. When you sell products or provide service, you need to charge additional 8% of product/service fee.
Be careful, this is not your income. You just keep it until you pay it to the tax office.
When do you file and pay consumption tax?
You need to file and pay the tax within 2 months after the closing date of fiscal year (FY). In the case where the amount of consumption tax in the previous year exceeds 480,000 JPY, a part of the tax should be paid in the mid of FY.
What’s needed to file a tax return?
Both account ledgers and invoices that describe certain matters have to be retained.
Does everyone need to pay consumption tax?
When the amount of taxable sales 2 years prior to the current FY exceeds 10 million JPY, you are responsible for the tax. So basically, you are exempt from consumption tax for the first 2 years because there isn’t “2 years prior to the current FY”.
But be careful. Even if you’re in the first 2 years, you are tax responsible either in below circumstances.
- Either (A) the amount of taxable sales or (B) total amount of salary paid to directors and employees in the first 6 months in the previous year exceeds 10 million JPY
- The amount of paid in capital in the first 2 years exceeds 10 million JPY
Is it always a good idea to be exempt from consumption tax filing?
If the amount of consumption tax on purchases to be deducted is more than the amount of consumption tax on taxable sales, the difference can be refunded by filing in a tax return.
This case can be like below.
- Your sales are mainly export and the amount of domestic purchase is more than the amount of domestic sales. (Export and related transactions such as export of goods, international transportation and communications, etc. are exempted from taxation.)
- You plan to invest a lot of money such as machines, buildings and constructions.
In order to get refunded, you need to submit an advance notification if you’re tax exempt.
Your tax accountant in Japan