Quick Review

Consumption Tax

Consumption tax is a value-added tax (VAT), known in some countries as goods and services tax (GST). It applies to all goods and services that are bought and sold for the use in Japan. Therefore, goods exported to customers abroad are not subject to VAT, and those imported to customers in Japan are taxed.

Do I need to file CT,,,?   

As a business, you are required to collect 8% (10% from October 2019) of CT and pay it to the tax authority if:

a)  Taxable turnover for the Base Period (the accounting period two years prior to the current year) is more than JPY10 million; or

b)  Taxable turnover for the Specific Period (the first half of the accounting period one year prior to the current year) is more than JPY10 million; or
c)  A company which doesn’t have the Base Period (like a newly established company) has the capital amount of 10 million yen or more; or
d)  A company which doesn’t have the Base Period (like a newly established company) has the capital amount of less than 10 million, and majority of its shares is held by person with taxable turnover of JPY500 million or more in Japan during the Base Period of the company.​

Newly Incorporated Company

Since a newly incorporated company does not have the Base Period and the Specific Period, it can skip the conditions a) and b). If the capital amount of the company is less than JPY 10 million and taxable turnover of the parent company is less than JPY 500 million, the company is exempted from CT obligation.

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Newly Established Branch
The above conditions will be applicable for the parent company because its branch is not a separated legal entity. You do not have to consider conditions c) and d) because a parent company usually has the Base Period and the Specific Period unless it is newly incorporated. Taxable turnover in condition a) and b) does not include export to Japan. Therefore, a newly set-up branch is normally exempted from CT duty.

Tax Invoice 

Tax invoice regulation will start from October 2023. Under new rules, a tax invoice which states CT registration number is required as a supporting document when you claim input tax. Registration number will be issued to a business who has CT obligation. Names and numbers of registered tax payers will be on the website of the tax authority so that you can identify whether your supplier is CT registered company or not.
Currently, you are allowed to claim input tax incurred on purchases even from exempted businesses, because there is no way to know whether your supplier has CT obligation or not. Most of exempted businesses are issuing sales invoices which charge CT. In this regard, CT exemption is working as a kind of tax concession for SMEs until October 2023. After tax invoice regulation starts, you may wish to voluntarily register the CT tax payer who is allowed to issue tax invoices collecting CT from customers and make input tax claim.