An Easy Explanation of Consumption Tax for Doing Business in Japan

“Life is not complex. We are complex. Life is simple, and the simple thing is the right thing.” ― Oscar Wilde

Hello, my name is Taisei Koshida, and I am a certified public accountant and tax accountant.

I aim to assist non-Japanese business owners who need help with reading or writing in Japanese. If you find the Japanese tax return system challenging, I can help you with your tax filings.

If you are unsure about whether you need to file a tax return or not, this blog can be helpful for you.

The System of Consumption Tax in Japan 日本の消費税の仕組み

You need to pay the remaining amount to the tax office after deducting the consumption tax you paid to suppliers and other expenses from the consumption tax you collected from your customers.

取引先から徴収した消費税から、取引先に支払った消費税や諸経費を差し引いた残額を税務署に納付します。

Which Transactions are Subject to Consumption Tax? 消費税が課税される取引は？

1. Transactions conducted within Japan.
2. Transactions conducted by businesses as part of their operations.
3. Transactions involving consideration or payment.
4. Transactions involving the exchange of goods or services.

1.日本国内で行われる取引
2.事業者が事業の一環として行う取引
3.対価や支払いを伴う取引
4.商品やサービスの交換を伴う取引

Transaction Classification from the Perspective of Consumption Tax 消費税法上の取引区分

From the perspective of consumption tax, transactions are categorized as follows.

消費税法上、取引は以下のように分類されます。

(1)Transactions Not Subject to Tax 不課税取引

Transactions that do not meet the criteria above are classified as not subject to tax. For example, gifting assets or lending without any compensation are not taxable because they do not involve any consideration or payment. Similarly, transactions conducted outside of Japan are also not subject to tax.

上記に該当しない取引は、非課税取引に分類されます。例えば、資産の贈与や無償の貸付けなどは、対価や支払いを伴わないため課税対象とはなりません。同様に、日本国外で行われる取引も課税対象とはなりません。

(2) Non-taxable Category 1 (Transactions not consistent with the nature of consumption tax) 非課税区分1（消費税の性格に合わない取引）

・Transfer and lending of land

・Transfer of securities

・Transfer of postage stamps, revenue stamps, and similar items

・Fees for national and local government bodies, etc.

・土地の譲渡・貸付

・有価証券の譲渡

・郵便切手、収入印紙その他これらに類するものの譲渡

・国、地方公共団体等に対する手数料

(3) Non-taxable Category 2 (Based on social policy considerations) 非課税区分2（社会政策的配慮によるもの）

・Medical expenses under the social insurance law

・Rental of residential properties

・Tuition fees for compulsory education, etc.

・社会保険法に基づく医療費

・居住用不動産の賃貸料

・義務教育の授業料等

(4)Tax-Exempt Transactions( Export Transactions) 非課税取引(輸出取引）

Transactions with overseas entities are tax-exempt, with a 0% tax rate applied. Retaining documents such as export certificates and contracts are required for the exemption.
・Exports and international transportation
・Providing services to foreign businesses

海外との取引は非課税となり、0％の税率が適用される。非課税の適用を受けるためには、輸出証明書や契約書等の書類の保存が必要です。
・輸出・国際輸送
・海外事業者へのサービス提供

Difference between tax-exempt and transactions not subject to tax 非課税取引（輸出取引）と不課税取引の違い

For tax-exempt transactions, you can receive a refund for the consumption tax paid on purchases. However, for non-taxable transactions, such as those conducted overseas, you cannot get a refund for taxes paid.

非課税取引の場合、仕入れの際に支払った消費税の還付を受けることができます。ただし、海外取引など不課税取引の場合は、支払った消費税の還付を受けることはできません。

When is it necessary to pay consumption tax? どのような場合に消費税を納める必要がありますか？

-If the annual taxable sales exceed 10 million yen. 年間の課税売上高が1,000万円を超える場合。

You are required to pay consumption tax to the tax office starting from the fiscal year after next.

翌々事業年度から消費税を税務署に納付する必要があります。

-If both the taxable sales and personnel expenses for the first half of the year exceed 10 million yen. 上半期の課税売上高と人件費が1,000万円を超える場合。

You are required to pay consumption tax to the tax office starting from the following fiscal year.

翌事業年度から消費税を税務署に納付する必要があります。

-When the amount of capital is not less than 10 million yen.
You must pay consumption tax from the beginning. However, this criteria amount is just capital. If you change 2 million to capital reserve from capital, you can avoid being taxed because the capital is less than 10 million.

-When a new company is owned by a specific parent company.
If a parent company’s taxed sales are more than 500 million yen or that of entire sales, including non-taxed, is more than 50 billion yen, a new Japanese company is taxed.

If you pay expenses with a credit card, do you need to keep receipts? クレジットカードで経費を支払った場合、領収書は必要ですか？

If you pay expenses with a credit card, it’s essential to collect receipts for all transactions. Based on a strict interpretation of the consumption tax law, even if you receive monthly statements from credit card companies, without the receipts issued by the vendors, you cannot treat the consumption tax paid as deductible tax.

クレジットカードで経費を支払った場合、領収書は必ず必要です。消費税法の厳格な解釈により、カード会社から毎月利用明細が送られてきても、業者が発行した領収書がなければ、支払った消費税を損金として処理することができません。

The following blog mentions the invoice system.

https://kotsicpafirm.com/an-easy-explanation-of-japans-invoice-system/

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