An Easy Explanation of Consumption Tax for Doing Business in Japan

【Koshida Accounting Firm Column Date:

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






Hi, my name is Taisei Koshida, and I am a certified public accountant as well as a tax accountant.


I aim to assist non-Japanese business owners who struggle 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.



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.



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.



(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.



(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.







(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.






(4)Tax-Exempt Transactions 非課税取引

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




(5)Taxable Transactions 課税取引

Transactions not mentioned above are taxable transactions.


Difference between tax-exempt and transactions not subject to tax 非課税取引と非課税取引の違い

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.



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.



・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.



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.





The following blog mentions the invoice system.


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