Japan’s Qualified Invoice System Explained: A Simple Guide for Foreign Business Owners

Hi, my name is Taisei Koshida, and I am a Certified Public Accountant and Licensed Tax Accountant in Japan.

I specialize in helping foreign business owners understand Japan’s accounting and tax system in English. If you find Japanese tax procedures difficult to navigate, I would be happy to assist you.

In this article, I explain Japan’s Qualified Invoice System in simple terms, including who should register, how the system works, and whether registration is beneficial for your business.

How Japan’s Consumption Tax Is Calculated

Japan’s Qualified Invoice System determines how businesses calculate and claim input consumption tax credits. Under this system, businesses can generally claim input consumption tax credits only when they receive invoices or receipts issued by registered invoice businesses.

If you would like to learn more about Japan’s consumption tax system, please read the following article.

An Easy Explanation of Consumption Tax for Doing Business in Japan

When Does the Invoice System Start?

Japan’s Qualified Invoice System came into effect on October 1, 2023.

How the Qualified Invoice System Changes Your Business

(1) From the Perspective of Paying Suppliers and Expenses

In general, businesses can claim input consumption tax credits only for purchases made from registered invoice businesses. Purchases from businesses that are not registered may reduce the amount of input consumption tax credits you can claim. In other words, payments made to non-registered businesses will not qualify for input consumption tax recognition.

(2) From the Perspective of Receiving Payments from Customers

You are required to include the invoice number on the invoices and receipts you provide to your customers. Without a valid invoice number, your customers may not be able to claim the full input consumption tax credit.

Should You Register for Japan’s Qualified Invoice System?

Registering for the Qualified Invoice System is generally optional. Whether you should register depends largely on who your customers are and whether they claim consumption tax credits. The most important factor is whether your customers are businesses that claim input consumption tax credits.

If you are subject to the consumption tax

It is generally advisable to register for Japan’s Qualified Invoice System if most of your customers are businesses. Many businesses prefer to work with registered invoice businesses because doing so allows them to claim input consumption tax credits. The only additional effort required for registration is to include your invoice number on your invoices.

If you are not subject to the consumption tax

If the majority of your clients are not businesses, there’s little need to register. However, if your clients are businesses that pay consumption tax, the decision becomes challenging. Many business customers prefer to work with registered invoice businesses because doing so allows them to claim input consumption tax credits.

Once you register, you generally become liable for consumption tax and must file consumption tax returns.

At Koshida Accounting and Tax Office, we help foreign business owners understand Japan’s accounting and tax rules in clear English. In addition to accounting and tax services, we can introduce trusted specialists in immigration, company registration, social insurance, legal matters, website development, and business consulting.

If you are unsure whether registering for Japan’s Qualified Invoice System is the right choice for your business, we would be happy to evaluate your specific situation and help you make the best decision.

If you need professional support for starting or running a business in Japan, please feel free to contact us through our inquiry form.