The Consumption Tax Risks When Outsourcing Work Overseas 海外に仕事を頼んだ場合の消費税のリスク:国内と国外どちらの取引か?

【Koshida Accounting Firm Column Date:

Neurosis is the inability to tolerate ambiguity. – Sigmund Freud

神経症とは曖昧さを許容できないことである。- ジークムント・フロイト



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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.



When receiving services from overseas businesses, there’s a risk involved in determining whether the transaction is domestic or not.




Incorrectly distinguishing between these can result in additional consumption taxes during tax audits.



I hope this blog helps you clearly understand the differences and prepare for any tax audits.



1.When the Service Location is Clear サービスの提供場所が明確な場合

For services, the determination of whether it’s a domestic or international transaction is based on the location where the services are provided.



For example, let’s say you hired a Korean consulting firm for market research regarding expansion into Korea.



The consulting firm conducted all preparatory work in Korea, and meetings and reporting were all done via a web conferencing system.



In this case, since the services were provided overseas, it is considered an international transaction and is not subject to Japanese consumption tax.



2. When Services are Provided Across Multiple Countries サービスの提供場所が複数国にまたがる場合

Conversely, what if about half of the work and meetings were conducted in Japan? If contracts and invoices clearly distinguish the locations and contents of the services, these should be used to differentiate between domestic and overseas service provisions. In this case, the former would be subject to consumption tax as a domestic transaction, while the latter would be treated as an international transaction.




If such distinctions are not clearly made, the decision should be based on the location of the service provider’s base. In this scenario, since the consultant’s base is in Korea, the transaction would be classified as an international transaction.




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