The Consumption Tax Risks When Providing Services Overseas 海外にサービスを提供する場合の消費税のリスク:輸出?国外取引?

【Koshida Accounting Firm Column Date:

“If you are not willing to risk the usual, you will have to settle for the ordinary.”
- Jim Rohn

- ジム・ローン


a man near the mountain


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 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 providing services to overseas clients, it’s challenging to determine whether they are classified as exports or transactions overseas. If there are mistakes in tax handling, you may be required to pay additional consumption tax in case of a tax audit.

In this blog, I will explain how to determine whether transactions are considered exports or overseas transactions. It would be my pleasure to help you reduce the consumption tax risks for your business.





1. The Consumption Tax Risk of Incorrectly Determining Exports vs. Overseas Transactions 輸出と国外取引の判断を誤った時の消費税リスク

Exports are transactions taxed at 0% for consumption tax, whereas overseas transactions fall outside the scope of consumption taxation. Although both mean no consumption tax is levied, other consumption tax risks may arise in the long term.




(1)Determining Whether Businesses are Exempt from Taxes 免税事業者か否かの判断

Firstly, if annual taxable sales exceed ten million yen, you are generally required to pay consumption taxes starting from the fiscal period two years later (exceptions apply). For the purpose of this determination, while export sales are included, sales from overseas transactions are not.

Therefore, confusing exports with overseas transactions can lead to the risk of either failing to pay consumption taxes when required or paying them unnecessarily.





(2)Determining the Ratio of Taxable Sales 課税売上割合の判断

In calculating consumption taxes, the ratio of taxable sales is important. It is calculated using the following formula:
(Taxable Sales + Export Sales) / (Taxable Sales + Export Sales + Non-taxable Sales)
This ratio indicates the proportion of taxable sales relative to total domestic sales. If it exceeds 95%, you may be eligible for various tax benefits.


(課税売上+輸出売上)/ (課税売上+輸出売上+非課税売上)




Services such as housing rentals and hospital services, which are considered non-taxable for policy reasons, as well as land sales that don’t align with the nature of consumption taxes, affect the taxable sales ratio. For businesses involved in these sales, the ratio becomes lower as non-taxable sales, included only in the denominator, increase.



If you confuse exports with overseas transactions, this ratio will become incorrect. Calculating consumption taxes based on this incorrect ratio can result in excessively high taxes, or the opposite.



2. Distinguishing Between Exports and Overseas Transactions 輸出と国外取引の判断のポイント

(1)The key factor is the location where services are provided. サービスの提供された場所で判断

Services rendered in Japan are considered exports, while others are classified as overseas transactions. However, determining the exact location can often be challenging.



Take, for example, a web engineer in Japan who provides services like coding, which doesn’t involve copyright. It’s difficult to ascertain where the service is provided as the work might be done on a client’s server abroad or on the engineer’s server in Japan before being sent to overseas clients.




(2)If the location where services are provided is ambiguous, the location of the service provider’s office or similar base is used for determination. サービス提供場所があいまいならサービス提供者の拠点のある場所で判断

In such cases, if, for example, an engineer’s office is located in Japan, the service is considered an export.



(3)Be mindful of whether the client has any bases in Japan. 顧客の日本拠点がないかに注意

However, if a client has a base in Japan, it can only be considered an export if that base is not responsible for the transaction in question.



(4)Specifying the Location in an Agreement 契約書にサービス提供場所を明記

To mitigate the risk during tax audits, in cases where determination is ambiguous as in the above example, it is advisable to specify in the agreement that the location of service provision is Japan.




Our accounting and tax office has been actively assisting foreign business owners in Japan with accounting and tax matters. Also, not only in the tax and accounting field, our office can support your business in Japan in the fields of visa, registration, social insurance, and law by networking with specialists. Plus, we have networked with specialists in web marketing, building websites, and business consulting suitable for Japanese customers. All services are provided in English. Please feel free to reach out to us through the inquiry form.