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.
This blog may help if you are unclear about the simplified consumption tax system.
Standard Consumption Tax System
If taxpayers do not choose the simplified consumption tax system, they fall under the standard consumption tax system.
If you want to know more about the standard consumption tax system, please refer to the blog below.
An Easy Explanation of Consumption Tax for Doing Business in Japan
Differences between Standard and Simplified Consumption Tax Systems
Under the standard consumption tax system, you must pay the remaining consumption tax amount to the tax office, which is calculated by subtracting the consumption tax paid to suppliers and outsourcers from the consumption tax received from clients.
Calculation of prepaid consumption taxes under the simplified consumption tax system
If you opt for the simplified consumption tax system, a certain percentage of the received taxes is considered prepaid consumption taxes, rather than the actual amount paid. This percentage varies by industry: wholesalers 90%, retailers and agriculture, forestry, and fisheries related to food and drinks 80%, manufacturers, constructors, and agriculture, forestry, and fisheries not related to food and drinks 70%, financial and non-restaurant services 50%, real estate businesses 40%, and restaurants and other sectors 60%.
Advantages of the simplified consumption tax system
There are cases where less tax is paid to the tax office
In specific professions like tax accountants, choosing the simplified system often leads to tax savings because non-deductible expenses, such as personnel costs, make up a significant portion.
Accounting tasks become easier
Under the standard system, there’s a need to confirm invoice numbers on received receipts and invoices, but this is unnecessary with the simplified system. As a result, accounting tasks are simplified.
Risks of the simplified consumption tax system
Once you choose the simplified system, you must stick with it for two years. As a result, if there are unexpected investments, you might end up paying more in consumption taxes than under the standard system. Similarly, if your sales suddenly decrease, the same issue can arise.
Opting for the simplified consumption tax system
In such a case, you need to submit the application by the end of the previous fiscal year.
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