New Requirements for Japanese Consumption Tax Invoicing: The Tax-Qualified Invoice System

A Japanese Consumption Tax (JCT), equivalent to VAT, was introduced in April 1989. Since then, the standard tax rate has gradually increased to 10%. In addition, an 8% reduced tax rate was implemented from 2019 for certain goods and services.

Effective from October 1, 2023, the Japanese consumption tax system will be significantly reformed with the introduction of a new JCT invoice system. This tax reform serves as a turning point, becoming a VAT system similar to that in Europe, from the following three perspectives:

1. Consumption tax ID number
2. The JCT Invoice
3. Eligibility of consumption tax credit for customers/buyers

1. Consumption Tax ID number

Any business entities wishing to be a “JCT Invoice issuer” must register for a Consumption Tax ID number at the tax office. Registrations can be submitted from October 1, 2021 to March 31, 2023.

Only a consumption tax-eligible entity can become a “JCT invoice issuer”. Consequently, when a consumption tax-non-eligible entity, such as a consumption tax-exempt entity, wishes to become a “JCT Invoice issuer”, the entity must first file an election to become a consumption tax-eligible entity. Once an entity becomes a “JCT Invoice issuer”, the entity cannot return to being a consumption tax-exempt entity, even if its taxable sales for the base period falls to 10 million yen or less.

We know the details and would be happy to advise you on the implementation of the new consumption tax system in Japan.

Kazuhiko Chiba, CPA – Certified Public Accountant, ECOVIS APO, Tokyo, Japan

2. JCT Invoice Requirements

Only a “JCT Invoice issuer” will be able to issue a JCT Invoice. Each invoice must have:

1. Name and the tax ID number of JCT Invoice issuer.
2. Date of transaction,
3. Transaction details (clarification of item subject to reduced tax rate),
4. Transaction amount by the applicable tax rate,
5. Consumption tax amount by the applicable tax rate, and
6. Customer’s name.

3. Eligibility of Consumption Tax Credit for Customers/Buyers

From October 1, 2023, a consumption tax-non-eligible entity, such as the consumption tax-exempt entity, will not be allowed to issue an invoice with consumption tax. If such an entity does issue an invoice with consumption tax, the customers/buyers cannot then claim the input

consumption tax credits. However, there will be a transitional measure to allow the partial recovery of input consumption tax credits for a six-year period, from October 1 2023 to September 30, 2029.

As with the present consumption tax system, in order to claim the input consumption tax credits, customers/buyers should maintain:

1. accounting books with necessary information, and
2. the JCT Invoice