Revision of the Japanese Consumption Tax

The 2015 Tax Reform Package was passed by the National Diet on March 31, 2015. The Tax Reform contains a new imposition of the Japanese consumption tax on cross-border digital services provided on or after October 1, 2015, by overseas service providers to customers in Japan. The Japan Consumption Tax is similar to VAT or GST in various other countries.

The key changes at a glance:
Scope of digital services

• Digital services subject to the new taxation include distribution of e-books, music, and advertising. Digital services also include cloud services and the licensing of copyrights by overseas license holders.
• International telephone communication services and services where the main transaction is the transfer of goods or tangible assets are excluded from these digital services.
• Under the revised law, the cross-border digital services are deemed to be provided in Japan where their customers are located.

How consumption taxes are collected from customers and delivered to the Japanese government

• Provision of B-to-B digital services
  Reverse charge mechanism for consumption tax will be implemented for B-to- B digital services, where parties in Japan receiving digital services from overseas service providers in connection with the parties’ business have an obligation to pay and deliver to the Japanese government the consumption tax on digital services. For such parties in Japan, consumption tax paid on digital services can be counted as consumption tax eligible for consumption tax credit when they file and pay consumption tax received from their customers on sales or services in Japan.
• Provision of B-to-C digital services
  All digital services provided by overseas service providers other than B-to-B digital services will be classified as B-to-C digital services. Digital services provided to both business parties and individual consumers will be classified as B-to-C digital services unless the services are definitely provided only to business parties because of the nature of the services or the service contract. Any B-to-C digital service provider will be obligated to pay consumption tax to the Japanese government. The registration system for overseas service providers will be implemented on or after July 1, 2015. For business parties in Japan, consumption tax paid to registered overseas provider for digital services can be counted as consumption tax eligible for a consumption tax credit.

Other details
There are exceptions and further details which will be provided to overseas providers.

“As a result of the 2015 Japanese Tax Reform, the consumption tax – similar to VAT or GST – now applies to cross-border digital services.”
Yoshiaki UNO, ECOVIS XAT Tax Corporation, Japan

Author
Yoshiaki UNO
yoshiaki.uno@ecovis.com