Japan's Consumption Tax System

In recent years, the Japanese government has implemented stricter regulations on the consumption tax system. For investors who have established companies in Japan, it is essential to pay close attention to the relevant taxation and filing requirements.

Practical Aspects of Japan Consumption Tax Filing

Japan’s consumption tax system is known for its rigor and transparency. Companies are required to file and pay taxes periodically in accordance with the law. The system operates under the principle of “self-assessment and self-payment,” meaning that all companies providing goods or services within Japan must calculate the difference between output tax and input tax to determine the amount payable or refundable. When a company sells goods or services and collects consumption tax from customers, this is referred to as output tax. Conversely, when it purchases materials or services and pays consumption tax to suppliers, this is called input tax. The net result of these two figures determines whether the company must pay tax or is entitled to a refund.

In practice, companies in Japan are required to file consumption tax returns regularly according to their taxable period. Generally, the taxable period corresponds to the company’s fiscal year, and filing must be completed within two months after the fiscal year-end. For example, if a company’s fiscal year ends on March 31, the deadline for consumption tax filing would be May 31 of the same year. Larger companies are required to file more frequently—those with taxable sales exceeding 50 million yen in the previous two fiscal years are generally required to file quarterly, while those exceeding 500 million yen may need to file monthly. Smaller companies, on the other hand, typically file on an annual basis.

Invoice System

A key development in recent years is the introduction of Japan’s new “Invoice System” (インボイス制度), which officially came into effect in October 2023. Under this regulation, companies must register as “Qualified Invoice Issuers” (適格請求書発行事業者) to issue qualified invoices that allow their business partners to claim input tax credits. If a supplier is not registered, the purchaser cannot deduct the related input tax, effectively increasing the company’s actual tax burden. As a result, businesses must establish a robust invoice management process, verify the registration status of their trading partners, and properly retain all invoice records to ensure full compliance with tax requirements.

Refund and Penalty

Tax refunds also play an important role in Japan’s consumption tax system. When a company’s input tax exceeds its output tax, it may apply for a refund—this situation commonly occurs in export-oriented businesses or capital-intensive industries. The refund review process typically takes one to three months, during which the tax authorities may request supporting documents such as invoices, contracts, or customs declarations. To streamline the process, companies often use the electronic tax filing system (e-Tax), which saves time and reduces the likelihood of clerical errors.

If a company fails to file or pay consumption tax by the designated deadline, it may be subject to penalties and late payment interest. The amount varies depending on the length and seriousness of the delay. To avoid such penalties, many companies prepare invoices and accounting records in advance of the fiscal year-end to ensure accuracy and compliance.

Overall, Japan’s consumption tax filing process emphasizes precision, efficiency, and integrity. With the introduction of the invoice system and the advancement of electronic tax filing platforms, the transparency of tax administration has greatly improved. For Taiwanese investors who have established companies in Japan, it is advisable to seek assistance from CPAs or certified tax professionals to ensure the accuracy and compliance of tax filings.