Japan implemented a new invoice system for Japanese consumption tax (value-added tax or VAT) on 1st October 2023.
Since foreign companies doing business with Japanese companies may be affected, we will provide a general overview of the invoice system and the points that foreign companies should keep in mind.
I.- Overview of the Invoice System
Under this invoice system, in principle, the “qualified invoice issuer” is obligated to issue a “qualified invoice”, and the buyer is required to keep this issued qualified invoice. Likewise, the seller keeps a copy of the qualified invoice.
Pursuant to this invoicing system tax credit is received for consumption tax corresponding to multiple tax rates on purchases.
In order for the seller to issue a qualified invoice, it must be registered as a “qualified invoice issuer” by the District Director of the tax office of jurisdiction.
The “qualified invoice” refers to a document in which the seller communicates to the buyer the exact applicable tax rate, the amount of consumption tax, etc. In this invoice, the “registration number,” “applicable tax rate,” and “consumption tax categorised by tax rate” shall appear.
II.- Points for Foreign Companies
When a foreign company conducts a transaction with a Japanese company, it may also be required to comply with the invoice system described above.
There are two types of scenario:
(1) where the seller is a foreign company and the buyer is a Japanese company:
If the seller is a foreign company and the transaction is considered to be a “foreign transaction” under the Japanese Consumption Tax Law, the seller is not required to issue a qualified invoice because it is exempt from consumption tax.
As an example, a transfer of goods would be considered to be a “foreign transaction” depending on whether or not the goods are located in Japan at the time the transfer takes place.
On the other hand, in the event that the seller, a foreign company, conducts a domestic transaction under the Japanese Consumption Tax Law, the buyer can receive a credit against the purchase tax through the qualified invoice from the seller, if the foreign company is registered as a qualified invoice issuer for foreign businesses.
Therefore, the buyer, a Japanese company, may ask the foreign company to comply with the invoice system.
In order for a foreign company doing business in Japan to become a qualified invoice issuer, it is necessary to follow the procedures for registration as a qualified invoice Issuer for foreign businesses.
and
(2) where the seller is a Japanese company and the buyer is a foreign company:
In this case, the buyer, a foreign company, is not required to take any action under this invoicing system.
The above rules describe the most basic content regarding the new invoicing system in Japan, and many exceptions exist. For a practical application, it is necessary to contact a specialist who is familiar with the Japanese taxation system.
Satoshi Minami
Vilá Abogados
For more information, please contact:
24th November 2023
