Basic knowledge
Consumption Tax
※ “Consumption Tax” in this page includes “Local Consumption Tax”.
Others
| No. | Subject |
|---|---|
| 1 | Tax Agent |
| 2 | Certified Public Tax Accountant (Tax Accountant Proxy) |
| 3 | Place for Tax Payment |
Consumption Tax
No.1 Taxable Sales
Consumption tax is levied on “Taxable Sales”. “Taxable sales” mean sales that satisfy all of the following four conditions.
- (1) Effectuated in Japan
- (2) Effectuated by a business for its business purposes
- (3) Effectuated for a compensation
- (4) Effectuated by the transfer or lease of assets or by the provision of services
- (Referred to as “transfer of assets etc.”)
For example, machinery rental fees and proceeds from the sale of machinery, buildings and other business assets are included in taxable sales in addition to such things as proceeds from sales of products, contract work and services.
No.2 Amount of Taxable Sales
“Amount of Taxable Sales” means the sum of the amount of sales related to transactions subject to consumption tax (excluding consumption tax) and the amount of sales related to transaction such as export transaction.
If there is any amount related to returns, discounts or rebates, the sum of these amounts (excluding consumption tax) should be deducted from the Amount of Taxable Sales.
No.3 Taxable Purchases that is eligible for tax credit
“Taxable Purchases that is eligible for tax credit” mean the transfer or lease of assets from another party to a business or provisions of services received by that business inside Japan. For example, Taxable Purchases include not only the procurement of products and goods for inventory but also the purchase of buildings, machinery or consumables for business purposes, repair expenses and fuel costs for delivery vehicles. However, interest and discount fees, insurance premiums and the purchase or lease of land are non-taxable transactions and therefore not classified as Taxable Purchase. The payment of salaries and wages that is not subject to tax is also excluded from Taxable Purchases.
Purchasing goods for inventory or receiving services from consumers or tax-exempt businesses are also considered as Taxable Purchases.
When purchasing depreciable assets, the entire amount expended is taxable for the year of the purchase.
No.4 Taxable Period
“Taxable Period” is base of time used for calculating the amount of consumption tax payable. In principle, the “Taxable Period” for sole proprietors is from January 1st to December 31st, and the Taxable Period for corporations is their business year.
No.5 Base Period
“Base Period” is a benchmark period for determining whether or not a business is a “Taxable Person”.
In principle, the Base Period for sole proprietors is the second preceding year before the Taxable Period, and the Base Period for corporations is the second preceding business year before the Taxable Period.
No.6 Taxable Person
Business which falls under either of the following categories is a “Taxable Person” who is required to file the final return.
- (1) Businesses which had a taxable sales amounting to more than 10million yen during the Base Period (See following Figure A),
- (2) Businesses which do not fall under category (1) above but have submitted the “Report on the Selection of Taxable Proprietor Status for Consumption Tax”, or
- (3) Businesses which do not fall under category (1) and (2) above and whose taxable sales for Specified Period exceeds 10 million yen (Specified Period is in principle the first six-month of the preceding year before the Tax Period. “10 million yen” for a Specified Period can be judged by using the total amount of salary and related payments instead of using the amount of taxable sales. (See following Figure B)
Business needs to submit the following notification to the District Director of the Tax Office with jurisdiction over the Place for tax payment when it is categorized(1)or(3)above.
Category1：“Notification of Taxable Enterprise Status for Consumption Tax (For base period)”
Category3：“Notification of Taxable Enterprise Status for Consumption Tax (For specified period)”
No.7 Exemption threshold for business
In principle, a business is exempted from consumption tax obligation in a Taxable Period if its taxable sales in the Base Period for the Taxable Period are equal to or less than 10million yen.
No.8 “The rate” which should be used to convert into JPY when the transfer of assets etc. is denominated in non-JPY currency
In principle, for calculating sales etc., each transfer of assets denominated in non-JPY currency shall be converted into JPY, by each transfer of assets, using the market rate (T.T.M.: Telegram Transfer Middle Rate) on the date of the transfer of assets etc..
No.9 Foreign business
A foreign business is defined as non-resident (Article 2, Paragraph 1, Item 5 of the Income Tax Act) and foreign corporation (Article 2, Item 4 of the Corporation Tax Act).
Income Tax Act
≫Non-resident: This shall mean an individual who is not a resident.
(Article 2, Paragraph 1, Item 5)
≫Resident: This shall mean an individual who has a domicile or has had a residence continuously for more than one year or more in Japan.
(Article 2, Paragraph 1, Item 3)
Corporation Tax Act
≫Foreign corporation: This shall mean a corporation that is not a domestic corporation.
(Article 2 Item 4)
≫Domestic corporation: This shall mean a corporation that has its head office or principal office in Japan.
(Article 2 Item 3)
No.10 Consumption Tax rate
The Consumption Tax rate is as follows.
| Classification | Applicable period | ||
|---|---|---|---|
| Until September 30,2019 | From October 1,2019 | ||
| Standard tax rate | Reduced tax rate | ||
| National Consumption Tax rate |
6.3％ | 7.8％ | 6.24％ |
| Local Consumption Tax rate |
1.7％ (17/63 of the amount of National Consumption Tax) |
2.2％ (22/78 of the amount of National Consumption Tax) |
1.76％ (22/78 of the amount of National Consumption Tax) |
| Total | 8.0％ | 10.0％ | 8.0％ |
| (Note) | Although the reduced tax rate of Consumption Tax (８％) is same as the rate that was effective until September 30, 2019, the breakdown of National Consumption Tax rate (from 6.3％ to 6.24％) and Local Consumption Tax rate (from 1.7％ to 1.76％) has been changed. |
[Items subject to the reduced tax rate]
- （1） Food and drink excluding alcoholic drink and dining out
- （2） Newspapers issued twice a week or more (restricted to those by subscription)
No.11 Selection of Taxable Person status
A business which is not a Taxable Person (“No.6 Taxable Person”(1)or(3)) but choose to be a Taxable Person (“No.6 Taxable Person”(2)) should submit “Report on the Selection of Taxable Proprietor Status for Consumption Tax” to the District Director of the Tax Office with jurisdiction over the Place for tax payment. In principal, the “Report on the Selection of Taxable Proprietor Status for Consumption Tax” must be submitted by the day preceding the first day of the Taxable Period for which a business intends to choose to be a Taxable Person.
Others
No.1 Tax Agent
A Sole proprietor who does not have or will not have a domicile and residence (excluding office) in Japan or a corporation which does not have or will not have its head office or principal office in Japan and do not or will not have an office or establishment in Japan needs to designate a resident(Tax Agent) who does necessary procedures related to Japanese tax payments on behalf of the taxpayer.
If you designate a Tax Agent, you should submit the ”Notification of Tax Agent” to the District Director of the Tax Office with jurisdiction over the Place for tax payment. (Article 117 of the Act on General Rules for National Taxes)
A Tax Accountant Proxy and a Tax Agent can be the same person.
No.2 Certified Public Tax Accountant（Tax Accountant Proxy）
Certified Public Tax Accountants and Certified Public Tax Accountants Corporations (hereinafter referred to as “CPTA etc.”) provide the services as follows under the Certified Public Tax Accountant Act.
These services must not be performed by persons other than CPTA etc., even at no charge.
- (1) Tax proxy
“Tax proxy” means to act as a proxy or a representative with regard to returns and applications etc. with the Tax Office on the basis of the provisions of acts concerning taxation. - (2) Preparation of tax documents
“Preparation of tax documents” means to prepare and submit documents to the Tax Office. - (3) Tax consultation services
“Tax consultation services” means to consult concerning matters pertaining to the computation of taxable bases etc. regarding filing returns to the tax office.
“Tax Accountant Proxy” is CPTA etc. who has submitted the “Certificate to evidence the authority of tax accountant proxy” under Article 30 of the Certified Public Tax Accountant Act.
No.3 Place for Tax Payment
Returns and notifications etc. have to be submitted to the District Director of the Tax Office with jurisdiction over the “Place for Tax Payment”
In principle, “Place for Tax Payment” for foreign businesses are as follows:
- A. For non-resident sole proprietors:
-
(a) If a sole proprietor has an office, establishment, or any other business facilities or any equivalent thereto associated with the business in Japan,
⇒ The location of the office -
(b) If (a) is not applicable, and his/her relatives continue living or live in place of the sole proprietors at the address or domicile that was his/her “Place for Tax Payment”,
⇒ The Place for Tax Payment -
(c) If both (a) and (b) are not applicable, and the sole proprietor receives payment for real-estate lending and so forth (excluding vessel or aircraft lending),
⇒ The location of a primary asset among those assets for lending -
(d) If a sole proprietor had a “Place for Tax Payment” in relation to the cases of (a), (b), and (c) but no longer falls under either of the cases
⇒ The most recent “Place for Tax Payment” -
(e) If either of (a) to (d) is not applicable
⇒ The location that you selected for tax returns, claims, or other activities in relation to consumption tax - (f) If either of (a) to (e) is not applicable,
⇒ The location within the district where the Kojimachi Tax Office exercises jurisdiction
-
(a) If a sole proprietor has an office, establishment, or any other business facilities or any equivalent thereto associated with the business in Japan,
- B. For foreign corporations:
-
(a) If a corporation has an office, establishment, or any other business facilities or any equivalent there to in Japan,
⇒ The location of the office -
(b) If (a) is not applicable, and the corporation receives payment for real-estate lending and so forth (excluding vessel or aircraft lending),
⇒ The location of a primary asset among those assets for lending -
(c) If a foreign corporation had a “Place for Tax Payment” in relation to the cases of (a) and (b) but no longer falls under either of the cases,
⇒ The most recent “Place for Tax Payment” - (d) If either of (a) to (c) is not applicable,
⇒ The location that you selected for tax returns, claims, or other activities in relation to consumption tax - (e) If either of (a) to (d) is not applicable,
⇒ The location within the district where the Kojimachi Tax Office exercises jurisdiction
-
(a) If a corporation has an office, establishment, or any other business facilities or any equivalent there to in Japan,
