Any incorporated business and sole proprietors earning over 10,000,000 yen do not have that exemption. However, they have the option to deduct the consumption tax they have to pay the government based on how much consumption tax they have already paid that year.
The deduction of consumption tax on purchases plays a significant role in determining the overall tax liability for businesses, particularly in the context of the implementation of a new invoice system. This deduction affects businesses by allowing them to offset the consumption tax paid on purchases against the consumption tax collected on taxable sales.
For example, a company generated a total of 55,000,000 yen in sales. Out of this amount, 5,000,000 yen is the sales tax. However, the sales tax is not the company’s money to keep since they must pay it back to the government. So, when we talk about the company’s revenue, which is the money they actually get to keep, we exclude the sales tax amount. Therefore, the company’s revenue, after excluding the sales tax, is only 50,000,000 yen.
Here is a visual representation of this example under the current system:
| Amount in Yen | |
| Total Sales | 55,000,000 |
| Sales Tax (Amount Paid to Government) | 5,000,000 |
| Company’s Revenue (After Sales Tax) | 50,000,000 |
It’s worth noting that starting from October 1st, taxable purchases made by non-business enterprises or those without qualified invoices will no longer be eligible for the full deduction. Therefore, businesses must ensure that they obtain qualified invoices and maintain proper documentation to support their deduction claims.
Japanese Taxes Are Too Difficult?
Check our accountant recommendations to find the right Japanese tax accountant for you!
What is the new invoice system?
Introducing the new invoice system in Japan brings along some transitional measures for the deductible consumption tax on purchases. These measures aim to make things easier for businesses and smooth out any potential difficulties during the initial implementation stages. The goal is to ensure a seamless transition, so businesses can adapt without too much trouble and take full advantage of the benefits provided by the new invoice system.
Under the transitional measures, business argentina phone number library partners can deduct a certain percentage of the consumption tax they have paid to non-registered entities. This deduction allows them to reduce their tax burden and maintain financial stability during the transition period. Initially, business partners can deduct 80% of the consumption tax paid to non-registered entities for the first three years. Following this period, the deduction percentage decreases to 50% for the subsequent three years.
From October 2023 – | 80% deduction system
| Old System (yen) | New System (yen) 10/2023 | |
| Business Revenue | 50,000,000 | 50,000,000 |
| Sales Tax (10% of Revenue) | 5,000,000 | 5,000,000 |
| Amount You Can Deduct from consumption tax owed | 5,000,000 | 4,000,000 |
| Amount you cannot deduct since clients are non-taxable entities | 0 | 1,000,000 |
This table shows the differences between the two systems. In the old system, the client could use the entire sales tax amount to reduce their tax bill how does it affect different. However, under the new system, the client can only use 80% of the sales tax to reduce their tax bill and thus needs to pay an extra 1,000,000 yen to the government.
These transitional measures offer relief for both registered and non-registered entities. Business partners who are unable to fully deduct the sales tax paid to non-registered entities can benefit from this deduction, ensuring their tax payments remain reasonable. The measures provide a gradual adjustment period for non-registered entities, allowing them time to evaluate the necessity of registration without immediate tax implications.
It’s important to note that the transitional measures are in place for a limited duration and apply specifically to the deduction of consumption tax on purchases. As such, businesses should carefully consider their registration status, potential tax liabilities, and the benefits provided by the transitional measures in the context of the new invoice system.
To learn more about Japanese tax reduction strategies and gain valuable insights, visit our blog section which includes informative articles related to this.
What is the purpose and outline of the qualified invoice system?
The qualified invoice system is a method that enables buyers to receive a tax deduction for consumption tax on purchases. Under this system, the retention of a qualified invoice issued by the business enterprise is required for the buyer to claim the tax deduction. On the other hand, for the seller to issue a qualified invoice, they must be registered as a business enterprise qualified for invoicing by the tax office how does it affect different.
The purpose of the qualified invoice system within the context of the new invoice system, is to facilitate tax deductions for consumption tax on purchases. It aims to streamline the process and ensure accuracy in claiming tax deductions, benefiting both buyers and sellers. Understanding the purpose and outline of the qualified invoice system is crucial for businesses and individuals operating under the new invoice system.
The outline of the qualified invoice system can be summarized as follows:
Retention of Qualified Invoices:
- Buyers must retain qualified invoices issued by business enterprises as proof of their purchases.
- Qualified invoices serve as essential evidence for claiming tax deductions.
Qualified Invoice Issuance:
- Business enterprises eligible to issue qualified invoices must register as qualified invoice system entities.
- Registered entities are responsible for providing accurate and valid invoices to their customers.
Tax Deduction for Buyers:
- Buyers can deduct the consumption tax paid on their purchases from their overall tax liability.
- Tax deductions reduce the tax burden for buyers and contribute to fair taxation.
By adhering to the qualified invoice system’s requirements, businesses and individuals can accurately claim tax deductions and ensure compliance with the new invoice system. The system aims to simplify the process, promote transparency, and facilitate proper utilization of tax deductions for both buyers and sellers.
How can the seller issue a qualified invoice?
To issue a qualified invoice under the new invoice system, sellers must follow specific procedures and meet certain criteria. Here’s an overview of how sellers can issue a qualified invoice within the context of the new invoice system:
1. Register as a Qualified Invoice System Entity: Sellers must register with the tax office as a qualified invoice system entity. This registration confirms their eligibility to issue qualified invoices.
2. Compliance with System Requirements: Sellers need to ensure they meet all the requirements set forth by the qualified invoice system. This includes adhering to invoicing standards, maintaining accurate records, and following the guidelines provided by the tax office.
3. Invoice Content: Qualified invoices should contain all the necessary information as specified by the system. This typically includes details such as the seller’s name, address, contact information, the buyer’s name, description of the goods or services provided, and the amount of consumption tax charged.
4. Issuing Valid Invoices: Sellers must issue valid qualified invoices for each transaction with a buyer who is eligible to claim tax deductions. It is important to provide these invoices promptly and accurately to ensure buyers have the necessary documentation for their tax deduction claims.
By registering as a qualified invoice system entity, complying with system requirements, and issuing valid invoices, sellers can effectively participate in the qualified invoice system. This enables them to provide their customers with the necessary documentation to claim tax deductions on their purchases. Understanding and following these procedures is vital for sellers operating under the new invoice system, ensuring compliance with tax regulations and facilitating smooth transactions.
As the qualified invoice system will be launched on October 1st, 2023, it’s crucial to know how it could uniquely impact different types of businesses, especially in terms of taxable sales and business models. Here’s a closer look at the scenarios that lay out the specific timings and impacts of this system:
Case A: Taxable Sales Over 10 Million
If a business had taxable sales exceeding 10 million yen two years ago, they are already a taxable person and must register under the qualified invoice system. Registration becomes mandatory in this case.
Businesses falling into this category must register under the qualified invoice system. It becomes mandatory for them to issue qualified invoices and adhere to the system’s requirements. They need to accurately document and retain qualified invoices for their transactions how does it affect different.
As the qualified invoice system affects them immediately, they must register and start issuing qualified invoices for their transactions from October 1st, 2023.
Case B: B2B Businesses with Taxable Sales under 10 Million Yen
B2B businesses with taxable sales below 10 million yen two years ago are currently non-taxable persons. Whether they should register or not depends on their relationship with their business clients. It is recommended to consider registration if requested by clients or if there are potential benefits. However, there are exceptions where even if registered, the consumption tax liability might not be significant.
In this case, businesses have the option to register based on their relationship with their clients. If requested by clients or if potential benefits arise, registration is recommended. However, businesses must evaluate the implications and consider factors such as their clients’ preferences and the impact on their operations.
In this case, the qualified invoice system affects businesses when they decide to register. If they choose to register, they should start issuing qualified invoices from the date of registration.
Case C: B2C Businesses with Taxable Sales under 10 Million Yen
B2C businesses, including convenience stores, taxis, or language schools, fall under this category. If their taxable sales two years prior were under 10 million yen, there’s no obligation to register under the new invoice system, given their customer base primarily comprises non-taxable individuals, i.e., consumers.
Such B2C businesses, predominantly catering to non-taxable individuals, are exempted from registration requirements. They can continue to operate seamlessly without needing to implement the new invoice system, ensuring it won’t affect them from October 1st, 2023.
What do you have to do in advance?
What documents need to be submitted for registration?
When registering under the new invoice system, businesses need to submit specific documents. While the official document is available in Japanese, the submission process is relatively straightforward. Here are the documents typically required for registration:
- Application Form: Fill out the application form provided by the tax agency. This form includes information such as the company’s name, address, and the name of the representative.
- Additional Documentation: Depending on the specific requirements of the tax agency, additional documents may be necessary. These can include identification documents, proof of address, or any other supporting paperwork as deemed necessary.
It’s advisable to consult with an accountant or tax professional to ensure a smooth registration process and accurate submission of the required documents how does it affect different.
How can businesses obtain their corporate number?
Businesses can obtain their corporate number, which serves as a unique identifier, through a simple registration process. Here’s how to obtain the corporate number:
- Submission of Registration Documents: Fill in the name of the corporation, address, and name of the representative on the application form provided by the tax office. Submit the completed form along with any required supporting documents.
- Receiving the Corporate Number: Once the registration documents are submitted, businesses will receive their corporate number from the tax office. This number is assigned to all registered companies and serves as their unique identification.
- Accessing the Corporate Number: For corporations, the rules dictate a T+12 digits corporate number, which can be looked up in advance. The corporate number is publicly available and can be accessed through the “Corporate Number Publication Site” by searching in English. By entering the prefecture and company name, businesses can find their respective corporate numbers.
- Sole Proprietors: Sole proprietors will not see their corporate number until they receive a notice from the tax office. Once the registration is complete, they can confirm their name and registration number as registered invoice issuers through the website of the National Tax Agency.
It is important to note that to become a registered invoice issuer starting from October 1st, the application must be submitted on or before September 30th.
By following the registration process and obtaining the corporate number, businesses can fulfill their obligations under the new invoice system and ensure compliance with tax regulations.
What changes do you need to make under the new invoice system?
To comply with the requirements of the new invoice system, certain changes need to be made to your invoices. Here’s an overview of the modifications:
- Addition of Registration Number: The key change is to include an additional registration number on the invoice. This can be done by adding a sixth item to the existing five items. The registration number serves as an important identifier and distinguishes registered entities. It is crucial to have this number on the invoice to indicate compliance with the new invoice system.
- Required Information: The following information must be included on the invoice:
- Invoice issuer name and registration number.
- Transaction date.
- Transaction details.
- Total price separated by the tax rate.
- Total consumption tax amount separated by the tax rate.
- Client’s name.
- Invoice Template: To assist businesses in use our tool to do your local searches! adapting to the new requirements, a helpful resource is the Japan Invoice Template provided by Free Invoice Builder. This template follows the standard invoice format but includes a notable addition. In the upper right corner of the template, you can find the VAT Registration Number, which signifies compliance with the new invoice system.
When receiving invoices, businesses can easily identify whether the invoice comes from a registered entity by checking for the presence of the registration number.
How does this affect the invoicing software?
The implementation of the new invoice system belize lists may have an impact on invoicing software. Invoicing software providers will need to update their systems to accommodate the changes required by the new system. This includes incorporating fields for the additional information such as the registration number, transaction details, tax rates, and client’s name. The software may also need to adjust calculations for total price and consumption tax to ensure accurate and compliant invoicing. By utilizing updated invoicing software, businesses can streamline the invoicing process and ensure compliance with the new regulations.
