What is the new invoice system and why is it important?

In the digital era, the continuous search for efficiency-driving solutions remains paramount for businesses. The recent rollout of the new invoice system in Japan represents a significant leap in streamlining invoice processing for companies nationwide. Yet, this change hasn’t been met with universal acclaim, particularly within the small business sector. Sole proprietors will gradually have to return the sales tax collected back to the government. Previously, they had been able to collect and keep the sales tax collected for their personal income while their corporate clients have been able to write off the sales taxes paid to them.

This change will impact both sole proprietors and the companies that deal with them. This article will explain the basics of the new Japanese invoice system, detailing its features and potential benefits for companies operating in Japan. To ensure a thorough understanding, we’ve enlisted the expertise of Shinpei Wakana, a certified public accountant specializing in tax audits for small to medium-sized enterprises.

About Shinpei Wakana

Shinpei Wakana, a Certified Public Accountant algeria phone number library and Keio University alumnus, has a decade of experience specializing in Corporate and Sales Tax, particularly tax audits for small and medium-sized businesses. Fluent in English, he ensures smooth and effective communication with international clients, offering personalized and accessible support tailored to their individual needs.

Leveraging modern digital tools such as Slack, Chatwork, Xero, and QuickBooks, Wakana combines convenience with professional expertise. This digital fluency, coupled with his in-depth knowledge of tax regulations, positions him as a leading authority in financial consulting. See Match.Points Accounting and check out Q&A with a Japanese Tax Account follow-up to learn more about Wakana’s dedication to helping businesses navigate their financial and tax needs.

About Scaling Your Company

Scaling Your Company helps businesses achieve sustainable growth and scalability. With a team of experienced professionals, we provide tailored strategic consulting services to address the unique needs of each client. From optimizing operations to accessing new markets, our expertise covers various areas crucial to successful scaling. Additionally, our website serves as a valuable resource hub, offering articles, case studies, and educational programs that empower entrepreneurs with the knowledge needed for effective expansion. By organizing workshops and seminars, Scaling Your Company fosters a community of industry experts who share insights and best practices, enabling businesses to navigate the complexities of scaling with confidence.

Further Reading: For those considering hiring an accountant in Japan or looking to understand more about the financial landscape here, you won’t want to miss this comprehensive guide: The Ultimate Guide to an Accountant in Japan.

What is consumption tax?

The consumption tax, or the sales tax, is levied on business enterprises when they transfer goods, provide services, or import goods into Japan. It’s important to note that the qualified invoice system specifically pertains to consumption tax and is not associated with individual income tax, corporate tax, or inhabitant tax. Therefore, let’s focus on comprehending the fundamental aspects of this tax law before delving into the intricacies of the new invoice system.

What is the current system?

The introduction of the new invoice system in Japan has profound implications for consumption tax rates and exemptions. To fully grasp the significance of these changes, it is essential to first gain a comprehensive understanding of the current system. By examining the existing framework, we can better appreciate the impact and benefits of the upcoming modifications.

What are the different consumption tax rates in Japan?

Under the consumption tax system in Japan, there are different tax rates for certain goods and specified transactions. The standard tax rate is 10%, which applies to most goods and services. However, there is a reduced tax rate of 8% that applies to specific items such as food, non-alcoholic beverages, newspapers, and certain pharmaceutical products. These goods fall under the category of essential items and are subject to a lower tax rate.

In addition to different tax rates for goods, there If you want to improve the local positioning are specified transactions that are exempt from consumption tax. For instance, as of June 2023, the sales or lease of land, sales of securities, and certain public services provided by the government are not subject to consumption tax. These exemptions are based on the nature of the transactions and are specified within the tax regulations.

What companies are exempted from doing a consumption tax filing?

For a business, whatever sales tax you collect from customers, you have to pay it back to the government in the following fiscal year. Let’s say you sold 10,000,000 yen in products and collected 1,000,000 yen in sales tax. You have to give that money to the government, and the sales tax collected is not yours to keep.

However, there is an exemption from having to return that sales tax back to the government for certain enterprises.

Under this provision, businesses whose taxable sales were 10 million yen or less two years ago are exempt from filing and liability for consumption tax. This exemption is particularly relevant when considering implementing a new invoice system.

For instance, if a business surpasses the threshold of taxable sales exceeding 10 million yen in 2023, its consumption tax liability would commence belize lists from the 2025 fiscal year (two fiscal year leeway). This exemption ensures that smaller enterprises are not burdened with immediate filing and tax obligations, allowing them to focus on their operations and foster growth. However, it’s crucial to note that once the taxable sales threshold is exceeded, the business becomes liable for consumption tax payments in subsequent fiscal years – in this case for 2025 for exceeding 10 million yen in 2023.