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What You Need To Know About Japanese Consumption Tax (JCT)
VAT Ai Team

If you're doing business in Japan, understanding the ins and outs of the Japanese Consumption Tax (JCT) is critical for tax compliance and profitability. In this post, we'll cover the key things you need to know about Japan's value-added tax equivalent.

What Is Japan's Consumption Tax (JCT)?

The JCT is a value-added tax levied on most goods and services in Japan. It functions similarly to sales taxes or goods and services taxes in other countries.

Basic JCT Rates and Rules

Historical Rates:

Introduced in 1989 at 3%.

Increased to 5% in 1997, then 8% in April 2014.

Raised to 10% on October 1, 2019, after being postponed from the initially scheduled date in October 2015.

The standard JCT rate is 10%, with a lower 8% rate applying to food, beverages and newspapers. Exports and certain services to non-residents are zero-rated for relief. Land sales, securities and public services are exempt.

Businesses can claim credit for JCT paid on inputs against tax collected. Accurate invoicing and record keeping are required by law.

New JCT Invoice System

From October 2023, Japan introduces a Qualified Invoice System. Sellers must register as qualified issuers (QIIs) and include their QII number on invoices for buyers to claim input tax credits. Make sure to register as a QII by September 2023 to comply with the new rules.

Digital Services and Cross-Border Rules

Even foreign businesses providing digital services like ebooks to Japanese customers face JCT obligations. B2B digital supplies use a reverse charge, while registration may be needed for B2C.

Filing Requirements

Taxpayers must file JCT returns quarterly detailing taxable sales and input tax credits. Failure to comply can result in penalties. Consider outsourcing filing to tax experts.

Who Needs to Register for JCT?

  • Businesses with Significant Revenue: businesses with an annual turnover exceeding 10 million yen are required to register for JCT.
  • Importers: Businesses importing goods into Japan are subject to JCT and must register accordingly.
  • Digital Service Providers: Foreign companies offering digital services in Japan, especially for B2C transactions.
  • Businesses Under the Qualified Invoice System: Businesses wanting to issue qualified invoices for tax credits from October 2023.
  • Voluntary Registration: Smaller businesses or startups below the revenue threshold can voluntarily register for JCT.

Need JCT Registration?

VAT Ai offers comprehensive guidance on JCT registration and adherence for e-commerce businesses. Contact us to learn more about our JCT services.

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