International VAT Guides – Japan

JCT rates in Japan 

How much is JCT in Japan? 

The indirect tax framework for non-resident suppliers of electronic services has been part of the Japanese tax system for a long time. Specifically, it was incorporated through the provisions of the Japan Consumption Tax (JCT) and the Income Tax Act since 201.5. The Japan JCT  system mirrors a highly developed, modern, well-established regime. 

The three pivotal legislations that paved the way for the introduction of the tax regime for foreign providers of digital services, and later digital platforms, are the following:

• Consumption Tax Act;
• Income Tax Act;
• Corporate Tax Act.

In addition to these regulations, the National Tax Agency(NTA) has published more than a few Orders, Guidelines, and instructions that help non-resident providers of electronic services navigate the national tax provisions more transparently. 

Domestic and foreign economic operators that surpass the small business exemption scheme are obligated to register for Japanese consumption tax and to file and pay returns accordingly. 

JCT threshold in Japan 

The JCT Japan Act defines the requirements and conditions for mandatory JCT registrations. In most cases, the domestic and non-resident economic operators could adhere to the small business exception scheme. 

This scheme benefits non-resident electronic service providers by allowing them to provide direct cross-border electronic services without registering for JCT. The interested economic operator can also register voluntarily, e.g., when it intends to claim input tax credits for its business purchases. 

The  JCT threshold in Japan is quite similar for both local and non-resident businesses. 

The JCT registration threshold is calculated based on taxable sales in the base period. For sole traders, the base period is the calendar year, two years before the current one; for corporations, it is the second preceding business year before the current one.

VAT registration threshold for resident businesses: JPY 10 million.

VAT registration threshold for non-resident businesses:  JPY 10 million.

VAT registration threshold for foreign providers of digital services: JPY 10 million.

JCT Taxable Activities in Japan

Types of taxable activities that trigger mandatory JCT registration:

• Supply of goods and services for consideration;
• Exports;
• Imports of goods and services; 
• Overseas sales of low-value goods to customers in Japan;
• Provision of digital services to customers in Japan.

Tax Representative in Japan 

Non-resident digital services providers without permanent establishment in Japan is required to acquire the services of a local tax representative. 

Tax registration 

Standard Registration 

Domestic or foreign taxable persons with a place of business or permanent establishment in the country have different registration options. The standard registration for JCT could be handled online, following the special online service, via telephone, or email. 

Simplified tax registration 

Foreign businesses that provide cross-border electronic services should register using the simplified form, designated for foreign registered persons.

How much is JCT in Japan for Electronically Supplied Services?

  The JCT rate Japan for most digital goods and services is 10%. 

Taxable Digital Services in Japan

The following types of digital services trigger mandatory VAT registration of non-resident providers:

• Audio and video streaming services; 
• SaaS services;
• E-books and publications; 
• Intermediation between third parties offering goods or services and those seeking them;
• Travel arranging services.

Marketplace and Digital Platform Operators Rules

Starting April 1, 2025, designated foreign digital platform operators are obliged to charge, collect, report, and pay JCT for all taxable sales of cross-border electronic services made through the platform by the underlying provider, when the service is defined as being provided/used in Japan. 

Ten years have almost passed since the introduction of the concept of taxation for foreign providers of cross-border digital services to customers based in Japan. The introduction of the idea of tax liability for foreign digital platforms is an essential move by the Ministry of Finance, guided primarily by the willingness to equalize the playing field for both domestic and foreign providers of digital services. 

The amendments to the Consumption Tax Act and Income Tax Act, which make introducing the concept of “taxation of digital platforms” possible, incorporate an entirely new scope of rules for foreign digital platforms. 

The concept of a foreign digital platform has a specifically designated framework to reduce the potential administrative burden for the National Tax Agency. Not all foreign digital platforms will be part of the new taxation system. 

The National Tax Agency shall publish a list of designated platform operators, acting as deemed suppliers for all cross-border digital services carried through the platform. Four main requirements determine if the NTA sees the platform operator as the deemed supplier: 

• Underlying foreign digital service providers make supplies of electronic services to customers based in Japan;
• The digital services supplied by domestic suppliers are out of scope;
• The platform operator intervenes in the payment distribution to underlying suppliers from the consideration made by the customer; 
• The National Tax Agency has defined the platform operator as a “specified platform operator” via public notification. 

In cases where the platform operator is notified about its status as being treated from the JCT perspective as the specified platform operator, it will be obliged to register for JCT. It will bear the obligation to account for all cross-border supplies of electronic services facilitated by the operator to customers based in Japan. 

The scope of electronic services that should be reported via the JCT return covers mainly B2C transactions. However, it shouldn’t be forgotten that under the definition of electronic services to customers based in Japan, the customer could also be a JCT-registered business. 

Suppose that will be the case for this type of electronic service. In that case, the designated platform operator will be obliged to report this transaction and to issue a qualified invoice to the business customer. 

Invoicing Rules

A JCT-registered non-resident supplier of electronic services isn’t obligated to issue a tax invoice to its customers(B2C). However, to provide B2C electronic services to JCT-registered businesses, the foreign service provider or digital platform operator should issue a qualified invoice to their customer. The customer can claim input tax credit only if it has received and stored the previously issued qualified invoice. 

The minimum requirements of the invoice are the following: 

• Name of the qualified invoice issuer;
• Registration number of the invoice issuer;
• Transaction date;
• transaction details;
• Consideration received net value;
• Tax amount – separated by tax rates;
• total tax amount; 
• Purchaser business information.

Foreign Currency Invoice in Japan  

In most cases, issuing an invoice in a foreign currency is permitted. However, submitting a JCT declaration should be processed exclusively in local currency.  

JCT Return in Japan 

Standard Return 

If not specified differently, foreign-registered JCT economic operators should submit a final annual return within the prescribed deadline. 

JCT Final Annual Return

Penalties for late reporting and omitted declarations 

Late JCT return filing, late JCT payment, and late registration are situations in which taxable persons would most likely have the obligation to pay a penalty and/or interest for not being compliant in the prescribed timeframe. 

Fines and penalties according to the JCT Japan Act and the Tax Administration Act: 

For late filing or payment of JCT, the taxpayer shall pay a delinquent or additional tax. 

The delinquent tax will be imposed if the owed amount of tax is overdue, using the following formula:

(1) The full amount of tax finalized by filing a tax return has not been paid by the statutory due date for paying the tax.

(2) The full payment of the tax payable hasn’t been made due to the late submission of the return.

(3) There is the amount of tax payable in the case of a correction or a determination being made.

Additional tax will be imposed if a tax return filed by the statutory due date is understated or if a tax return is filed after the statutory due date.

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