Japan belongs to the group of countries that have implemented, in the first legislative wave, a specific indirect tax framework for the providers of cross-border electronic services. The rules have been in force since October 1, 2015.
The amendment to the Consumption Tax Act revised the place-of-supply rules for the provision of cross-border electronic services. The respective Ministry of Finance recognized the need at that time to revise the place of supply rules, from the initial supplier’s principle to the destination-based principle.
According to the Japan Consumption Tax Act, for the provision of cross-border electronic services, the place of supply is Japan, when the customer (for B2C) supplies has it’s domicile or residence in the country; while for B2B supplies the place of supply is within the country when the location of the head office or the main office is in the country.
To eliminate some of the doubts when it comes to the interpretation of what “electronic services” or what type of provision is B2C or B2B (due to the specifics of the Consumption Tax Act), a few revisions have been made later on.
The Parliament adopted the latest significant changes in March 2024, and they came into effect on April 1, 2025. The concept of the digital platform operator has been revised, and the introduction of full JCT liability for digital platform operators has come into effect for the first time.
Specifics of the JCT system for B2C and B2B transactions
B2C cross-border electronic services
According to the amended JCT Act, the place of supply for cross-border supplies of electronic services is in Japan when the customer has its domicile or residence in the country. However, the provision of B2C electronic services could also be regulated by the JCT Act, as it pertains to the provision of services to businesses that are JCT registered and have their principal office or head office in the country.
The concept of the customer for cross-border supplies of electronic services is “wider” than in other countries and could also capture local businesses, which can also be JCT taxpayers. General rules state that when the registered foreign supplier of cross-border electronic services provides B2C electronic services to customers in Japan, they may be obliged to charge, collect, and report JCT for supplies to Japanese businesses.
According to the JCT Act, what are B2C electronic services?
B2C cross-border electronic services are services that enable transactions to use or download e-content, such as e-books, videos, audio, or access cloud-based storage systems, applications, game stores, and the like.
In cases where the B2C electronic service isn’t customized to meet the specific needs of businesses or developed solely for business purposes, it is considered a B2C electronic service. In cases where the B2C cross-border electronic service is primarily intended for customers (natural persons), and if a legal person acquires these services under the same terms and conditions, the supplier is obliged to charge, collect, and report the JCT.
In many countries that have introduced a taxability framework for cross-border digital services, the reverse charge mechanism is implemented, and the reporting requirements are shifted to the domestic buyer.
B2B cross-border electronic services
When the provision of cross-border electronic services is treated as a business-to-business (B2B) transaction, the local taxable person is required to report the transaction under the reverse charge mechanism. The self-assessment and self-billing process takes place. The local JCT-registered business issues a qualified invoice, charges tax, and also offsets this cost through input tax credit via the same return.
What is the concept of the B2B cross-border electronic service?
The JCT Act and connected orders clarify the difference between B2C and B2B cross-border electronic services. Understanding these differences is crucial because the reporting rules apply to different types of taxable persons. For B2C transactions, the reporting and tax payment for the supply belong to the foreign supplier. At the same time, for B2B cross-border electronic services, the obligation is shifted under the reverse charge regime to local JCT business.
The concept of the B2B electronic services provided by foreign businesses covers the provision of services that are, by their “nature”, designed and limited only to businesses. This specification can also be found in the terms and conditions related to the provision of services, which are available on the provider’s website.
Services defined as the provision of B2B electronic services, considering their nature or description via terms and conditions, could include, for example, the distribution of advertisements online or the provision of e-marketplace services that allow businesses to sell software or video games on the website of the foreign service provider.
It should be noted that in some circumstances, the provision of cross-border electronic services initially established for business purposes has also been expanded to B2C customers. In such cases, the JCT charging and reporting duty remains with the foreign provider, not the local business.
Foreign providers of cross-border electronic services to customers whose residence, domicile, or place of business is based in Japan should be aware of the specific requirements and conditions that define if the transaction is treated as B2C or B2B. This distinction is of critical importance when determining who is responsible for charging and reporting JCT on this transaction. Does the responsibility extend to foreign providers as for all B2C supplies of electronic services, or is it shifted to the local customer under the reverse-charge regime? If you, as a non-resident cross-border supplier of electronic services to customers based in Japan, have any questions or concerns regarding the reporting rules, we are here to help.
Aleksandar Delic
1stopVAT Indirect Tax Manager – E-Commerce