What is fulfillment service?
“Fulfillment service” is a service that performs a series of operations on behalf of e-commerce site operations, such as storage and management of products, order processing, packaging, shipping, and return handling. A typical example is “Fulfillment by Amazon (FBA)” provided by Amazon.
Consumption tax when foreign companies sell products on Amazon in Japan
- Consumption Tax Law Article 4, Paragraph 1 ”According to this law, consumption tax will be imposed on transfers of assets made by business operators in Japan.”
- Consumption Tax Law Article 4, Paragraph 3, Item 3
Regarding the determination of whether an asset transfer, etc. was carried out in Japan, “In the case of an asset transfer or loan, the place where the asset was located at the time of the transfer or loan” - Consumption Tax Law Basic Circular 5-7-1
“In the case of asset transfer, the determination of the location of the asset is, in principle, based on the actual location at the time of the transfer.”
In the case of a transfer of goods (assets), the criterion is the physical location of the goods at the time the transaction takes place.
With Amazon FBA, products are stored in warehouses in Japan and shipped from there to consumers in Japan.
Therefore, the location of the product at the time of transfer is within Japan, and the transaction is determined to be domestic.
→ Businesses that sell products to Japanese consumers on Amazon Japan are responsible for paying consumption tax. Excludes cases where sales in the base period fall under tax exemption regulations, such as when sales are less than 10 million yen.
When selling imported products on Amazon Japan, consumption tax is levied as a domestic transaction.
Taxable: Sales of products within Japan
Taxpayer: Foreign company (as a person doing business in Japan)
Payment period: After the end of the tax period (usually a business year)
Amazon Japan sales by foreign companies – Consumption tax when importing products
When foreign companies import products from their home country to Japan, consumption tax (import consumption tax) is levied at the time of import.
Due to the revision of the Customs Law, foreign companies that import products into Japan and have ownership of the products themselves are now responsible for filing consumption tax import declarations.
Taxable: Goods imported (taxable cargo)
Taxpayer: Generally, the importer (in this case, the foreign company)
Payment period: At the time of import declaration at customs
Calculation method:
- Taxation standard: Taxable value of imported goods (CIF value plus customs duty amount)
- Tax rate: Consumption tax rate (currently 10%)
Tax payment method: Payment to customs
Calculation of consumption tax (in principle method)
Importance of input tax credit
Input tax credits help prevent double taxation. For example, let’s say you import a product for 1 million yen and the import consumption tax is 100,000 yen. If you then sell the product for 1.5 million yen, the consumption tax on the sales will be 150,000 yen. in this case,
- Amount of consumption tax to be paid = 150,000 yen (consumption tax on sales) – 100,000 yen (consumption tax on purchases, that is, import consumption tax) = 50,000 yen
If there was no purchase tax credit, the full amount of 150,000 yen would have to be paid, and consumption tax would be levied both at the time of import and at the time of sale.
Procedures for foreign companies to declare and pay consumption tax in Japan
In order for a foreign company to declare and pay consumption tax in Japan, the following procedures may be required.
- Tax Agent Appointment : A foreign company without a base in Japan must appoint a tax agent to handle tax payment procedures.
- Invoice System: The invoice system requires preserving eligible invoices for input tax credit deduction. Invoices issued by foreign companies must meet specific requirements.
- Consumption Tax Declaration: File a consumption tax declaration within two months after the tax period’s end (usually the business year). Submit the return and pay the tax amount due to the tax office. If you have a tax agent, they will handle these procedures.
summary
When a foreign company imports products from overseas and sells them on Amazon Japan, consumption tax may be levied both at the time of import and at the time of domestic sales. Import consumption tax is levied at the time of import, and consumption tax will be charged on sales when selling in Japan thereafter. The consumption tax paid at the time of import can be deducted from the consumption tax on sales at the time of consumption tax declaration (input tax amount deduction).
These steps can be complicated, so we recommend consulting with a professional, such as a tax accountant, if necessary.
