Revision of Japanese consumption tax liability when a foreign corporation starts business in Japan
In the case of a foreign corporation, even if there is a base period (in principle, the previous two business years in the case of a corporation with a one-year business year), if taxable transactions start in Japan on or after the day after the last day of the base period, is now considered to be a corporation with no base period for that tax period.
[Applicability start date] Applicable from tax periods starting on or after October 1, 2024.
In other words, I think you can think about it in the following way.
Concept of Japanese consumption tax liability for foreign corporations
Foreign corporations with capital of 10 million yen or more
If a foreign corporation with a capital of 10 million yen or more starts a transaction subject to consumption tax in Japan, it will be liable to pay Japanese consumption tax from the fiscal year in which it starts the transaction subject to consumption tax.
Foreign corporations with capital of less than 10 million yen
Consumption tax liability will be determined based on the following amendments to the determination of specific periods for foreign businesses. However, due to the invoice system that started in October 2023, if you obtain a consumption tax eligible invoice issuing business registration number in order to receive a purchase tax credit for your business partner, you will not be liable to pay consumption tax.
When a foreign corporation conducts transactions subject to consumption tax in Japan, it is necessary to consider the relationship with business partners, etc., and to acquire a consumption tax eligible invoice business registration number under the invoice system. Under that situation, consumption tax filing obligations arise from the fiscal year in which business begins in Japan.
Procedures when a foreign corporation becomes obligated to pay consumption tax
If a foreign corporation becomes obligated to pay consumption tax, the following procedures are required.
- Submission of taxable entity notification form
- Selection of consumption tax administrator and submission of consumption tax administrator notification form
- Application form for registration of qualified invoice issuing business
- Consumption tax for the business year must be declared and paid within two months from the end of the business year.
Review of “special provisions for exemption from tax liability based on taxable sales in a specific period” for foreign businesses
If the taxable sales in the base period is 10 million yen or less, the taxable sales in the specific period is 10 million yen or less, or the total amount of salaries, etc. payments is 10 million yen or less, consumption tax will be imposed. are exempted from tax liability.
With this revision, for foreign businesses, it is no longer possible to determine the amount of 10 million yen for a “specified period” based on the total amount of salaries, etc. paid. The judgment material of the total amount of salaries, etc. payments has been removed from the judgment material for foreign businesses.
Therefore, if a foreign business operator’s taxable sales exceed 10 million yen in a specific period, they will not be exempt from consumption tax, regardless of the total amount of salaries, etc. paid.
(Note) In the case of a corporation whose business year is one year, the specified period basically means the period of six months after the start of the business year preceding that business year.
[Applicability start date] Applicable from tax periods starting on or after October 1, 2024.
