Among consumption tax export exemptions, regarding service exports
Regarding consumption tax, there is a system called export tax exemption, but here I would like to consider the special field of exporting services. Please note that this is the author’s personal opinion.
Subject to consumption tax
First, let’s consider the legal basis of the consumption tax law step by step.
In Article 4 of the Consumption Tax Act (partially excerpted and modified by the author),
Article 4 1. Pursuant to this Act, consumption tax will be imposed on transfers, etc. of assets and specific purchases made by business operators in Japan.
- Consumption tax shall be imposed on foreign goods collected from a bonded area pursuant to this Act.
- Determination as to whether the transfer, etc. of assets has taken place in Japan shall be made based on whether the place specified in each of the following items is located in Japan according to the classification of the cases listed in each of the items. However, in the case listed in item 3, if there is no place specified in the same item, the transfer, etc. of the asset shall be deemed to have taken place in a region other than Japan.
(i) In the case of a transfer or loan of assets: the location where the assets were located at the time of the transfer or loan;
(ii) In the case of the provision of services (excluding the cases listed in the following item), the place where the services were provided (where the services were provided in international transportation, international communications, or other services; If the location is not specified by Cabinet Order, it is specified as (a place specified by Cabinet Order).
Article 4, Paragraph 1 stipulates that transfers of assets, loans, and provision of services conducted within Japan are subject to consumption tax.
Regarding the provision of services, the part in bold indicates that if the place where the service was provided is within Japan, it will be subject to consumption tax, and the place where the service was provided is not clear. If the event is specified by a government ordinance, it would be subject to consumption tax if the place where the event takes place is a place specified by the government ordinance.
taxmanThe story has become a bit difficult legally, so to put it simply, if a service is provided in Japan to an overseas customer, the place where the service was performed must be located in Japan. This means that they are subject to Japanese consumption tax.
taxmanFor example, if a foreign company receives a request to research the Japanese market, the market research will be conducted in Japan and the overseas company will benefit from it, so this will fall under the so-called service export. I will.
Benefits of export duty exemption
The reason why I explained the subject of taxation even though we are talking about export tax exemption is because it becomes subject to export tax exemption only if it becomes subject to taxation. Export tax exemption, also known as 0% taxation, is taxable, but it differs from non-taxation in that the tax rate is reduced to 0 (exemption). This is a very important point.
This is because domestic purchases for the purpose of exporting duty-free goods and services are subject to purchase tax credit as taxable purchases required only for the transfer of taxable assets. Although this point is not explained in the article, it means that consumption tax paid domestically for exported products can be calculated as deductible consumption tax.
taxmanTo summarize briefly, the point that the consumption tax paid can be deducted for expenses incurred in Japan for exporting services overseas (those subject to 10% consumption tax) is that export This is the benefit of tax exemption.
taxmanFurthermore, when exporting overseas, even if it is a service export, consumption tax is exempted, so the consumption tax (consumption tax related to sales) deposited will be zero. Therefore, if you think about it in a simplified way, the benefit is that you can receive a refund of the consumption tax paid for exporting the service within Japan.
What is service export?
Services provided by domestic business operators whose effects extend to non-residents (however, non-residents directly receive benefits in Japan, such as transportation or storage of assets located in Japan, eating and drinking or lodging in Japan) This means that services provided to non-residents are eligible for export tax exemption.
Specific example of service export
I think it’s difficult to understand with only abstract explanations, so I’d like to think about it using a concrete example.
For example, suppose there is a famous foreign company A. Company A directly exports Goods X to Japan (from Japan’s perspective, it imports them). A Japanese consumer purchases product X.
The foreign company A establishes a company B in Japan to be responsible for the maintenance of product X. Company B will be engaged in repairing product X and responding to inquiries in Japan. Company B employs employees in Japan and provides services such as repairing Product X and responding to inquiries.
In this case, the consideration for providing services is the provision of services to non-resident company A. In other words, non-resident company A does not directly enjoy the services provided by company B in Japan, but receives them overseas, so in light of the provisions, company B’s sales are subject to export exemption from consumption tax. It’s possible.
In this case, there are other difficult issues, such as what is the appropriate unit price for sales. In addition, in this case, the consideration received from the Japanese consumer as a repair fee is considered to be taxable sales under consumption tax as domestic sales, but if the money is remitted to Company A in the home country. I think there are difficult individual issues, such as what will happen (if it is only provided as a service by Company A).
Since compensation such as free repairs based on the warranty should be collected from Company A, the sales would be exempt from export tax.
Consumption Tax Law Basic Notice (Reference)
(Specific scope of export tax exemption, etc.)
7-2-1 Please note that the scope of items that are exempt from export duty pursuant to the provisions of Article 7, Paragraph 1 of the Act and Article 17 of the Order (Scope of Export Duty Exemption, etc.) is roughly as follows. (Revised by 2015 section 1-13, 2018 section 1-1, 2002 section 1-9, 2003 section 1-35, 2005 section 1-34)
(1) Transfer or loan of assets carried out as export from Japan (in principle, export as defined in Article 2, Paragraph 1, Item 2 (Definition) of the Customs Law)
(2) Transfer or loan of foreign cargo
(3) Transport of passengers or cargo within and outside Japan (including transport within domestic transport sectors as part of international transport)
(4) In the transfer or rental of ocean-going vessels, etc. (referring to vessels or aircraft used exclusively for the transportation of passengers or cargo within or between countries; the same shall apply hereinafter). For ship operating operators, etc. (referring to ship operating operators, etc. prescribed in Article 17, Paragraph 2, Item 2 of the Ordinance (Scope of Export Duty Exemption, etc.); the same shall apply hereinafter).
(Note) Ocean-going vessels, etc. include Japanese national vessels and aircraft.
(5) Repairs to ocean-going vessels, etc. carried out at the request of ship operating operators, etc.
(6) Transfer or loan of a container used exclusively for transporting cargo between Japan and abroad or between two countries, to a ship operating company, etc., or to a ship operating company, etc. for the repair of said container. things done upon request
(7) Provision of services to ship operating companies, etc. related to pilotage, guidance, and other assistance in port entry/departure or takeoff/landing of ocean-going vessels, etc., or provision of facilities for port entry/departure, takeoff/landing, berthing, or parking.
(8) Provision of services such as cargo handling, transportation, storage, counting or appraisal of foreign cargo
(Note) Pertaining to special export goods (meaning special export goods stipulated in Article 30, Paragraph 1, Item 5 of the Customs Law (Restrictions on places where foreign goods are stored); the same shall apply hereinafter in 7-2-13-2). The provision of these services shall be limited to the following:
(1) Designated bonded areas, etc. (refers to designated bonded areas, bonded warehouses, bonded exhibition areas, and general bonded areas as stipulated in Article 29 (Types of bonded areas) of the Customs Law; hereinafter 7-2-1 and 7-2) – 13) and at the place where the special export cargo is loaded onto a ship or aircraft for export.
(2) Transportation between designated bonded areas, etc.
(9) Correspondence or mail or correspondence between domestic and foreign countries
(10) Transfer or loan of intangible fixed assets, etc. listed in Article 6, Paragraph 1, Items 4 to 8 of the Order (Location of Intangible Fixed Assets, etc.) to non-residents
(11) Provision of services to non-residents other than those listed below.
① Transportation or storage of assets located in Japan
② Eating and drinking or lodging in Japan
Items equivalent to ① or ② that will directly benefit domestically.
