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Japan qualified invoice system explained for foreign firms

The japan qualified invoice system began on October 1, 2023, and it changes how consumption tax credits work for anyone doing business with Japanese companies. Buyers can now claim the input tax credit only when they hold a proper invoice from a registered seller. If you sell to Japan or buy from Japan, you need to know what that means for you.

What changed on October 1, 2023

Japan has two consumption tax rates, 10 percent and 8 percent. The standard rate is 10 percent. A reduced rate of 8 percent applies to items such as food and drink taken home. The invoice system was built so that each business pays the right amount of tax when both rates are in use.

Before the change, a buyer could usually claim a credit with ordinary books and bills. Now the buyer needs a qualified invoice. Only a registered business can issue one.

Sources: National Tax Agency of Japan, Invoice System guidance page (nta.go.jp/taxes/shiraberu/zeimokubetsu/shohi/keigenzeiritsu/invoice_about.htm).

Who must register

No law forces a business to register. Registration is a choice. But a seller that does not register cannot issue a qualified invoice. Its Japanese customers may then lose part of their tax credit, and some may ask for a lower price or buy elsewhere.

A registered seller must file consumption tax returns as a taxable business. That matters for small firms that were exempt before. After registration, the tax office gives the business a registration number. It starts with the letter T, followed by 13 digits.

Foreign firms that make taxable sales in Japan should ask a Japanese tax adviser whether registration fits their case. The answer depends on where the sale happens and who the customer is.

Sources: National Tax Agency of Japan, Invoice System guidance page; National Tax Agency, Qualified Invoice Issuer Public Announcement Site (invoice-kohyo.nta.go.jp).

What a qualified invoice must show

A qualified invoice is a bill, receipt, or delivery note that carries the right details. The title of the paper does not matter. The content does. It must show:

  • the seller's name and registration number;
  • the buyer's name;
  • the date of the transaction;
  • what was sold, with a mark on items at the reduced rate;
  • the total amount for each tax rate, and the rate itself;
  • the tax amount for each rate.

Shops, restaurants, taxis, and other businesses that sell mainly to the public may issue a simpler invoice. It can leave out the buyer's name. It may show either the tax rate or the tax amount.

Sources: National Tax Agency of Japan, Invoice System guidance page.

Rules that ease the first years

The government added a transition period. During it, a buyer who holds no qualified invoice can still deduct a set share of the tax, not the full amount. The share starts high and then steps down over several years.

Smaller businesses also got help. The National Tax Agency describes special ways for small taxpayers to compute tax, so that they do not need to keep every invoice for consumption tax purposes. Income tax rules on keeping receipts still apply, so keep your papers.

Sources: National Tax Agency of Japan, Invoice System guidance page.

What foreign sellers and buyers should check

If you are a seller, work out whether your Japanese customers will ask for a qualified invoice. If they will, talk to a tax adviser about registering before you lose a deal.

If you are a buyer, look up each Japanese supplier. The National Tax Agency runs a public site where anyone can search a registration number. Type the 13 digits without the letter T. You can check up to 10 numbers at once. Do this before you rely on an invoice for a tax credit.

Then fix your own paperwork. Check that your invoice template has every item listed above. Keep a copy of each invoice you issue or receive. Ask your accountant to set up a routine so the registration number is checked once, then saved.

This article is general information only. Rules can differ by case, so for your own invoices, check the details with the National Tax Agency or a licensed adviser.

Sources

  • National Tax Agency of Japan, Invoice System guidance page: https://www.nta.go.jp/taxes/shiraberu/zeimokubetsu/shohi/keigenzeiritsu/invoice_about.htm
  • National Tax Agency, Qualified Invoice Issuer Public Announcement Site: https://www.invoice-kohyo.nta.go.jp/