|
In Japan, the equivalent of VAT or GST is known as Consumption Tax (‘CT’), and was introduced in January 1989. It is similar to the European Union’s VAT system, requiring re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.
The Japanese CT rate is currently 5%: 4% national levy; 1% regional levy.
Click here if you would like free guiduance on Japanese Consumption Tax and compliance.
Requirement to comply for Consumption Tax
For foreign companies providing goods or services in Japan, there may be a statutory obligation to charge CT. This includes the ongoing compliance requirements to file periodic tax returns, and pay over any CT due to the Japanese tax office. Typical situations requiring Japanese CT compliance include:
- Where goods are delivered within Japan;
- If the foreign trader imports goods in Japan; and
- Supplies of services, e.g. consulting services, sport and entertainment events.
Foreign traders with no premises in Japan, but who may be warehousing and distributing goods in Japan, may be subject to being classified as a PE (permanent establishment). In this situation, their company could also be subject to direct as well as indirect tax. There may be options to avoid this.
Consumption Tax registration threshold
There is an annual CT compliance threshold of YEN 10 million, based on the base year of two years prior to the tax year. For resident companies or for PE's of foreign entities where the start-up capital is greater than YEN 10 million, then immediate CT compliance is required.
Exporters with taxable supplies below this limit may elect to become taxable businesses to facilitate the recovery of an input CT.
Registering for Consumption Tax
There is no requirement for companies to formally register with the Japanese tax authorities for CT. The tax authorities regards the first tax filing (see below) as the application for registration, and a tax office will be allocated to the company.
A foreign, non-resident trader is required to appoint a Japanese resident tax agent. The agent is responsible for all communications between the company and the Japanese tax authorities.
Consumption Tax compliance
Once a company becomes a taxable business, it is required to file periodic CT returns. The frequency of these depends on the trader’s turnover. The tax filing lists all of the company’s transactions related to the supply of the relevant goods or services.
Any CT due should be paid simultaneously with the filing of the tax return. The tax authorities will require payments of CT liabilities to be made in Japan at an authorised bank or post office.
In the case of a tax credit (where the CT incurred by the company exceeds the CT charged on its sales in the reporting period), documentary proof related to the transactions is often requested by the tax office.
Consumption Tax recovery
There is provision in Japan for VAT reclaims, along the lines of the European Union’s 8th & 13th VAT Directives. There are however strict time limits, and a local tax representative must be appointed to liaise with the Japanese authorities.
How TMF can help
TMF can help ensure non-resident companies are fully compliant for Japanese CT, and are able to keep any cash flow impact to a minimum. TMF Tokyo, with local professionals on the ground, is in regular touch with the tax office, meaning it is often able to get the best settlement possible on behalf of its clients.
Consumption Tax services that TMF Tokyo provide include:
- Serving as a foreign trader’s Japanese tax representative for CT registrations and refunds;
- Up-to-date guidance on CT compliance regulations, including invoicing formats and exchange rate conversion rules;
- Periodic tax filings and CT payments through local banks;
- Organising repayments of CT credits; and
- Liaising with the tax authorities, and fielding any queries or tax audits.
To learn more about TMF Global VAT/GST Co-ordination, contact us:
vat@tmf-group.com
+44 (0)870 067 8881
|
