Goods and Services Tax (Japan)

[Nagesh Bajaj]

In Japan, the equivalent of VAT or GST is known as Consumption Tax(CT) and was introduced in January 1989. It requires re-calculation and payments to the tax authorities at each transaction point in the onward sales chain.

The Japanese Consumption Tax rate is currently 5% and out of which 4% is national levy and 1% regional levy. Companies are not required to formally register with the Japanese Tax authorities for Consumption Tax . The tax authorities takes into account the first tax filing 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 tax agent who must be a resident of Japan. The agent takes care of all the communications between the company and the Japanese tax authorities.

 There is an annual threshold of YEN 10 million, based on the base year of two years prior to the tax year. However immediate CT compliance is required in case of those resident companies where the start-up capital is greater than YEN 10 million. Moreover, exporters are given a choice to become taxable businesses to facilitate the recovery of an input CT even if their taxable supplies are below this limit.

A company is required to file periodic consumption tax returns once it becomes a taxable business. The trader’s turnover decides the frequency of these returns. The tax filing lists consists of all of  the company’s transactions related to the supply of the relevant goods or services. If there is any consumption tax due that should be paid simultaneously with the filing of the tax return. The tax authorities require payments of CT liabilities to be made in Japan at an authorised bank or post office.

There may be a statutory obligation for foreign companies providing goods or services in Japan to charge Consumption Tax. This includes the ongoing compliance requirements to file periodic tax returns and pay over any consumption tax due to the Japanese tax office. Following are the situations which require Japanese compliance:

* Where goods are delivered within Japan

* Supply of services. For e.g: consulting services, sports events, entertainment events etc.

* If the foreign trader imports goods in Japan.

However, those traders who may be warehousing and distributing goods in Japan are classified as Permanent establishment [PE]. In this situation , their company could also be subject to direct as well as indirect tax.

Being a broad based tax, GST can be charged on practically all supplies of goods and services. However, social welfare services, letting of commercial buildings, postal services, non-commercial activities of no-profit making organisations etc.  will be exempted from tax.

 

 

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