61. Tax Treatment of Non-Creditable Input Japanese Consumption Tax 控除対象外消費税額

控除対象外消費税額の取扱いについて英語でまとめました。
The table below provides an overview of tax treatment of non-creditable Japanese consumption tax for Japanese corporate and individual income tax purposes. (Source: National Tax Agency)

See this post for more about Japanese tax and accounting.

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Japanese consumption tax (“JCT”) on taxable purchases (“input JCT”) is not fully creditable from JCT on taxable sales (“output JCT”) where the taxpayer:

• applies the JCT exclusive method (see below*) and;
• has taxable sales of more than JPY500 million or taxable sales ratio of less than 95%.

In such a case the taxpayer may not claim input JCT fully but only the amount of input JCT related to taxable sales, resulting in non-creditable input JCT.

* For calculating taxable income for corporate and individual income tax purposes, JCT payers must choose either the "JCT inclusive method," which includes JCT on taxable purchases in purchases while JCT on sales in sales, then deducts the JCT paid from taxable income as a tax expense, or "JCT exclusive method," which recognizes JCT on purchases as input JCT while JCT on sales as output JCT.

Non-creditable input JCT on assets may be deducted in any of the following manners:

I. Capitalization as part of the asset

     1. For corporate income tax (“CIT”) purposes

Include the input JCT in the asset’s original cost so that the amount is depreciated for and after the fiscal year.

     2. For individual income tax (“IIT”) purposes

Include the input JCT in the asset’s original cost so that the amount is depreciated for and after the year.

II. Deduction as a tax expense

     1. For CIT purposes

Deduct the input JCT up to the amount the company recognizes for the fiscal year for accounting purposes and if any of the conditions A to C is met:

     2. For IIT purposes

Deduct the input JCT fully if any of the conditions A to C is met:

A. The taxable sales ratio for the (fiscal) year is 80% or more.

B. The input JCT is related to inventory.

C. The input JCT on the asset is less than JPY200,000.

III. Deferral as an asset
If neither 1 nor 2 applies, the input JCT must be capitalized as a deferred JCT and may be deducted up to the following amounts:

      1. For CIT purposes (up to the amount recognized as an expense for accounting purposes)

A. Deferred JCT arising during the fiscal year

                Deferred JCT x No. of months of year/60/2

B. Deferred JCT arising before the fiscal year

                Deferred JCT x No. of months of year/60

      2. For IIT purposes

A. Deferred JCT arising during the year

                Deferred JCT x No. of months of year/60/2

B. Deferred JCT arising before the year

                Deferred JCT x No. of months of year/60

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