Qualified Invoice System in Japan

An outline of a qualified invoice system to be implemented on October 1, 2023 is as shown below. (Source: National Tax Agency)

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On October 1, 2023, Japan will implement a qualified invoice system for Japanese consumption tax ("JCT") purposes. The system will require buyers to retain invoices ("Qualified Invoices") provided by enterprises registered with the tax office ("Registered Enterprises") to claim input JCT credits.  

 

1. Definition of Qualified Invoices

A Qualified Invoice is an invoice, a delivery note or any other similar document (regardless of the name of the document) which contains certain information (see 3(1) below).   

2. Registration to issue Qualified Invoices

Enterprises need to be registered with the tax office to issue Qualified Invoices. Only enterprises that are taxable for JCT purposes may be registered. 

* Registered Enterprises are not exempt from JCT even if their taxable sales for the Base Period are JPY10 million or less. 

 

3. Requirements for sellers

Sellers that are Registered Enterprises will be required to provide Qualified Invoices to buyers (taxable enterprises only) and retain copies of such invoices unless it is difficult to issue Qualified Invoices. 

* Certain businesses selling goods or services to a large number of unspecified persons, such as retailers, restaurants or cab drivers, may issue Simplified Qualified Invoices (see (1) below for a definition). 

   (1) Information Qualified Invoices must contain

Qualified Invoices must contain the following information. (The underlined items will be required in addition to the information rate-classified invoices must contain.)  

(i)  Name and registration No. of seller

(ii) Date of transaction

(iii) Description of transaction (e.g., whether the reduced rate is applied)

(iv) Amount of consideration (including or excluding JCT) and applicable rate

(v)  Amount of JCT

(vi) Name of recipient of invoice

Simplified Qualified Invoices can omit (vi) and either the applicable rate or the amount of JCT. 

   (2) Transactions exempt from invoice issuance

The transactions below will not require the issuance of Qualified Invoices. 

(i) Transportation of passengers by ship, bus or train which is public transportation if the fare is less than JPY30,000

(ii) Wholesale of fresh food by consignees consigned by shippers (generally producers) in wholesale markets

(iii) Consignment sale of agricultural, forestry or fishery products at certain average price 

with the producer as the consignor and an agricultural, forestry or fishery cooperation as the consignee without any conditions (e.g., price or the timing or destination of shipping)

(iv) Transfer of taxable assets through vending machines if the price is less than JPY30,000

(v) Postal services by post with stamps used as consideration     

4. Requirements for buyers (for claiming input JCT credits)

Buyers will be required to retain books that include the information, and the invoices and documents, described below to claim input JCT credits. If it is difficult to obtain such invoices or documents however, such as the cases in (3), the invoices or documents do not need to be retained. 

   (1) Information books must contain (same as current)

(i) Name of seller

(ii)  Date of transaction

(iii) Description of transaction (e.g., whether the reduced rate is applied)

(iv) Amount of consideration

   (2) Invoices and other documents buyers must retain

(i) Qualified Invoices or Simplified Qualified Invoices

(ii) Purchase statements prepared by the buyer which contain the necessary information for Qualified Invoices and are confirmed by the seller

(iii) Certain documents provided for the transactions in 3(2)(ii) or (iii)

(iv) Electronic records of documents listed in (i) to (iii) 

   (3) Transactions that do not require invoice retention for claiming input JCT credits

(i) Transactions in 3(2)(i), (iv) and (v)

(ii) Transactions where the ticket, etc., that contains the necessary information for Simplified Qualified Invoices (except for the date of transaction) is collected upon use

(iii) Acquisition of inventory assets by second hand dealers, pawnshops or real estate brokers from non-Registered Enterprises

(iv) Acquisition of recyclable resources or parts (which are inventory assets only) from non-Registered Enterprises

(v) Travel and accommodation expenses, daily allowances, or commuting expenses which are paid to employees and generally considered necessary 

5. Calculation of JCT

Output JCT and input JCT on or after October 1, 2023 will be either of the following: 

(i) Sum of JCT amounts on invoices

(ii) Sum of total JCT for each rate calculated as follows:

• Output JCT = Total tax basis x 7.8/100 (for 10%) or 6.24/100 (8%) 
• Input JCT = Total taxable purchases x 7.8/110 (for 10%) or 6.24/108 (8%) 

Note that: 

- Only registered enterprises may choose (i) for calculating output JCT.

- If (i) is chosen for output JCT, (i) should be also used for input JCT.

    

6. Registration procedures for currently exempt enterprises

An enterprise currently exempt from JCT needs to file not only an application for registration as a Qualified Invoice issuer but also a notification for electing to be a JCT payer to be registered as an issuer of Qualified Invoices. An enterprise to be registered as such during the taxable period in which October 1, 2023 falls may become a taxable enterprise as of the date of registration.   

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