Consumption tax, also called VAT or GST in some other countries, is levied on the domestic and import transactions, except for certain transactions deemed non-taxable. The consumption tax rate is 10% (national consumption tax rate of 7.8% and local consumption tax rate of 2.2%). Exceptionally, reduced rate of 8% is applied to purchase of food and beverage and subscription of newspaper.
*VAT:Value Added Tax
*GST:Goods and Services Tax
In principle, whether individuals or corporations become taxable for consumption tax purpose depends on the amount of taxable sales during the base period.
The base period refers the fiscal year 2 years prior to the current fiscal year for a corporation and the calender year 2 years prior to the current year for an individual.
|Threshold||In the case where taxable sales in the base period is over 10 million yen, an individual is subject to consumption tax.||In the case where taxable sales in the base period is over 10 million yen, a corporation is subject to consumption tax.|
|Base period||the calender year 2 years prior to the current year||the fiscal year 2 years prior to the current fiscal year|
In addiion to threshold on the amount of sales in the base period, you also need to consider threshold on either of the amount of sales or payrolls in the specified period.
|Threshold||In the case where either taxable sales or payrolls in the specified period is not over 10 million yen, an individual is not subject to consumption tax.||In the case where either taxable sales or payrolls in the specified period is not over 10 million yen, a corporation is not subject to consumption tax.|
|Specified period||From January to June of the previous year||The first 6 months of the previous fiscal year|
As newly established companies do not have the base period and specified period, there are other criteria that determine whether they are subjet to consumption tax or not for the first and second fiscal year.
If a newly incorporated company fall under either of the following tests, the corporation shall be treated as taxeble company in the first fiscal year.
- The amount of registered capital at the beginning of the fiscal year is 10 million yen or more
- The company that meets both of the following:
(i) The majority of outstanding shares are owned directly or indirectly by a individual or a corporation
at the beginning of the fiscal year
(ii) The amount of taxable sales of the above controlling individual / corporation exceeds 500 million
yen in the period corresponding to the theoretical base period of the fiscal year of the
newly incorporated company
A newly incoporated company whose first fiscal year is 7 months or shorer is deemed that the firs fiscal year is not the specified period. This means such corporation is not subject to consumption tax return in the second fiscal year.
The following transactions are subject to consumption tax.
- the transfer or rental/lease of assets located in Japan
- services rendered(excluding digital services) as a business in Japan
- the supply of digital services provided to individual residents of Japan or Japanese companies.
- cargo / goods retrieved from a bonded area.
Similar to most of other countries, capital transactions, financial transactions, and certain transactions in the areas of medical care, welfare and education are deemed non-taxable. Export transactions and export deemed transactions such as international transport and international communication are not subject consumption tax.
The following examples are non-taxable transactions which are specifically excluded from being taxable transactions.
- sale or rental / lease of land
- sale of securities and similar financial instruments, excluding golf-club membership rights and so on
- monetary transactions such as loans, guarantees, distributions from joint operation trusts or other
- insurance premium
- postage stamps, revenue stamps sold by the government bodies
- registration and certification activities by the government bodies
- medical treatment under Public medical Insurance laws
- social welfare activities
- school tuition and examination services
- rental of housing to an individual
An effective zero percent consumption tax rate is applied to export transactions.
- transfer or lease of goods from Japan to a foreign party under Customs law
- transfer or lease of foreign goods
- international transportation
- services provided to a non-resident except in the case of transport or storage of assets in Japan,
provision of accommodation and food in Japan, and provision of services solely beneficial in Japan
A simplified tax credit system for consumption tax purpose is applicable to individuals and corporations whose taxable sales for the base period was 50 million yen or less.
In order to apply the simplified method for the calculation of input consumption tax to be offcet against output consumption tax, tax payers must submit the application to the competent tax office.