Japan has taken several measures related to VAT rates (Oct 2019), input tax credit methods (before and after Oct 1, 2023) and special rules for input tax credit (as of Oct 2023)
A summary:
- October 1, 2019:
- Consumption tax raises from 8% to 10%
- Introduction of reduced VAT rate of 8%
- Introduction of itemized VAT system: accounting records must state which taxable purchases are subject to the reduced rate.
- Till Oct 1, 2023: Transition period Qualified Invoicing System: stricter JCT invoice and bookkeeping rules apply, requiring taxpayers to include more detailed information in their invoices and books. It will also be necessary for all taxpayers wishing to issue “qualified invoices” to register with Japan’s National Tax Agency (“NTA”) prior to October 2023.
- March 31, 2021
- Special measure requiring the display of tax-inclusive amounts expires
- October 1, 2021
- Registration of Qualified Invoice issuers begins
- October 1, 2023
- Introduction of the Qualified Invoice System: the principle requirement for the crediting of input consumption tax will be the storage of qualified invoices which contain certain types of information including registration numbers and applicable tax rates. Qualified invoices will be issued by businesses which submit applications to a tax office and are registered as Qualified Invoice Issuers. Note that only taxable businesses can be registered as Qualified Invoice Issuers.
- input consumption tax paid for taxable purchases from businesses other than Qualified Invoice Issuers, such as consumers and tax-exempt businesses, is not creditable. Notwithstanding the above, a transitional measure will allow for a certain ratio of input consumption tax to be credited and will be applicable.
- Creditable ratio from )ct 1, 2023 till Sept 30, 2026 is 80%
- Creditable ratio from )ct 1, 2023 till Sept 30, 2026 is 50%
