Foreign business and consumption tax

Foreign companies doing business in Japan without physical presence on the Japanese territory, but warehousing and distributing goods in Japan, may be classified as having a permanent establishment in Japan. In this situation, the company could also be subjected to direct as well as indirect tax like Consumption tax.

 

In this case, a foreign, non-resident company will be required to appoint a Japanese tax accountant. This tax accountant will be responsible for all communications between the company and the Japanese tax administration.

Consumption tax for cross-border service provision

 In April 2015, a number of measures were taken related to cross-border (digital) service provision, such as online books, music and services. SME with relatively low sales will be exempted from paying consumption tax.

  • Revision of place of supply criteria for provision of digital services, such as books, music and adverts from location of office of provider to the person receiving the service.  (From October 2015)
  • The scope of the affected transaction is still under discussion, but does not include digital services accompanying the transfer of assets or use of telecommunication lines.
  • Implementation of a reverse charge mechanism for B2B transactions
  • Method of taxation for B2C transactions and measures to secure appropriate taxation, where providers of B2C digital services will have to pay consumption tax
  • Establishment of an overseas business registration system
  • Tax exemption for small businesses
    • If taxable sales during the base period do not exceed 10 million yen, the Japanese consumption tax law provides an exemption from consumption tax obligations under certain circumstances

 

Consumption tax for overseas entertainment and sports providers

The reverse charge mechanism for consumption tax will come into effect from April 1, 2016. Tax payment obligation will shift from recipient to the provider.

Source: Ernst & Young Tax Co., 2015 Tax Reform outline (2 February 2015)