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What You Need To Know: Japanese Consumption Tax on digital services

We’ve put together this quick guide to Japanese consumption tax (JCT) on digital services. This will help any foreign businesses that may be providing digital or electronic services to Japanese consumers. 

Background to Japanese consumption tax on digital services

In 2015 Japan’s National Tax Agency (NTA) amended the consumption tax act to correctly levy consumption tax on cross-border sales of electronic services (services via the internet) to its consumers. 

How to determine the place of supply is Japan

The criteria for determining whether the place of supply in a transaction is conducted in Japan – whereby consumption tax is to be imposed – changed from “the location of the office of the service provider associated with providing such services” to the “address of the service recipients (address or domicile for individuals and location of a head office or a principal office for corporations).” (source)

How to confirm if the consumer is based in Japan

The NTA determines if the consumer is based in Japan by using either the address given to the supplier (if it’s Japanese address) or by using the address registered to the credit card used to buy the electronic/digital service. 

What you need to know about Japanese consumption tax compliance

Tax registered businesses must issue tax invoices to consumers. In addition, The invoices should include the name of the supplier, your Japanese consumption tax registration number, transaction date, description of services, customers details and tax amount.

A tax registered business will need to complete their tax returns annually. Anyone who fails to submit their tax returns, will be subject to penalties of 15% of the tax due and interest of 2.8% (2 months delay) and 9.1% per annum for later payments.

How to register for consumption tax in Japan

Your business will need to provide your company details, incorporation proof and details, your local tax number and company address and the nature of digital goods & services you’re selling in Japan. Furthermore, You will need to elect a Japanese tax agent (vatglobal is able to act as your agent).  

What does the NTA regard as digital services? 

According to the NTA, the following transactions constitute digital/electronic services:

  • Provision of e-books, digital newspapers, music, videos, and software (including various applications such as games) via internet  
  • Services that allow customers to use software and databases in the cloud.
  • Providing customers with storage space to save their electronic data in the cloud  
  • Distribution of advertisements via internet  
  • Allowing customers to access shopping and auction sites on the internet (e.g., charges on posting goods for sale etc)  
  • Services that allow customers to access the place to sell game software and other products on the internet  
  • Provision via internet reservation for accommodation and restaurants.
  • English lessons provided via internet 

How we can help

Vatglobal is able to offer assistance with registration and filing of your Japanese consumption tax. However, If you prefer to do this inhouse, please take advantage of our vlearn platform that will train your tax team on everything they need to know about Japanese Consumption Tax on digital services

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