Introduction of invoice system

The EU-like “invoice system” will be introduced in October 2023. The invoice will be the official invoice that certifies the consumption tax rate and tax amount among businesses, and is also required when filing consumption tax returns, receiving credits, or refunds. As a general rule, an “qualified invoicing enterprise” must be submitted to the tax office by the end of March 2023 to obtain a registration number; like in the EU, the registration number must be indicated on the invoice. The invoice system has not yet spread among the public, and the National Tax Agency is likely to change the system so that registration will be possible after April even without stating “difficult circumstances” in consideration of business operators’ readiness.

Non-residents of foreign countries under the Japanese Consumption Tax Law who enter the Japanese commercial stream will also be required to designate a Japanese tax representative, submit an application for registration, and obtain a registration number. When simply importing goods into Japan from abroad, an import license will be substituted for an invoice.

Once registered with the tax office to issue an invoice, businesses with annual sales of 10 million yen or less that are currently exempt from paying consumption tax will also become “taxpayer” and pay the new tax. The tax reform will also introduce measures to reduce the burden on such businesses.

For example, if a business sells goods or services at a tax rate of 10% and makes sales of 8 million yen, the tax on the sales will be 800,000 yen. If the business pays 300,000 yen in consumption tax on purchases, the business pays 800,000 yen minus 300,000 yen, or 500,000 yen.

Under the current tax reform, if a business with sales of 10 million yen or less becomes a ” taxpayer” it will be required to pay only 20% of the consumption tax on sales, regardless of the amount of consumption tax paid on purchases and other items. In other words, if sales are 8 million yen and the consumption tax rate is 10%, the amount of tax to be paid is 20% of 800,000 yen = 160,000 yen.

The government expects that this measure will save new taxpayers a great deal of time and effort in calculating the amount of tax to be paid, and in many cases, the amount of tax to be paid will also be reduced. The reduction will apply for three years from the start of the system in October 2023. In addition, a burden reduction measure for businesses with annual sales of 100 million yen or less will also be introduced. If the purchase amount is less than 10,000 yen, an invoice will not be required for 6 years from October 2023.

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