Topics | Yurakucho CPA Office (Ginza, Tokyo, Japan)
Japanese Consumption Tax levied ?
Needless to say, the Internet is now a key platform for cross-border transactions. Electronic commerce (EC) like iTunes music, kindle, advertisements,etc., is very popular in Japan.
With regard to this EC business, it is important to know about how Japanese consumption tax is levied.
What is Japanese consumption tax ?
Japanese consumption tax (JCT) is a kind of Japanese version of VAT (Value Added Tax), so if you sell your products to Japanese customers, JCT (10% of product/service price for the standard rate) is added to the sales price (e.g. if products are sold for JPY 10,000, JPY 1,000 is added as JCT) and the seller needs to pay JCT.
How JCT relates to EC?
The revision of JCT rule in 2015 had an important impact on foreign companies. Before the revision, Japanese companies had to pay JCT if they sold digital products to Japanese customers. But if foreign companies (located in foreign countries) sold digital products to Japanese customers, they did not have to pay JCT. This was because Japanese companies are located in Japan but foreign companies are not. However, this treatment was considered unfair because, for example, Japanese customers pay JPY 11,000 (JPY 1,000 as JCT) to Japanese companies but they only pay JPY 10,000 (no JCT) to foreign companies to get the same product.
Therefore, the provision of digital product (only BtoC) by foreign companies is a taxable transaction now. In this case, a foreign company has to pay JCT to Japan. But there are some JCT exemption rules (if your business is small, you may be exempt from JCT).